<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1999
REGISTRATION NO. 333-64931
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
EVERCEL, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3691 06-1528142
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
--------------------------
3 GREAT PASTURE ROAD
DANBURY, CONNECTICUT 06813
(203) 825-6000
(Address and Telephone Number of Principal Executive Offices)
------------------------------
3 GREAT PASTURE ROAD
DANBURY, CONNECTICUT 06813
(203) 825-6000
(Address of principal place of business or intended principal place of business)
------------------------------
JERRY D. LEITMAN
CHAIRMAN
EVERCEL, INC.
3 GREAT PASTURE ROAD
DANBURY, CONNECTICUT 06813
(203) 825-6000
(Name, address and telephone number of Agent for Service)
------------------------------
COPIES TO:
PHILIP J. FLINK, ESQUIRE MERRILL KRAINES, ESQUIRE
BROWN, RUDNICK, FREED & GESMER FULBRIGHT & JAWORSKI L.L.P.
One Financial Center 666 Fifth Avenue - 31st Floor
Boston, Massachusetts 02111 New York, New York 10103
(617) 856-8200 (212) 318-3000
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE FEE(1)
<S> <C> <C> <C> <C>
Rights(2)......................................... 1,389,000(3) -- -- --
Common Stock, $.01 par value...................... 1,697,350(4) $6.00 $10,184,100 2,973
</TABLE>
(1) Calculated pursuant to Rule 457(o). $2,782 of this fee was previously paid.
(2) The Company is granting at no cost to holders of its outstanding Common
Stock transferable subscription rights ("Rights") to subscribe for and
purchase additional shares of the Company's Common Stock at $6.00 per share.
Stockholders will receive one Right for each share of Common Stock of the
Company held by them on the Record Date.
(3) Represents one Right for each share of Common Stock estimated to be
outstanding as of the Record Date, based upon one-third of the number of
shares of common stock of Energy Research Corporation outstanding as of
February 3, 1999.
(4) Represents one share of Common Stock issuable pursuant to the exercise of
each Right granted in respect of the shares of Common Stock estimated to be
outstanding as of the Record Date and an additional 208,350 shares which may
be issued pursuant to the Company's option to sell such shares to satisfy
oversubscriptions, if any or pursuant to the Underwriters' overallotment
option and an additional 100,000 shares which may be issued in the event of
an increase in the number of shares of Common Stock outstanding as of the
Record Date.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 8, 1999
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
1,389,000 SHARES OF COMMON STOCK
EVERCEL, INC.
RIGHTS OFFERING
------------------
Evercel, Inc. (the "Company"), is granting at no cost to holders of the
Company's outstanding shares of common stock, par value $.01 per share ("Common
Stock" or "Company Common Stock"), of record at the close of business on
February , 1999 (the "Record Date"), transferable subscription rights (the
"Rights") to subscribe for and purchase additional shares of Company Common
Stock (the "Rights Offering") at a price of $6.00 per share (the "Subscription
Price"). Stockholders of the Company will receive one transferable Right for
each share of Common Stock held by them on the Record Date. Rights holders may
purchase one share of Company Common Stock for each Right held. Each Right also
carries the right to subscribe (the "Oversubscription Privilege") at the
Subscription Price for shares of Company Common Stock that are not otherwise
purchased pursuant to the exercise of Rights. See "THE RIGHTS
OFFERING--Subscription Privileges --Oversubscription Privilege." The Rights are
evidenced by transferable certificates. If any Company Common Stock underlying
the Rights remains unsubscribed after the Rights Offering, the Underwriters have
a firm commitment to purchase all such Company Common Stock pursuant to a
standby underwriting agreement.
The Rights will expire at 5:00 p.m., Eastern time, on March , 1999 at which
time they will become null and void unless extended by the Company, subject to
the consent of the Underwriters (as extended, the "Expiration Date"). The
Company will not, in any event, extend the Expiration Date beyond April 30,
1999. Failure to exercise Rights could result in substantial dilution to
non-exercising stockholders. See "RISK FACTORS--Dilution from Rights Offering."
The Company was formed as a wholly-owned subsidiary of Energy Research
Corporation, a New York corporation ("ERC") on June 22, 1998. Prior to the
Record Date, ERC expects to transfer to the Company the principal assets related
to its battery business group ("Battery Business Group"), and the Company will
assume certain liabilities related to those assets. If the transfer were to take
place as of October 31, 1998, the total book value of the assets and liabilities
to be transferred would be $1,175,000 and $753,000, respectively. Included as
assets to be transferred to the Company by ERC are ERC's battery technology,
including certain intellectual property related to such technology, and the
benefits and obligations under certain license agreements pursuant to which ERC
has licensed its battery technology to third parties; these assets have been
carried on ERC's books, and will be carried on the Company's books, at zero
value.
Immediately prior to the grant of the Rights by the Company, ERC will
distribute to its stockholders (the "Distribution") one share of Company Common
Stock for every three shares of Common Stock of ERC that such stockholders hold
as of February , 1999 (the "ERC Record Date"). Prior to the closing of the
Rights Offering, Company Common Stock received in the Distribution may not be
sold or otherwise disposed of pursuant to a restriction in the Company's
charter. As of February 3, 1999, 4,166,873 shares of ERC Common Stock were
outstanding; therefore, approximately 1,389,000 shares of Company Common Stock
will be distributed in the Distribution. Fractional shares will not be issued; a
cash payment will be made to ERC stockholders otherwise entitled to a fractional
share of Company Common Stock as a result of the Distribution. The Distribution
is expected to occur on or about February , 1999 (the "Distribution Date").
See "THE DISTRIBUTION." Prior to the Rights Offering and the Distribution Date,
there has been no public market for the Company Common Stock or the Rights. The
Company has applied to have its Common Stock listed for quotation on the Nasdaq
SmallCap Market under the symbol "EVCL" and the Boston Stock Exchange under the
symbol " " following the closing of the Rights Offering. The Subscription
Price has been determined by the Company's Board of Directors and may not
reflect the actual value of the Company Common Stock. See "RISK
FACTORS--Offering Price Not Based on Actual Value."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS PROCEEDS TO THE
PRICE TO PUBLIC AND COMMISSIONS (1) COMPANY (1)(2)
<S> <C> <C> <C>
Min. $0.225 Max. $5.775
Per Share................... $6.00 Max. $0.540 Min. $5.460
Min. $312,525 Max. $8,021,475
Total(3)(4)................. $8,334,000 Max. $750,060 Min. $7,583,940
</TABLE>
- ------------------------------
(1) The minimum underwriting discount assumes that all Rights granted in the
Rights Offering are exercised and reflects the payment of a financial
advisory fee to the Underwriters equal to 3.75% of the exercise price on the
1,389,000 shares sold in this offering. In such a case, the minimum
underwriting discount would yield the maximum proceeds to the Company. The
maximum underwriting discount assumes that none of the Rights granted in the
Rights Offering are exercised and reflects the payment of an underwriting
discount of 5.25% of the exercise price on the 1,389,000 shares which would
then be purchased by the Underwriters. In such a case, the maximum
underwriting discount would yield the minimum proceeds to the Company.
(2) Before deducting expenses payable by the Company estimated at $675,000.
(3) The Company has the option to sell up to an additional 208,350 shares of
Company Common Stock solely to cover exercises of excess Oversubscription
Privileges, if any (the "Oversubscription Option"). If such Oversubscription
Option is exercised in full, the Underwriting Discounts and Commissions and
Proceeds to the Company will be $359,404 and $9,224,696, respectively.
(4) The Underwriters have the option (the "Overallotment Option") to purchase up
to an additional 208,350 shares of the Company Common Stock, reduced by the
number of shares, if any, sold by the Company to holders of Rights under the
Oversubscription Option. If such Overallotment Option is exercised in full,
and assuming no exercise of the Oversubscription Option, the total
Underwriting Discounts and Commissions and Proceeds to the Company will be
increased by $112,509 and $1,137,591, respectively.
------------------------------
LOEB PARTNERS CORPORATION BURNHAM SECURITIES INC.
----------------
The date of this Prospectus is .
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Rights and the
Common Stock offered by this Prospectus. For further information with respect to
the Company and the Rights and the Common Stock offered hereby, reference is
made to the Registration Statement and the exhibits to the Registration
Statement. The Registration Statement can be examined at the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, and copies may be obtained upon payment of the
prescribed fees. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission, including the Company, at
(http://www.sec.gov).
FORWARD-LOOKING STATEMENTS
Investors are cautioned that forward-looking statements in this Prospectus,
including without limitation statements relating to the adequacy of the
Company's resources, expansion plans and licensing opportunities involve risks
and uncertainties, including without limitation: developments that affect the
Company's joint venture partners or licensees; potential quarterly fluctuations
in the Company's operating results; competition; risks associated with
expansion; the Company's reliance on key employees; risks generally associated
with the commercialization of its products; and other risks and uncertainties
set forth herein under "RISK FACTORS."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO (THE
"FINANCIAL STATEMENTS") APPEARING ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES
IN THIS PROSPECTUS TO THE TERM THE "COMPANY" PRIOR TO THE DISTRIBUTION DATE
REFER TO THE BATTERY BUSINESS GROUP OF, AND AS OPERATED BY, ERC, UNLESS
OTHERWISE REQUIRED BY THE CONTEXT. UNLESS OTHERWISE INDICATED, ALL INFORMATION
IN THIS PROSPECTUS ASSUMES (I) THE TRANSFER BY ERC TO THE COMPANY OF THE
PRINCIPAL ASSETS RELATED TO THE BATTERY BUSINESS GROUP OF ERC AND THE ASSUMPTION
BY THE COMPANY OF CERTAIN RELATED LIABILITIES, (II) THE EXECUTION BY THE COMPANY
AND ERC OF THE DISTRIBUTION AGREEMENT, THE TAX SHARING AGREEMENT, THE SERVICES
AGREEMENT AND THE LICENSE ASSISTANCE AGREEMENT DESCRIBED HEREIN, (III) THE
DISTRIBUTION TO THE STOCKHOLDERS OF ERC OF ONE SHARE OF COMPANY COMMON STOCK FOR
EVERY THREE SHARES OF COMMON STOCK OF ERC HELD BY THEM, (IV) THE FILING OF AN
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (THE "CERTIFICATE") AND THE
ADOPTION OF THE RESTATED BY-LAWS (THE "BY-LAWS") OF THE COMPANY REFLECTING THE
PROVISIONS DESCRIBED HEREIN AND (V) NO EXERCISE OF THE OVERSUBSCRIPTION OPTION
OR THE OVERALLOTMENT OPTION. SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THE DISTRIBUTION AND THE RIGHTS OFFERING
The Company was formed as a wholly-owned subsidiary of Energy Research
Corporation, a New York corporation ("ERC") on June 22, 1998. Prior to the
Record Date, ERC expects to transfer to the Company the principal assets related
to its Battery Business Group, and the Company will assume certain liabilities
related to those assets; if the transfer were to take place as of October 31,
1998, the total book value of the assets and liabilities to be transferred would
be $1,175,000 and $753,000, respectively. Included as assets to be transferred
to the Company by ERC are ERC's battery technology, including certain
intellectual property related to such technology, and the benefits and
obligations under certain license agreements pursuant to which ERC has licensed
its battery technology to third parties; these assets have been carried on ERC's
books, and will be carried on the Company's books, at zero value.
Immediately prior to the grant of the Rights by the Company, ERC will
distribute to its stockholders one share of Company Common Stock for every three
shares of common stock, $.0001 par value of ERC ("ERC Common Stock") that such
stockholders hold (the "Distribution") as of February , 1999 (the "ERC Record
Date"). As of February 3, 1999, 4,166,873 shares of ERC Common Stock were
outstanding; therefore, approximately 1,389,000 shares of Company Common Stock
will be distributed in the Distribution. Fractional shares will not be issued; a
cash payment will be made to ERC stockholders otherwise entitled to a fractional
share of Company Common Stock as a result of the Distribution. The Distribution
is expected to occur on or about February , 1999 (the "Distribution Date").
See "THE DISTRIBUTION."
Immediately after the Distribution, the Company is granting at no cost to
holders of its Common Stock, transferable subscription rights to subscribe for
and purchase additional shares of Company Common Stock (a "Right") at a purchase
price of $6.00 per share. Each holder of Common Stock of the Company will
receive one transferable Right for each share of Company Common Stock held of
record at the close of business on February , 1999 (the "Record Date"). See
"THE RIGHTS OFFERING."
THE COMPANY
The Company is engaged in the development and commercialization of an
innovative, patented, nickel-zinc ("Ni-Zn") rechargeable battery, as well as the
research and design of other advanced battery technologies. The Company believes
that its Ni-Zn battery technology offers high energy density, long cycle life
and low material costs, resulting in a low weight, high power battery with a
substantial price advantage over other comparable technologies. The Company's
Ni-Zn battery has been used on a limited test basis in a range of rechargeable
battery applications, including bicycles, scooters, electric vehicles, trolling
motors for boats, and lawn mowers. The Company also believes its Ni-Zn battery
may be used in
3
<PAGE>
other rechargeable battery applications including electric wheelchairs,
golfcarts, power tools, and consumer and electronic products.
The Company's strategic goals are to rapidly commercialize its Ni-Zn
technology, maintain and increase its technological leadership in Ni-Zn, develop
new battery businesses which build on its Ni-Zn technology and continue to
develop other advanced battery technologies. The Company intends to
commercialize its Ni-Zn technology through a combination of direct sales,
licensing agreements and joint venture relationships. See "RISK FACTORS."
The Company's executive offices are located at 3 Great Pasture Road,
Danbury, Connecticut 06813, telephone: (203) 825-6000.
THE RIGHTS OFFERING
<TABLE>
<S> <C>
Rights.......................... The Company is granting at no cost to holders of its
Common Stock as of the Record Date, transferable
subscription rights to subscribe for and purchase
additional shares of Common Stock (the "Rights"). Each
holder of Common Stock of the Company will receive one
transferable Right for each share of Common Stock held of
record on the Record Date. An aggregate of approximately
1,389,000 Rights will be distributed to the holders of
Common Stock (based upon one-third of the number of shares
of ERC Common Stock outstanding as of February 3, 1999).
Each Right will be exercisable to purchase one share of
Common Stock of the Company at a purchase price of $6.00
per share. An aggregate of approximately 1,389,000 shares
of Company Common Stock (the "Underlying Shares") has been
reserved for issuance upon exercise of the Rights. The
distribution of the Rights by the Company and the sale of
shares of Common Stock upon the exercise of Rights are
referred to herein as the "Rights Offering." See "THE
RIGHTS OFFERING--The Rights."
Record Date..................... February , 1999
Expiration Date................. March , 1999, 5:00 p.m., Eastern time, or such later
date to which the Company may extend the expiration of the
Rights, subject to the consent of the Underwriters, at
which time the Rights will become null and void. The
Company will not, in any event, extend the Expiration Date
beyond April 30, 1999.
Basic Subscription Privilege.... Rights holders are entitled to purchase for the
Subscription Price one share of Common Stock for each
Right held (the "Basic Subscription Privilege"). See "THE
RIGHTS OFFERING-- Subscription Privileges--Basic
Subscription Privilege."
Oversubscription Privilege...... Each holder of Rights who elects to exercise his Basic
Subscription Privilege may also subscribe at the
Subscription Price for an unlimited number of additional
Underlying Shares (the "Oversubscription Privilege") that
are not otherwise purchased pursuant to the Basic
Subscription Privilege. If an insufficient number of
Underlying Shares is available to satisfy fully all
elections to exercise the Oversubscription Privilege, the
available Underlying Shares will be prorated among holders
who exercise their Oversubscription Privilege based on the
respective numbers
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
of Rights exercised by such holders pursuant to the Basic
Subscription Privilege. Any excess funds paid in respect
of the Subscription Price for shares not issued will be
returned by mail without interest or deduction as soon as
practicable after the Expiration Date. See "THE RIGHTS
OFFERING--Subscription Privileges--Oversubscription
Privilege." The Company has the option to sell up to an
additional 208,350 shares of Company Common Stock solely
to cover exercises of Oversubscription Privileges which
exceed the available Underlying Shares.
Subscription Price.............. $6.00 in cash per share of Company Common Stock subscribed
for pursuant to the Basic Subscription Privilege or the
Oversubscription Privilege.
Company Common Stock Outstanding
after Rights Offering......... Approximately 2,778,000 shares, excluding shares issuable
pursuant to certain outstanding stock options. See
"CAPITALIZATION," "MANAGEMENT," and "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Transferability of Rights and
Company Common Stock.......... Prior to the Rights Offering and the Distribution Date,
there has been no public market for the Common Stock or
the Rights. The Rights will be transferable. It is
anticipated that the Rights will trade in the
over-the-counter market until the close of business on the
last trading day prior to the Expiration Date. There can
be no assurance that a market for the Rights will develop
or as to the prices at which the Rights will trade. Prior
to the closing of the Rights Offering, pursuant to a
restriction in the Company's Certificate, the Company
Common Stock received in the Distribution may not be sold
or otherwise disposed of. See "THE DISTRIBUTION--Manner of
Effecting the Distribution." The Company has applied for
listing of the Company Common Stock for quotation on the
Nasdaq SmallCap Market and the Boston Stock Exchange
following the Rights Offering.
Procedure for Exercising
Rights........................ Basic Subscription Privileges and Oversubscription
Privileges may be exercised by properly completing the
Subscription Certificate evidencing the Rights (a
"Subscription Certificate") and forwarding such
Subscription Certificate (or following the Guaranteed
Delivery Procedures), with payment of the Subscription
Price for each Underlying Share subscribed for pursuant to
the Basic Subscription Privilege and, except as set forth
herein, the Oversubscription Privilege to the Subscription
Agent on or prior to the Expiration Date. If the mail is
used to forward Subscription Certificates, it is
recommended that insured, registered mail be used. Once a
holder of Rights has exercised the Basic Subscription
Privilege or the Oversubscription Privilege, such exercise
may not be revoked. See "THE RIGHTS OFFERING-- Exercise of
Rights."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Persons Holding Common Stock, or
Wishing to Exercise Rights,
Through Others................ Persons holding Common Stock, and receiving the Rights
distributable with respect thereto through a broker,
dealer, commercial bank, trust company or other nominee,
as well as persons holding stock certificates personally
who would prefer to have such institutions effect
transactions relating to the Rights on their behalf,
should contact the appropriate institution or nominee and
request it to effect the transactions for them. Such
holders should be aware that brokers or other nominee
holders may establish deadlines for receiving instructions
from beneficial holders significantly in advance of the
Expiration Date. See "THE RIGHTS OFFERING--Exercise of
Rights."
Issuance of Company Common
Stock......................... Certificates representing shares of Company Common Stock
purchased pursuant to the exercise of Rights will be
delivered to subscribers as soon as practicable following
the Expiration Date. See "THE RIGHTS
OFFERING--Subscription Privileges."
Use of Proceeds................. The Company intends to use the net proceeds of the Rights
Offering to lease and equip a new facility for production
and manufacturing purposes, to repay outstanding
indebtedness, for working capital purposes, and for
general corporate purposes. See "USE OF PROCEEDS."
Subscription Agent.............. Continental Stock Transfer & Trust Company (the
"Subscription Agent").
Standby Underwriting............ If any Underlying Shares remain unsubscribed after the
Rights Offering, the Underwriters will purchase all such
Underlying Shares pursuant to a standby underwriting
agreement. The Underwriters have the option to purchase up
to an additional 208,350 shares of the Company Common
Stock, reduced by the number of shares, if any, sold by
the Company to holders of Rights under the
Oversubscription Option. See "THE STANDBY UNDERWRITING."
Proposed Nasdaq Symbol.......... EVCL
Proposed Boston Stock Exchange
Symbol........................
Risk Factors.................... See "RISK FACTORS" for a more complete description of
certain factors that investors should consider prior to
exercising their Rights or purchasing Common Stock.
</TABLE>
6
<PAGE>
THE DISTRIBUTION
<TABLE>
<S> <C>
Distributing Company............ Energy Research Corporation, a New York corporation.
Distributed Company............. Evercel, Inc., a Delaware corporation incorporated on June
22, 1998, which as of the close of business on February
, 1999, owned and operated the Battery Business Group of
ERC.
Distribution.................... Immediately prior to the grant of the Rights by the
Company, on the Distribution Date, ERC will distribute to
its stockholders one share of Common Stock of the Company
for every three shares of ERC Common Stock held of record
on the ERC Record Date. Shares of Company Common Stock
received in the Distribution may not be sold or otherwise
disposed of prior to the date on which the Subscription
Agent delivers to the Company final notice of the number
of shares of Common Stock subscribed for in the Rights
Offering (the "closing"). Until such closing occurs, the
Company Common Stock will be uncertificated. Following the
closing, the Distribution Agent will begin to mail stock
certificates representing shares of Common Stock to
holders of record of ERC Common Stock as of the ERC Record
Date. See "THE DISTRIBUTION-- Manner of Effecting the
Distribution."
Shares to be Distributed........ Based on one-third of the number of shares of ERC Common
Stock outstanding on February 3, 1999, approximately
1,389,000 shares of the Common Stock will be issued to ERC
stockholders in the Distribution. The shares to be
distributed to ERC stockholders will constitute all of the
shares of Common Stock outstanding immediately after the
Distribution, other than shares that may be issued
pursuant to certain outstanding stock options.
Fractional Shares............... Fractional shares of Company Common Stock will not be
issued in the Distribution. A cash payment will be made to
ERC stockholders otherwise entitled to a fractional share
of Company Common Stock as a result of the Distribution.
The amount of such payment will be based upon the average
bid price on the first day of trading of the Company
Common Stock. Such payment will, therefore, not be made
until the Company Common Stock begins trading after the
closing of the Rights Offering.
ERC Record Date................. February , 1999.
Distribution Date............... February , 1999.
Distribution Agent.............. Continental Stock Transfer & Trust Company (the
"Distribution Agent").
No Payment Required............. ERC stockholders will not be required to make any payment
or to take any other action to receive their shares in the
Distribution. See "THE DISTRIBUTION--Manner of Effecting
the Distribution."
Tax Consequences................ The ERC Board has made a condition of the Distribution
that the Company receive an opinion of counsel to the
effect that receipt of shares of Company Common Stock by
holders of ERC Common Stock will be tax free, except for
cash received in lieu of fractional shares. See "THE
DISTRIBUTION--Federal Income Tax Aspects of the
Distribution."
</TABLE>
7
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the summary operating data and balance sheet
data of the Company for the periods and as of the date indicated. The summary
financial data were derived from the financial statements of the Battery
Business Group of ERC, audited by KPMG LLP, independent certified public
accountants, and should be read in conjunction with such financial statements
and related notes and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Operating Data:
Revenues............................................................................. $ 436 $ 438
Cost and expenses:
Cost of revenues................................................................... 98 87
Depreciation and amortization...................................................... 40 45
Administrative and selling......................................................... 268 1,805(1)
Research & development............................................................. 897 1,832
------------ ------------
Loss from operations before income tax benefit....................................... (867) (3,331)
------------ ------------
Net loss............................................................................. $ (572) $ (2,325)
------------ ------------
------------ ------------
Pro forma net loss per share (basic and diluted)(2)................................ $ (1.67)
------------
------------
Pro forma weighted average shares (basic and diluted)(2)........................... 1,389,000
------------
------------
Pro forma net loss per share (basic and diluted), as adjusted(3)................... $ (0.84)
------------
------------
Pro forma weighted average shares (basic and diluted), as adjusted(3).............. 2,778,000
------------
------------
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31, 1998
ACTUAL(4) AS ADJUSTED(5)
<S> <C> <C>
---------------------------
Balance Sheet Data:
Total assets......................................................................... $ 1,176 $ 7,701
----------- -------
Working capital...................................................................... (718) 6,628
----------- -------
Stockholders' equity/net assets...................................................... 423 7,769
----------- -------
</TABLE>
- ------------------------
(1) Includes charges of approximately $280,000 related to an uncompleted
acquisition.
(2) Pro forma to reflect the Distribution.
(3) As adjusted to reflect the Distribution and the Rights Offering.
(4) Reflects the combination of Evercel, Inc. and the Battery Business Group of
ERC as if the combination was effective as of October 31, 1998.
(5) As adjusted to reflect the Rights Offering and the net proceeds therefrom.
8
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS WHEN EVALUATING AN INVESTMENT IN
THE RIGHTS OR THE UNDERLYING SHARES OFFERED HEREBY. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE
TO ALL FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OFFERING PRICE NOT BASED ON ACTUAL VALUE. Prior to the Rights Offering,
there has been no public market for the Common Stock. The Subscription Price has
been determined by the Company's Board of Directors and is not based on an
independent valuation of the Company or its assets or other recognized criteria
of investment value. Moreover, the Subscription Price bears no direct relation
to the book value, earnings, assets or other generally accepted valuation
criteria of the Company. The Subscription Price, therefore, does not indicate
that the Common Stock has a value of or could be resold at that price. The Board
of Directors of the Company believes that the Subscription Price may be lower
than the actual value of the Common Stock of the Company. However, the Board of
Directors believes that any valuation of the Company, given its early stage of
development, is highly speculative. The actual value or resale value of the
Common Stock may be higher or lower than the Subscription Price. See "THE RIGHTS
OFFERING-- Determination of the Subscription Price."
UNCERTAINTY OF FUTURE PROFITABILITY. In the past, the Company has had
limited revenues. The Company is not profitable, and no assurance can be given
that the Company will become profitable in the foreseeable future, if ever. For
the fiscal years ended October 31, 1997 and 1998, if the Company had been an
independent entity, the Company would have had losses of $572,000 and $2,325,000
respectively. Future operating results of the Company will depend upon many
factors, including its ability to raise capital, demand for the Company's
products, the efforts and success of the Company and its licensees and joint
venture partners in developing and marketing products incorporating the
Company's technology, the development of battery markets, the level of
competition faced by the Company, and the ability of the Company to develop,
market and license new products and effectively manage operating expenses. There
can be no assurance that the Company will generate net income or be profitable
in the future.
NO HISTORY AS A STAND-ALONE COMPANY. The Company, as a business group
within ERC, commenced operations in January 1970 and has been engaged
principally in research and development and limited production of battery
technologies as a part of ERC's ongoing operations. The Company has not been
operated as a separate entity in the past. A number of changes will occur as a
result of the Distribution and Rights Offering, including the appointment of
certain new members of senior management. In addition, once the Services
Agreement (defined below) terminates, the Company will be responsible for
managing all of its own administrative and employee arrangements, and for
supervising all of its legal and financial affairs, including publicly reported
financial statements. In addition, until a new chief executive officer is
appointed, Jerry D. Leitman, the President and Chief Executive Officer of ERC
will also be the acting President and Chief Executive Officer of the Company.
Likewise Joseph G. Mahler, the Chief Financial Officer of ERC, will serve as the
acting Chief Financial Officer of the Company until a new chief financial
officer is appointed. There can be no assurance that the Company will be able to
recruit and retain a highly qualified chief executive officer and chief
financial officer to replace Messrs. Leitman and Mahler. In addition, there can
be no assurance that the Company will be able to operate profitably as an
independent company.
DEPENDENCE ON NI-ZN PRODUCT LINE; UNCERTAINTY OF MARKET ACCEPTANCE OF
ADVANCED RECHARGEABLE BATTERIES. In the fiscal years ended October 31, 1997 and
1998, contract revenues and licensing fees related to the Company's Ni-Zn
battery represented all of the Company's revenues. To date the Company has
received no revenues from product sales of its Ni-Zn battery. The Company
believes that its
9
<PAGE>
dependence on revenues related to its Ni-Zn product line is likely to continue
for at least the next several years, unless and until the Company successfully
develops and commercializes other new products.
Since the Company intends to focus its manufacturing, research and
development and marketing efforts on its Ni-Zn batteries, it will be dependent
upon the market acceptance of its Ni-Zn batteries. The Company's Ni-Zn batteries
have not yet achieved market acceptance, and there can be no assurance that
market acceptance of its Ni-Zn batteries will ever be achieved. The introduction
of new products is subject to the inherent risks of unforeseen delays and the
time necessary to achieve market success for any individual product is
uncertain. Volume production of the Company's advanced rechargeable batteries
could be delayed for any reason. The Company's competitors may introduce new
technologies or refine existing technologies which could have a material adverse
effect on the Company's business, financial condition and results of operations.
RISKS RELATING TO TRANSFER OF JOINT VENTURE AND RELATED LICENSE
AGREEMENT. ERC has entered into a joint venture in China (the "Joint Venture")
with Xiamen Three Circles Co., Ltd ("Xiamen"), a Chinese entity, to develop and
manufacture the Company's batteries to be used to power electric bicycles,
scooters, off-road vehicles and miners' cap lamps to be marketed and sold in
China and Southeast Asia. The Joint Venture and ERC entered into a Technology
Transfer and License Contract (the "Three Circles License Agreement") pursuant
to which ERC has licensed certain of its Ni-Zn battery technology to the Joint
Venture. See "BUSINESS--Partnerships, Joint Ventures and Licenses." In order for
ERC to transfer its interest in the Joint Venture and the Three Circles License
Agreement to the Company, ERC has been advised by its local counsel that the
consent of Xiamen and the Joint Venture and the approval of the appropriate
examination and approval authority of the People's Republic of China ("China" or
the "PRC") is required. Although ERC is currently seeking and intends to obtain
such consents and approvals, there can be no assurance that these consents and
approvals will be obtained on a timely basis or at all. Pending receipt of these
consents and approvals, ERC and the Company have entered into a License
Assistance Agreement pursuant to which the Company has agreed to provide all
services and assistance necessary for the Company to effectively fulfill, on
behalf of ERC, all of ERC's obligations under the Joint Venture contract and
Three Circles License Agreement in exchange for payment to the Company by ERC of
all remuneration paid and other benefits accruing to ERC pursuant to such
agreements. See "THE DISTRIBUTION--Relationship Between ERC and the Company
after the Distribution--License Assistance Agreement." A failure to obtain or a
delay in obtaining these consents and approvals could have a material adverse
effect on the Company because the Company will be able to enforce its rights
under these agreements only through ERC. In addition, ERC's Chinese partner
could take exception to the License Assistance Agreement and claim that ERC is
in default under these agreements. Any such event or resulting termination of
these agreements could have a material adverse effect on the Company. See "--
Risks of Relying on ERC."
RISKS PERTAINING TO CHINA. Currently, the Company's two major license
agreements, the Nan Ya License Agreement and the Three Circles License Agreement
(the "China Licenses") are with entities located in the PRC and Taiwan. ERC has
established the Joint Venture in the PRC to build a manufacturing plant that the
Company intends to use as its primary production facility. ERC also plans to
transfer its interest in the Joint Venture to the Company. See "--Risks Relating
to Transfer of Joint Venture and Related License Agreement." The following risk
factors relating to conducting business in the PRC could result in a material
adverse effect on the Company's business, financial condition and results of
operations.
Potential Adverse Effects of Internal Political Changes. The Company's
business operations in China, its interest in the Joint Venture and its rights
under the China Licenses may be adversely affected by the political environment
in China. The PRC is a socialist state which, since 1949 has been, and is
expected to continue to be, controlled by the Communist Party of China. Changes
in the political leadership of the PRC may have a significant adverse effect on
policies related to China's current economic reform program, other policies
affecting business and the general political, economic and social environment in
the PRC. Any such changes in the political leadership or current economic reform
policies or the imposition of additional restrictions on foreign owned
enterprises could have a material adverse effect on the business of
10
<PAGE>
the Joint Venture, the Company's interest in the Joint Venture and the Company's
rights and revenues under the China Licenses.
Proprietary Rights. The Company protects its intellectual property rights
in the PRC through a combination of patent applications, contractual
arrangements and trade secrets. Patent and intellectual property right
protection in the PRC affords substantially less protection than is available in
the United States. There can be no assurance that the Company will be able to
effectively protect its proprietary rights in China. The unauthorized use by
others in the PRC of the Company's technology could have a material adverse
effect on the Company's business, financial condition and results of operations.
Restrictions on Repatriation of Foreign Currency Exchange, Other Foreign
Currency Exchange Restrictions and Volatility of Exchange Rates. The PRC
regulates the expatriation of foreign currencies as payments to foreigners,
including investors and licensors, and the conversion of Renminbi (the currency
of the PRC) into foreign currencies, such as the U.S. Dollar. In addition, there
has been significant volatility in the exchange rate of Renminbi to U.S.
Dollars. The Company expects that the Joint Venture and the Company's other
licensee in the PRC will receive a substantial portion of their revenues in
Renminbi. A portion of such revenues will have to be converted to other
currencies to meet foreign currency obligations (such as payment obligations to
suppliers) or for purposes of remittance to the Company as return of capital,
dividends or license payments. The Joint Venture and the Company's other
licensee in China may be unable to convert sufficient Renminbi into foreign
currency to enable them to comply with any foreign currency payment obligations
they have, including distributions to the Company. In the event of a depressed
market in Renminbi, the cost of foreign currency could be sufficiently high to
preclude joint ventures from meeting any foreign financial obligations incurred
in the future or from paying distributions and license fees to the Company.
Moreover, fluctuations in the exchange rate of the Renminbi into U.S. Dollars
could have an adverse effect on the license fees to be paid to the Company. Even
if the Joint Venture or any other licensee of the Company is able to convert
their Renminbi into foreign currencies there can be no assurance that the PRC
will not impose restrictions on the ability of these entities to remit out of
the PRC amounts due to the Company in U.S. Dollars or otherwise.
PRC Laws; Uncertainty Arising from Evolving Regulations and Policies. The
PRC does not have a well-developed, consolidated body of laws governing foreign
investment-enterprises. As a result, the administration of laws and regulations
by government agencies may be subject to considerable discretion and variation.
As the legal system in the PRC develops with respect to foreign investment
enterprises, foreign investors may be adversely affected by new laws, changes to
existing laws (or interpretations thereof) and preemption of provincial or local
laws by national laws. In circumstances where adequate laws exist, it may not be
possible to obtain timely and equitable enforcement thereof.
Uncertainty of "Normal Trade Relations" Trading Status. A significant
portion of the economic activity in China is export-driven and, therefore, is
affected by developments in the economies of the PRC's principal trading
partners. The United States Congress considers annually the renewal of "Normal
Trade Relations" trading status for the PRC, and may attach conditions to such
renewal. There can be no assurance that Congress will renew such status or that
future renewal will not be linked to human rights issues or other requirements
which the PRC may decline or be unable to meet. Revocation or conditional
extension by the United States of "Normal Trade Relations" trading status for
the PRC could have a material adverse effect upon the Company.
Recent Conditions in Asia. Recently, economic conditions and markets have
been unstable throughout Asia. Currencies in several countries have been
devalued, and there has been political instability in certain countries.
Currency devaluations in other countries have resulted in decreasing exports for
China and increased pressure to devalue the Renminbi. Economic or political
instability in China or a significant devaluation of the Renminbi could have a
material adverse effect upon the Company.
Expropriation of Property. Following the formation of the PRC in 1949,
the PRC government renounced various debt obligations incurred by predecessor
governments, which obligations remain in
11
<PAGE>
default, and expropriated assets without compensation. There can be no assurance
that the PRC government will not in the future expropriate or nationalize the
assets of the Joint Venture or any assets of the Company in China. Such an
expropriation would result in a total loss of the Company's investment in China.
AGREEMENTS WITH ERC; LACK OF ARM'S-LENGTH NEGOTIATIONS. In contemplation of
the Distribution, the Company has entered into certain agreements with ERC,
including the Distribution Agreement, the Tax Sharing Agreement, the Services
Agreement and the License Assistance Agreement for the purpose of defining its
ongoing relationship with ERC and to provide certain services during the
transition from it being a business group within ERC to a stand-alone company.
The Distribution Agreement provides for the transfer to the Company of the
business and principal assets of the Battery Business Group, the assumption by
the Company of certain liabilities and obligations relating to that business,
the distribution by ERC of all outstanding shares of the Company Common Stock to
ERC stockholders and certain other agreements governing the relationship between
ERC and the Company. See "THE DISTRIBUTION-- Relationship Between ERC and the
Company after the Distribution."
The Tax Sharing Agreement defines the rights and obligations of ERC and the
Company with respect to filing of returns, payments, deficiencies and refunds of
federal, state and other income, franchise or certain other taxes relating to
the Company's operations after the transfer of the Battery Business Group to the
Company. This Agreement is intended to allocate the tax liability of ERC between
ERC and the Company as if they were separate taxable entities.
The Services Agreement sets forth the terms under which ERC will provide to
the Company certain management and administrative services, as well as the use
of certain office, research and development, and manufacturing and support
facilities and services.
The License Assistance Agreement provides that the Company will bear the
obligations and receive the benefits of ERC under the Joint Venture contract and
the Three Circles License Agreement while the Company and ERC seek formal
approval for that transfer. The License Assistance Agreement provides that the
Company will provide the services and assistance necessary for the Company to
effectively fulfill, on behalf of ERC, all of ERC's obligations under the Joint
Venture contract and the Three Circles License Agreement in exchange for payment
to the Company by ERC of all remuneration paid and other benefits accruing to
ERC pursuant to such agreements. ERC has also agreed to act in accordance with
the instructions of the Company in connection with matters of Joint Venture
governance and agreed not to permit the amendment of the related documents
without the consent of the Company. See "RISK FACTORS--Risks of Relying on ERC"
and "--Risks Relating to Transfer of Joint Venture and Related License
Agreement."
In addition to the foregoing relationships, the Company has granted rights
or issued options to purchase up to 183,332 shares of Common Stock to officers
of ERC in connection with the Distribution, including (i) 83,333 shares of
Common Stock issuable to Jerry D. Leitman, Chairman and Acting President and
Chief Executive Officer of the Company in connection with his right to receive
shares of Common Stock (the "Distribution Agreement Option") pursuant to the
Distribution Agreement upon the exercise of his ERC stock options and (ii)
99,999 shares of Common Stock issuable to ERC officers pursuant to stock options
granted under the Company's 1998 Equity Incentive Plan (the "1998 Plan") under
which 300,000 shares have been reserved for issuance. All options issued by the
Company to date have been issued with an exercise price of $6.00 per share. See
"MANAGEMENT--Director Compensation" and "--Equity Incentive Plan." These 300,000
shares represent approximately 9.75% of the Company's outstanding shares of
Common Stock, assuming the exercise of all Rights in the offering and the
exercise of all options issuable under the 1998 Plan.
The agreements between the Company and ERC, and the Company and officers and
directors of ERC, were not the subject of arm's length negotiations, and
therefore, the terms in such agreements may contain terms that are not
comparable to those that would have been obtained from negotiations between
unaffiliated parties. In addition, questions regarding the resolution of any
issues arising under these arrangements will be resolved by the Company and ERC.
Initially, the Acting President, Acting Chief
12
<PAGE>
Financial Officer and a majority of the directors of the Company will also be
officers and directors of ERC. As a result of these conflicts of interest, the
Company's management may not make decisions that are in the best interests of
the Company and its stockholders. The failure to do so could have a material
adverse effect on the Company's business, results of operations and financial
position.
RISKS OF RELYING ON ERC. While the Services Agreement is in effect between
the Company and ERC, the Company will be relying on ERC to provide to it many
essential services, including management and administrative services, as well as
the use of office, research and development, and manufacturing and support
facilities and services. The officers and employees of ERC may have conflicts of
interest in allocating their time and efforts between their activities on behalf
of ERC and their activities on behalf of the Company and enforcing contractual
rights and obligations between ERC and the Company. In addition, ERC could
decide to terminate one or more of the services provided under the Services
Agreement upon 60 days' notice to the Company. Any failure of ERC to provide
quality services on a timely basis or to continue to provide services to the
Company could have a material adverse effect on the Company to the extent that
the Company is unable to replace such services.
The Company will be relying upon ERC to realize the benefits of the Joint
Venture and the Three Circles License Agreement until all consents and approvals
to the transfer and assignment of these agreements are obtained. Conflicts of
interest between ERC and the Company could arise in connection with these
agreements. A bankruptcy or insolvency of ERC could prevent the Company's
receipt of funds due to it under the agreements, even if the funds were paid to
ERC. The Chinese parties to the agreements could take exception to the License
Assistance Agreement and claim that ERC is in default under one or more of the
agreements, resulting in a termination of such agreements. Any of these events,
a delay in obtaining or the failure to obtain the consents and approvals to the
transfer and assignment of these agreements could have a material adverse effect
on the Company to the extent that the Company is unable to fully realize the
benefits of these agreements.
CONSUMER MARKETS. A substantial portion of the Company's business will
depend upon the success of products sold by original equipment manufacturers
("OEMs") that use the Company's batteries. For example, one factor determining
the quantity of purchase orders the Company may receive from a bicycle
manufacturer in the future is the success of that company's electric bicycle.
Therefore, the Company's success in being able to sell or license its products
is substantially dependent upon the acceptance and marketability of the OEMs'
products in the marketplace. The Company is subject to many risks beyond its
control that influence the success or failure of a particular product
manufactured by an OEM, including among others, competition faced by the OEM in
its particular industry; market acceptance of the OEM's product; the
engineering, sales and marketing and management capabilities of the OEM;
technical challenges unrelated to the Company's technology or problems faced by
the OEM in developing its products; and the financial and other resources of the
OEM. See "BUSINESS--Business Strategy."
ELECTRIC VEHICLE MARKET AND ACCEPTANCE OF THE BATTERY SYSTEM IS
UNCERTAIN. Because vehicles powered by internal combustion engines cause
pollution, public pressure has begun to result in legislative and other mandates
in Europe, and enacted or pending legislation in the United States, to promote
or mandate the use of vehicles with no tailpipe emissions ("zero emission
vehicles") or reduced tailpipe emissions ("low emission vehicles"). The Company
believes that in order to create a significant commercial market for electric
vehicles in Europe it will be necessary for such public pressure to continue. In
addition, the Company believes that in the United States government initiatives
are important factors in creating an electric vehicle market. There can be no
assurance that such public pressure will continue or that further legislation or
other governmental initiatives will be enacted, or that current legislation will
not be repealed, amended or have its implementation delayed, as has recently
been the case in California, or that a different form of zero emission or low
emission vehicle, or other solutions to the problem of containing emissions
created by internal combustion engines, will not be invented, developed and
produced, and achieve greater market acceptance than electric vehicles. The lack
of significant market for electric vehicles could have a material adverse effect
on the ability of the Company to commercialize its technology. Even if a
significant market for electric vehicles develops, there can be no assurance
that the Company's technology will be commercially competitive within such a
market.
13
<PAGE>
COMPETITION; TECHNOLOGICAL OBSOLESCENCE. The primary and rechargeable
battery industry is characterized by intense competition with a large number of
companies offering or seeking to develop technology and products similar to
those of the Company. The Company is subject to competition from manufacturers
of traditional rechargeable batteries, such as nickel cadmium batteries, from
manufacturers of rechargeable batteries with advanced technologies, such as
nickel metal hydride, lithium-ion liquid electrolyte and lithium-metal
solid-polymer batteries, as well as from companies engaged in the development of
batteries incorporating new technologies. The Company also competes with large
and small manufacturers of alkaline, lithium, carbon-zinc, sea water, high rate
and primary batteries. There can be no assurance that the Company will be
successful in competing with these manufacturers, many of which have
substantially greater financial, technical, manufacturing, distribution,
marketing, sales and other resources. A number of companies with substantially
greater resources than the Company are pursuing the development of a wide
variety of battery technologies, including both liquid electrolyte lithium and
solid electrolyte lithium batteries, which are expected to compete with the
Company's technology. Other companies undertaking research and development
activities of solid-polymer batteries have already developed prototypes and are
constructing commercial scale production facilities. If other companies
successfully market their batteries prior to the introduction of the Company's
products, there may be a material adverse effect on the Company's business,
financial condition and results of operations. The market for the Company's
products, as well as the products that utilize the Company's batteries and
technology, is characterized by changing technology and evolving industry
standards, often resulting in product obsolescence or short product lifecycles.
Although the Company believes that its batteries are comprised of
state-of-the-art technology, there can be no assurance that competitors will not
develop technologies or products that would render the Company's technology and
products obsolete or less marketable. See "BUSINESS-- Competition."
RISKS RELATING TO GROWTH AND EXPANSION. Rapid growth of the Company's
advanced rechargeable battery business or other segments of its business may
significantly strain the Company's management, operations and technical
resources. If the Company is successful in obtaining rapid market penetration of
its advanced rechargeable batteries, it will be desirable for the Company to
either deliver large volumes of quality products to its customers on a timely
basis at a reasonable cost to those customers or license its technology to
others who can manufacture and distribute the Company's products. The Company
currently has limited manufacturing capability and no experience in large scale
manufacturing of its advanced rechargeable batteries and has no experience in
automated assembly and packaging technology. There can be no assurance that the
Company's business will achieve rapid growth or that its efforts to expand its
manufacturing and quality control activities (or the efforts of those companies
which are granted licenses to the Company's technology) will be successful or
that it or its licensees will be able to satisfy commercial scale production
requirements on a timely and cost-effective basis.
RISKS RELATING TO LICENSE AGREEMENTS. The Company's growth and success will
be dependent to a substantial extent on its reputation, and because the Company
anticipates licensing its technology to others its reputation may be affected by
the performance of those companies to which the Company licenses its technology.
License agreements with foreign companies may be subject to additional risks,
such as exchange rate fluctuations, political instability or weaknesses in the
local economy. Certain provisions of the license agreements for the benefit of
the Company may be subject to restrictions in foreign laws that limit the
Company's ability to enforce such contractual provisions. In addition, it may be
more difficult to register and protect the Company's proprietary rights in
certain foreign countries. Failure by the Company to obtain suitable licensees
of its technology or the failure of the Company's licensees to achieve the
Company's manufacturing or quality control standards or otherwise meet the
Company's expectations could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"BUSINESS--Manufacturing and Raw Materials" and "--Facilities and Equipment."
RELIANCE ON JOINT VENTURE PARTNERS. The Company intends to enter into other
joint venture arrangements in the future to further commercialize its battery
technology. The Company's existing joint venture is with a foreign partner and
the Company anticipates that future joint ventures may be with foreign partners
or entities and as a result such ventures may be subject to the political
climate and economies of
14
<PAGE>
the foreign countries where such partners reside. There can be no assurance that
the Company's joint venture partners will provide the Company with the support
anticipated by the Company, or that any of the joint ventures will be successful
in developing batteries for use with their intended products, or that any of the
joint ventures will be successful in manufacturing and marketing their batteries
for such products once developed. Any international operations of the Company
will also be subject to certain external business risks such as exchange rate
fluctuations, political instability and a significant weakening of a local
economy in which a foreign joint venture operates or is located. Certain
provisions of the joint venture agreements for the benefit of the Company may be
subject to restrictions in foreign laws that limit the Company's ability to
enforce such contractual provisions. Failure of these joint ventures to be
successful could have a material adverse effect on the Company's business and
prospects.
DEPENDENCE ON KEY PERSONNEL. Because of the specialized, technical nature
of the Company's business, the Company is highly dependent on certain members of
its management, marketing, engineering and technical staff, including Allen
Charkey, the Executive Vice President and Chief Operating Officer of the
Company, the loss of whose services could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not maintain key man life insurance. ERC will assign to the Company Mr.
Charkey's employment agreement, however this agreement is terminable by either
party upon 30 days' notice. The ability of the Company to pursue effectively its
business strategy will depend upon, among other factors, the successful
recruitment and retention of additional highly skilled and experienced
managerial, marketing, engineering and technical personnel. There can be no
assurance that the Company will be able to retain or recruit such personnel. See
"BUSINESS--Employees" and "MANAGEMENT--Executive Officers and Directors."
DEMANDS OF ENVIRONMENTAL AND OTHER REGULATORY COMPLIANCE. National, state
and local regulations impose various environmental controls on the manufacture,
storage, use and disposal of batteries and/or of certain chemicals used in the
manufacture of batteries. Although the Company believes that its operations are
in substantial compliance with current environmental regulations and that there
are no environmental conditions that will require material expenditures for
clean-up at its present or former facilities or at facilities to which it has
sent waste for disposal, there can be no assurance that conditions relating to
the Company's historical operations which require expenditures for clean-up will
not be discovered in the future or that changes in environmental laws and
regulations will not impose costly compliance requirements on the Company or
otherwise subject it to future liabilities. There can be no assurance that
additional or modified regulations relating to the manufacture, transportation,
storage, use and disposal of materials used to manufacture the Company's
batteries or restricting disposal of batteries will not be imposed or as to the
effect such regulations may have on the Company or its customers. See
"BUSINESS--Environmental, Safety and Regulatory."
DEPENDENCE ON PROPRIETARY TECHNOLOGIES. The Company believes that its
success will be dependent both on the legal protection that its patents and
other proprietary rights may or will afford and on the knowledge, ability,
experience and technological expertise of its employees. The Company claims
proprietary rights in various unpatented technologies, know how, trade secrets
and trademarks relating to its products and manufacturing processes. There can
be no assurance as to the degree of protection these various claims may or will
afford, or that the Company's competitors will not independently develop or
patent technologies that are substantially equivalent or superior to the
Company's technology. It is the policy of the Company to protect its proprietary
rights in its products and operations through contractual obligations, including
nondisclosure agreements with certain employees, customers, consultants,
licensees and strategic partners. There can be no assurance as to the degree of
protection these contractual measures may or will afford. ERC, however, has had
battery-related patents issued and patent applications pending in the U.S. and
elsewhere which patents and patent applications will be assigned to the Company
in the Distribution. There can be no assurance (i) that patents will be issued
from any pending applications, or that the claims allowed under any patents will
be sufficiently broad to protect the Company's technology, (ii) that any patents
issued to the Company will not be challenged, invalidated or circumvented, or
(iii) as to the degree or adequacy of protection any patents or patent
applications may or will afford. If the Company is found to be infringing third
party patents, there can be no assurance that it
15
<PAGE>
will be able to obtain licenses with respect to such patents on acceptable
terms, if at all. Failure of the Company to obtain necessary licenses could
result in delays in product shipment or the introduction of new products, and
costly attempts to design around such patents could foreclose the development,
manufacture or sale of the Company's products. See "BUSINESS--Legal Proceedings"
and "--Patents, Trade Secrets and Trademarks."
RISK OF PRICE INCREASES FOR RAW MATERIALS. The Company's principal raw
materials for the production of its battery products are nickel and zinc. Prices
for both nickel and zinc are subject to market forces beyond the control of the
Company. The Company's future profitability may be materially adversely affected
by increased nickel and/or zinc prices to the extent it is unable to pass on
higher raw material costs to its customers. However, to offset such costs, the
Company may engage in forward purchases and hedging transactions to effectively
manage raw material costs and inventory relative to anticipated production
requirements for the next six to twelve months.
FUTURE CASH REQUIREMENTS. Although the Company believes that the net
proceeds from this offering will be sufficient to fund its working capital needs
for at least the next twelve months, there can be no assurance that this will be
the case. The Company's cash requirements will vary depending upon a number of
factors, many of which may be beyond the control of the Company, including
demand for the Company's products, the efforts and success of the Company and
its joint venture partners in developing and marketing products incorporating
the Company's technology, the development of battery markets, the level of
competition faced by the Company and the ability of the Company to develop,
market and license new products and effectively manage operating expenses. If
and when the Company is required to raise additional funds, there can be no
assurance that the Company will be able to do so on favorable terms, if at all.
Failure of the Company to raise funds required to support its operations would
have a material adverse effect on the Company's business, financial condition
and results of operations and could result in a loss to the investors in the
Rights Offering of their entire investment. See "USE OF PROCEEDS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately $4,350,000 (59%)
of the maximum estimated $7,346,000 of net proceeds from the Rights Offering
will be available for working capital and general corporate purposes.
Accordingly, the Company's management will have broad discretion as to the
application of such proceeds. See "Use of Proceeds."
CONTROL BY PRINCIPAL STOCKHOLDERS. Warren Bagatelle and Thomas Kempner, two
directors of the Company, and Loeb Investors Co., LXXV, a partnership in which
each of them is a general partner, collectively may be deemed to beneficially
own approximately 12.0% of the currently outstanding shares of ERC Common Stock
and, therefore, may be deemed to beneficially own approximately 12.0% of Company
Common Stock following the Distribution. If these stockholders (the "Loeb
Holders") exercise their Basic Subscription Privilege and acquire Underlying
Shares pursuant to the exercise of their Oversubscription Privilege, it will
increase their percentage ownership of Common Stock after the Rights Offering.
In addition, Loeb Partners Corporation, a corporation of which Thomas Kempner is
Chairman and Chief Executive Officer and Warren Bagatelle is a Managing
Director, is serving as a co-standby underwriter for the Rights Offering. James
Gerson, a director of the Company, may be deemed to beneficially own
approximately 5.0% of the currently outstanding shares of ERC Common Stock and,
therefore, may be deemed to beneficially own approximately 5.0% of Company
Common Stock following the Distribution. In addition, Mr. Gerson and a colleague
entered into an agreement with another principal shareholder of ERC to purchase
from such shareholder all of the Rights issued to such shareholder in the Rights
Offering. See "MANAGEMENT--Certain Transactions." If Mr. Gerson exercises his
Basic Subscription Privilege with respect to all of these Rights and the Rights
he receives with respect to his shares and acquires Underlying Shares pursuant
to the exercise of his Oversubscription Privilege, it will increase his
percentage ownership of Common Stock after the Rights Offering. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Depending upon the
number of shares subscribed for by others, the percentage of the outstanding
Common Stock owned by the Loeb Holders
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and/or Mr. Gerson upon completion of the Rights Offering could increase
substantially in the event that the Loeb Holders and/or Mr. Gerson exercise
their Oversubscription Privileges.
NO PRIOR MARKET FOR COMMON STOCK; RESTRICTION ON TRANSFER DURING RIGHTS
OFFERING. Prior to the Distribution and the Rights Offering, there has been no
public market for the Common Stock, and there can be no assurance that an active
trading market will develop or, if developed, that such market will be
sustained. While the Rights may be transferred prior to the Expiration Date,
they will not be listed or traded on any national securities exchange or
automated quotation system. Prior to the closing of the Rights Offering, the
Company Common Stock received in the Distribution may not be sold or otherwise
disposed of pursuant to a restriction in the Company's Certificate. The Company
has applied to have the Company Common Stock listed for quotation on the Nasdaq
SmallCap Market and the Boston Stock Exchange following the closing of the
Rights Offering, however, there can be no assurance that such listings will be
obtained. The initial price of the Common Stock will be determined as a result
of market trading. In addition, the Company believes that factors such as
quarterly fluctuations in the financial results of the Company, as well as
developments that affect the Company's joint venture partners or licensees, the
Company's industry, the overall economy and the financial markets in general
could cause the price of the Common Stock to fluctuate substantially.
DILUTION FROM RIGHTS OFFERING. Stockholders who do not exercise their Basic
Subscription Privilege will realize a dilution of their percentage voting
interest and ownership interest in future net earnings, if any, of the Company.
If all stockholders fully exercise their Basic Subscription Privilege, the
effective percentage ownership of each stockholder will remain unchanged
(assuming that no outstanding stock options will be exercised).
POSSIBLE EXTENSION OF EXPIRATION DATE. The Company has reserved the right
to extend the Expiration Date to as late as April 30, 1999, subject to the
consent of the Underwriters. Funds deposited in payment of the Subscription
Price may not be withdrawn and no interest will be paid thereon to stockholders.
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER PROVISIONS AND DELAWARE
LAW. Certain provisions of Delaware law and the Company's Certificate of
Incorporation could delay, impede or make more difficult a merger, tender offer
or proxy context involving the Company, even if such events could be beneficial
to the interests of the stockholders. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. See "DESCRIPTION OF SECURITIES--Anti-takeover Effects of Certain
Provisions."
NO EXPECTATION OF DIVIDENDS. The Company does not expect to pay any cash
dividends in the near future. The Company's dividend policy will be established
by the Board of Directors of the Company (the "Company Board") from time to time
based on the results of operations and financial condition of the Company and
such other business considerations as the Company Board considers relevant.
Subject to the foregoing, the Company may declare and pay dividends after the
Distribution, although there can be no assurance that any dividends will be paid
in the future.
RISKS OF LOW-PRICED STOCKS. The Company has applied to The Nasdaq Stock
Market to have the Common Stock listed for quotation on the Nasdaq SmallCap
Market following the closing of the Rights Offering. If the Common Stock is not
approved for listing on the Nasdaq SmallCap Market, trading of the Common Stock
would be conducted on an electronic bulletin board established for securities
that do not meet the Nasdaq listing requirements or in what is commonly referred
to as the "pink sheets." As a result, an investor may find it more difficult to
dispose of, or obtain accurate quotations as to the price of, the Company Common
Stock.
In addition, if the Common Stock were delisted, it would be subject to the
so-called penny stock rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as an investor with a net
worth in excess of $1.0 million or annual income exceeding $200,000, or $300,000
together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale.
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Consequently, delisting, if it occurs, may affect the ability of broker-dealers
to sell the Company's securities and the ability of purchasers in this Offering
to sell their securities in the secondary market.
The Securities and Exchange Commission has adopted regulations that define a
"penny stock" to be any equity security that has a market price (as defined in
the regulations) of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a disclosure schedule relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information of the
limited market in penny stocks. As a result, if the Common Stock is determined
to be "penny stock," an investor may find it more difficult to dispose of the
Company's Common Stock.
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THE RIGHTS OFFERING
THE RIGHTS
The Company is granting transferable Rights at no cost, to holders of
outstanding shares of Company Common Stock of record on the Record Date.
Stockholders of the Company will receive one Right for each share of Company
Common Stock held by them of record on the Record Date. Each Right will be
exercisable to purchase one share of Company Common Stock at $6.00 per share. No
fractional shares will be issued.
DETERMINATION OF THE SUBSCRIPTION PRICE
Prior to the Rights Offering, there has been no public market for the Common
Stock. The Subscription Price has been determined by the Company's Board of
Directors based upon a number of factors, including the anticipated initial
capital requirements of the Company, market valuations of development stage
companies in related businesses, the early stage of the Company's business
development, the business potential and prospects of the Company and other
factors deemed relevant. In making its determination, the Board of Directors did
not obtain an independent valuation of the Company or its assets. Moreover, the
Subscription Price bears no direct relation to the book value, earnings, assets
or other generally accepted valuation criteria of the Company. The Board of
Directors believes that the Subscription Price may be lower than the actual
value of the Common Stock of the Company, primarily based upon the valuation of
publicly traded development stage companies in related businesses. However, the
Board of Directors believes that any valuation of the Company, given its early
stage of development, is highly speculative. The actual value or resale value of
the Common Stock may be significantly higher or lower than the Subscription
Price.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., Eastern time, on March , 1999 unless
extended by the Company, subject to the consent of the Underwriters (as
extended, the "Expiration Date"). The Company will in no event extend the
Expiration Date beyond April 30, 1999. After the Expiration Date, unexercised
Rights will be null and void. The Company will not be obligated to honor any
purported exercise of Rights received by the Subscription Agent after the
Expiration Date, regardless of when the documents relating to such exercise were
sent, except pursuant to the Guaranteed Delivery Procedures described below.
Notice of any extension of the Expiration Date will be made through a press
release issued by the Company.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. Each Right will entitle the holder thereof to
receive, upon payment of the Subscription Price, one share of Company Common
Stock (the "Basic Subscription Privilege"). Certificates representing shares of
Company Common Stock purchased pursuant to the Basic Subscription Privilege will
be delivered to subscribers as soon as practicable following the Expiration
Date.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below, each
Right also carries the right to subscribe at the Subscription Price for
Underlying Shares that are not otherwise purchased pursuant to the Basic
Subscription Privilege. Underlying Shares will be available for purchase
pursuant to the Oversubscription Privilege only to the extent that any
Underlying Shares are not subscribed for through the Basic Subscription
Privilege. If the Underlying Shares not subscribed for through the Basic
Subscription Privilege, plus any shares which the Company elects to sell
pursuant to the Oversubscription Option (collectively, "Excess Shares") are not
sufficient to satisfy all subscriptions pursuant to the Oversubscription
Privilege, the Excess Shares will be allocated pro rata (subject to the
elimination of fractional shares) among those holders of Rights exercising the
Oversubscription Privilege, in proportion, not to the number of shares requested
pursuant to the Oversubscription Privilege, but to the number of shares of
Company Common Stock each beneficial holder exercising the Oversubscription
Privilege has purchased pursuant to the Basic Subscription Privilege; provided,
however, that if such pro rata allocation results in any Rights holder being
allocated a greater number of Excess Shares than such holder subscribed for
pursuant to the exercise of such holder's Oversubscription Privilege, then such
additional shares will be allocated among all
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other holders exercising the Oversubscription Privilege. All beneficial holders
who exercise the Basic Subscription Privilege will be entitled to exercise the
Oversubscription Privilege. Certificates representing shares of Company Common
Stock purchased pursuant to the Oversubscription Privilege will be delivered to
subscribers as soon as practicable following the Expiration Date and after all
prorations have been effected.
Banks, brokers and other nominee holders of Rights who exercise the Basic
Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and the
number of Excess Shares that are being subscribed for pursuant to the
Oversubscription Privilege by each beneficial owner of Rights on whose behalf
such nominee holder is acting.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to Continental Stock Transfer & Trust
Company (the "Subscription Agent"), at or prior to 5:00 p.m., Eastern time, on
the Expiration Date, the properly completed and executed Subscription
Certificate evidencing such Rights with any required signatures guaranteed,
together with payment in full of the Subscription Price for each Underlying
Share subscribed for pursuant to the Basic Subscription Privilege and, except as
described below in accordance with the Guaranteed Payment Procedures, the
Oversubscription Privilege. Payments of the Subscription Price must be by (a)
check or bank draft drawn upon a United States bank or postal, telegraphic or
express money order payable to Continental Stock Transfer & Trust Company, as
Subscription Agent, or (b) wire transfer of funds to the account maintained by
the Subscription Agent for such purpose at Chase Manhattan Bank, 52 Broadway,
New York, New York 10004, Account No. 777-580209, ABA No. 021000021 with
confirmation by fax at (212)509-5150. Any wire transfer of funds should clearly
indicate the identity of the subscriber who is paying the Subscription Price by
the wire transfer. The Subscription Price will be deemed to have been received
by the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a United States bank or of any postal, telegraphic or express money order
or (iii) receipt of good funds in the Subscription Agent's account designated
above. IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID
THEREBY MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF
RIGHTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL
CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO
CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE
TRANSFER OF FUNDS.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
Continental Stock Transfer & Trust Company
Two Broadway
New York, New York 10004
Telephone: (212) 509-4000 ext. 535
If a Rights holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the Subscription Price for
each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege to be received (in the manner set forth above) by the
Subscription Agent on or prior to the Expiration Date;
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(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially
in the form provided and distributed with the Subscription Certificates,
from a member firm of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. (the "NASD"), or
from a commercial bank or trust company having an office or correspondent in
the United States (each, an "Eligible Institution"), stating the name of the
exercising Rights holder, the number of Rights represented by the
Subscription Certificate or Subscription Certificates held by such
exercising Rights holder, the number of Underlying Shares being subscribed
for pursuant to the Basic Subscription Privilege and the number of
Underlying Shares, if any, being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate evidencing such Rights
within five Nasdaq trading days following the Expiration Date; and
(iii) the properly completed Subscription Certificate evidencing the
Rights being exercised, with any required signatures guaranteed, is received
by the Subscription Agent within five Nasdaq trading days following the
Expiration Date. The Notice of Guaranteed Delivery may be delivered to the
Subscription Agent in the same manner as Subscription Certificates at the
address set forth above, or may be transmitted to the Subscription Agent by
telegram or facsimile transmission (telecopy no. (212) 509-5150). Additional
copies of the form of Notice of Guaranteed Delivery are available upon
request from the Subscription Agent, at the address set forth above.
If a Rights holder wishes to delay payment of the Subscription Price with
respect to such holder's exercise of the Oversubscription Privilege, the
Oversubscription Privilege may nevertheless be exercised if all of the following
conditions (the "Guaranteed Payment Procedures") are met:
(i) the Subscription Agent receives, on or prior to the Expiration Date
either (a) a Notice of Guaranteed Delivery by facsimile or otherwise,
substantially in the form provided and distributed with the Subscription
Certificates, from a member firm of a registered national securities
exchange or a member of the NASD or from an Eligible Institution, stating
the information required thereon, as described above; or (b) the properly
completed and executed Subscription Certificate;
(ii) such holder has caused payment in full of the Subscription Price
for each Underlying Share subscribed for pursuant to the Basic Subscription
Privilege to be received (in the manner set forth above) by the Subscription
Agent on or prior to the Expiration Date;
(iii) the Subscription Agent receives, on or prior to the Expiration
Date a payment guarantee notice (a "Notice of Guaranteed Payment") by
facsimile or otherwise, substantially in the form provided and distributed
with the Subscription Certificates, from a member firm of a registered
national securities exchange or a member of the NASD or from an Eligible
Institution, stating the name of the exercising Rights holder, the number of
Rights represented by the Subscription Certificate or Subscription
Certificates held by such exercising Rights holder, the number of Underlying
Shares being subscribed for pursuant to the Basic Subscription Privilege and
the number of Underlying Shares being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing delivery of payment in full of
the Subscription Price (in immediately available funds) by 5:00 p.m.,
Eastern time, on March , 1999 for each Underlying Share being subscribed
for pursuant to the Oversubscription Privilege; and
(iv) payment in full of the Subscription Price for each Underlying Share
being subscribed for pursuant to the Oversubscription Privilege has been
received (in immediately available funds) by the Subscription Agent by 5:00
p.m., Eastern time, on March , 1999.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege prior to notification
by the Subscription Agent of the allocation of the Excess Shares will be held in
a segregated account pending issuance of such Excess Shares. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
shares of Company Common Stock which such holder wished to subscribe for
pursuant to the Oversubscription Privilege, the excess funds paid by such holder
in respect of the Subscription Price for shares not issued will be returned by
mail without interest or deduction as soon as practicable after the Expiration
Date.
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Not less than two business days prior to March , 1999, the Subscription
Agent will provide notice by facsimile transmission to a Rights holder who
exercises the Oversubscription Privilege pursuant to the Guaranteed Payment
Procedures and the member firm, commercial bank or trust company that guarantees
payment for such Rights holder under the Notice of Guaranteed Payment. The
notice shall state the number of shares subscribed for under the
Oversubscription Privilege which are available for such Rights holder to
purchase and the aggregate Subscription Price to be paid by such Rights holder
for such shares.
A holder of Rights who purchases less than all of the shares of Company
Common Stock represented by his Subscription Certificate will receive from the
Subscription Agent a new Subscription Certificate representing the balance of
the unsubscribed Rights, to the extent the Subscription Agent is able to reissue
a Subscription Certificate prior to the Expiration Date.
Unless a Subscription Certificate (i) provides that the shares of Company
Common Stock to be issued pursuant to the exercise of Rights represented thereby
are to be delivered to the record holder of such Rights or (ii) is submitted for
the account of an Eligible Institution, signatures on such Subscription
Certificate must be guaranteed by an Eligible Institution.
Holders who hold shares of Company Common Stock for the account of others,
such as brokers, trustees or depositories for securities, should provide a copy
of this Prospectus to the respective beneficial owners of such shares as soon as
possible, ascertain such beneficial owners' intentions and obtain instructions
with respect to the Rights. If the beneficial owner so instructs, the record
holder of such Rights should complete Subscription Certificates and submit them
to the Subscription Agent with the proper payment. In addition, beneficial
owners of Company Common Stock or Rights held through such a holder should
contact the holder and request the holder to effect transactions in accordance
with the beneficial owner's instructions. Beneficial holders should be aware
that brokers or other record holders may establish deadlines for receiving
instructions from beneficial holders significantly in advance of the Expiration
Date.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY OR TO ERC.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT AT OR PRIOR TO 5:00 P.M.,
EASTERN TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED, PERSONAL CHECKS MAY
TAKE UP TO FIVE BUSINESS DAYS TO CLEAR, HOLDERS OF RIGHTS ARE STRONGLY URGED TO
PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY
ORDER OR WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as the Company
determines in its sole discretion. The Company reserves the right to reject any
purchases not properly submitted or the acceptance of which would, in the
opinion of its counsel, be unlawful. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions or
the Notice of Guaranteed Delivery should be directed to the Subscription Agent
at (212) 509-4000 ext. 535.
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OVERSUBSCRIPTION OPTION
The Company has the option to sell up to an additional 208,350 shares of
Company Common Stock solely to cover exercises of Oversubscription Privileges
which exceed the available Underlying Shares.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
It is anticipated that the Rights will trade in the over-the-counter market
until the close of business on the last trading day prior to the Expiration
Date. There can be no assurance that a market for the Rights will develop or as
to the prices at which the Rights will trade.
The Rights evidenced by a single Subscription Certificate may be transferred
in whole by endorsing the Subscription Certificate for transfer in accordance
with the accompanying instructions. A portion of the Rights evidenced by a
single Subscription Certificate (but not fractional Rights) may be transferred
by delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the Rights
evidenced thereby in the name of the transferee (and to issue a new Subscription
Certificate to the transferee evidencing such transferred Rights). In such
event, a new Subscription Certificate evidencing the balance of the Rights will
be issued to the Rights holder or, if the Rights holder so instructs, to an
additional transferee. However, notwithstanding the foregoing, the Subscription
Agent will reissue Subscription Certificates for the transferred Rights to the
transferee, and will reissue Subscription Certificates for the balance, if any,
to the holder of the Rights, only to the extent it is able to do so before the
Expiration Date. To transfer Rights to any person other than a bank or broker,
signatures on the Subscription Certificate must be guaranteed by an Eligible
Institution.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow a sufficient amount of time prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained Rights, if any, and (iii) the
Rights evidenced by such new Subscription Certificates to be exercised or sold
by the recipients thereof. None of the Company, ERC, nor the Subscription Agent
will have any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid by
the Company), all commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the purchase, sale
or exercise of Rights will be for the account of the transferor of the Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Subscription Agent.
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege (but not the
Oversubscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"). Rights exercised through DTC are referred to
as "DTC Exercised Rights." The holder of a DTC Exercised Right may exercise the
Oversubscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
Eastern time, on March , 1999, a DTC Participant Oversubscription Exercise
Form, together with payment of the appropriate Subscription Price for the number
of Underlying Shares for which the Oversubscription Privilege is to be
exercised. Copies of the DTC Participant Oversubscription Exercise Form may be
obtained from the Subscription Agent.
FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax considerations affecting holders of Company Common Stock receiving Rights in
the Rights Offering. This summary is
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based upon laws, regulations, rulings, and decisions currently in effect. This
summary does not discuss all aspects of federal taxation that may be relevant to
a particular investor or to certain types of investors subject to special
treatment under the federal tax laws (for example, banks, dealers in securities,
life insurance companies, tax-exempt organizations, and foreign persons), nor
does it discuss any aspect of state, local, or foreign tax laws.
HOLDERS OF COMPANY COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THEIR INDIVIDUAL TAX SITUATIONS AND THE TAX CONSEQUENCES OF THE
RIGHTS OFFERING UNDER THE INTERNAL REVENUE CODE OF 1986 AND UNDER ANY APPLICABLE
STATE, LOCAL, OR FOREIGN TAX LAWS.
DISTRIBUTION OF THE RIGHTS TO HOLDERS OF COMPANY COMMON STOCK. A holder of
Company Common Stock will not recognize taxable income for federal income tax
purposes as a result of the issuance to such holder of Rights in respect of the
Company Common Stock. Except as provided in the following sentence, the basis of
such Rights will be zero. If either (i) the fair market value of the Rights on
the date of distribution is 15% or more of the fair market value of the Company
Common Stock in respect of which they are received on such date, or (ii) the
stockholder elects, in the stockholder's federal income tax return for the
taxable year in which the Rights are received, to allocate part of the basis of
such Company Common Stock to the Rights, then the stockholder's basis in such
Company Common Stock will be allocated between such Company Common Stock and
such Rights in proportion to their respective fair market values on the date of
distribution. The holding period of a stockholder with respect to Rights
received as a distribution on such stockholder's Company Common Stock will
include the stockholder's holding period for the Company Common Stock in respect
of which the Rights were issued which holding period will, in turn, include the
stockholder's holding period for ERC Common Stock, provided that such
stockholder held the ERC Common Stock as a capital asset on the Distribution
Date.
EXERCISE OF RIGHTS. A holder of Rights will not recognize gain or loss upon
the exercise of the Rights. A holder of Rights who receives shares of Company
Common Stock upon such exercise will acquire a tax basis in those shares equal
to the sum of the price paid on exercise and the holder's tax basis in the
Rights. The holding period of Company Common Stock received on exercise of the
Rights will begin on the date the Rights are exercised.
TRANSFER OR LAPSE OF RIGHTS. A holder who sells a Right will recognize
taxable gain or loss equal to the difference between the holder's basis in the
Right and the amount received in exchange for the Right. Gain or loss from the
sale of a Right will be capital gain or loss if the Common Stock into which the
Right is convertible would have been a capital asset in the hands of the holder,
and will be long-term capital gain or loss if the holding period of the Right in
the hands of the holder is more than one year (see "-- Distribution of the
Rights to Holders of Company Common Stock" for a discussion of the determination
of the holding period of the Rights). If a Right expires unexercised, the holder
will recognize a loss on the day the Right expires equal to the holder's basis
in the Right. Such loss will be a capital loss if the sale of the Right would
have generated capital gain or loss for the holder.
NO BOARD RECOMMENDATION
AN INVESTMENT IN THE COMMON STOCK MUST BE MADE PURSUANT TO EACH INVESTOR'S
EVALUATION OF ITS, HIS OR HER BEST INTERESTS. ACCORDINGLY, ALTHOUGH THE BOARD OF
DIRECTORS OF THE COMPANY UNANIMOUSLY APPROVED THE RIGHTS OFFERING, IT MAKES NO
RECOMMENDATION TO STOCKHOLDERS REGARDING WHETHER THEY SHOULD EXERCISE THEIR
RIGHTS.
24
<PAGE>
THE DISTRIBUTION
INTRODUCTION
The Board of Directors of Energy Research Corporation, a New York
corporation ("ERC"), has declared a special distribution (the "Distribution") to
its stockholders of one share of Company Common Stock for every three shares of
ERC Common Stock held of record as of the close of business on February , 1999
(the "ERC Record Date"). Prior to the Distribution, ERC owned all of the
outstanding shares of Company Common Stock. ERC will effect the Distribution on
or about February , 1999 (the "Distribution Date") by delivering all of the
issued and outstanding shares of Company Common Stock to Continental Stock
Transfer & Trust Company (the "Distribution Agent"), for transfer and
distribution to the holders of record of ERC Common Stock as of the ERC Record
Date. Shares of Company Common Stock received in the Distribution may not be
sold or otherwise disposed of prior to the closing of the Rights Offering. Until
such closing occurs, the Company Common Stock will be uncertificated. Following
such closing, the Distribution Agent will begin to mail stock certificates
representing the shares of Company Common Stock to ERC stockholders as of the
ERC Record Date. Holders of ERC Common Stock on the ERC Record Date will not be
required to make any payment or to take any other action to receive their
portion of the Distribution.
The principal effect of the Distribution will be to separate ERC's Battery
Business Group and operations from its fuel cell business and related
activities. After the Distribution, each business will be conducted by a
separate, publicly held corporation. The Company will own and operate the
battery business, and ERC will retain and continue to own and operate the fuel
cell business.
The Distribution does not require stockholder approval and the ERC Board may
abandon, defer or modify the Distribution prior to the Distribution Date. The
Company's stockholders will not be entitled to appraisal rights in connection
with the Distribution.
After the Distribution, ERC Common Stock will continue to be traded on the
American Stock Exchange. As a result of the Distribution, the trading prices of
ERC Common Stock are likely to be lower than the trading prices of ERC Common
Stock immediately prior to the Distribution. The aggregate trading prices of ERC
Common Stock and Common Stock of the Company after the Distribution may be less
than, equal to or greater than the trading prices of ERC Common Stock prior to
the Distribution. In addition, until the market has fully analyzed the
operations of ERC without the battery business, the prices at which ERC Common
Stock trades may fluctuate significantly.
REASONS FOR THE DISTRIBUTION
The Board of Directors of ERC has determined, for the reasons set forth
below, to separate ERC into two publicly held companies: the Company, a newly
formed corporation which will own and operate the battery business and
operations, and ERC, which will continue to own and operate its fuel cell
business.
The battery business of the Company and the fuel cell business of ERC have
distinctly different investment, operating and financial characteristics. For
instance, the battery markets are mature markets in which the Company expects to
introduce a new product, while the fuel cell market is in its preliminary stage.
Currently, there are widespread commercial markets for batteries, while no such
markets exist for fuel cells. Battery products require mass production, while
fuel cell products are expected to be much more customized depending on their
use. Batteries have different retail market segments ranging from electronic
equipment, such as cell phones and computers to electric cars, while fuel cells
are mainly geared towards stationary electric power. The two businesses attract
investors having different investment criteria, and operation of the two
businesses by the same corporation or affiliated group of corporations may
reduce the ability of each business to attract equity capital.
The ERC Board therefore considers it to be in the best interests of both the
battery business and fuel cell business that they be separated, which will allow
management of each company to more appropriately
25
<PAGE>
undertake capital raising requirements and investment decisions, as well as to
allow investors to invest in either business without consideration of the other.
In addition, the Distribution will allow the Company to offer its employees
an effective equity-based employee compensation package as well as to allow ERC
to provide its employees with incentive plans that more appropriately relate to
the performance of its fuel cell business. Furthermore, the Board of Directors
of ERC believes that the Company's post-Distribution capital structure and
business focus should help it better compete with other battery companies while
enabling ERC to devote its capital and personnel solely to the development of
its fuel cell technology.
Pursuant to the Distribution, a stockholder will have an ownership interest
in both ERC and the Company after the Distribution. However, as a result of the
Distribution, current stockholders and prospective investors will have the
ability to make separate investment decisions regarding each business.
Notwithstanding the foregoing, holders of Company Common Stock who do not
exercise their Basic Subscription Privileges pursuant to the Rights Offering
will experience dilution of their percentage voting interest and ownership
interest in future net earnings, if any, of the Company. See "RISK FACTORS--
Dilution from Rights Offering."
The Distribution will be reflected in ERC's financial statements as a charge
against stockholders' equity. The pro forma consolidated effect on ERC of the
Distribution, if it had occurred on October 31, 1998, would have been to reduce
ERC's assets by approximately $1,176,000 and stockholders' equity by
approximately $423,000.
MANNER OF EFFECTING THE DISTRIBUTION
In connection with the Distribution, all of the outstanding shares of
Company Common Stock will be delivered to the Distribution Agent for transfer
and distribution to the holders of record of ERC Common Stock as of the ERC
Record Date. Shares of Company Common Stock received in the Distribution may not
be sold or otherwise disposed of prior to the date on which the Subscription
Agent delivers to the Company final notice of the number of shares of Common
Stock subscribed for in the Rights Offering (the "closing") pursuant to a
restriction on transfer contained in the Company's Certificate. Until such
closing occurs, the Company Common Stock will be uncertificated. It is expected
that shares of Company Common Stock will be delivered by the Distribution Agent
to ERC stockholders promptly following the closing of the Rights Offering.
Fractional shares of Company Common Stock will not be issued in the
Distribution. A cash payment will be made to ERC stockholders otherwise entitled
to a fractional share of Company Common Stock as a result of the Distribution.
The amount of such payment will be based upon the average bid price on the first
day of trading of the Company Common Stock. Such payment will, therefore, not be
made until the Company Common Stock begins trading after the closing of the
Rights Offering.
The Board of Directors of ERC has reserved the right to abandon, defer or
modify the Distribution and related transactions described herein at any time
prior to 11:59 p.m., New York time, on the day immediately preceding the
Distribution Date.
No holder of ERC Common Stock will be required to pay any cash or other
consideration for the shares of Company Common Stock received in the
Distribution or surrender or exchange shares of ERC Common Stock. The
Distribution will not affect the number of, or the rights attaching to,
outstanding shares of ERC Common Stock. All shares of Company Common Stock will
be fully paid and non-assessable and the holders of those shares will not be
entitled to preemptive rights. See "DESCRIPTION OF SECURITIES--Company Common
Stock."
26
<PAGE>
LISTING AND TRADING OF COMPANY COMMON STOCK
There is not currently a public market for the Company Common Stock. Prior
to the closing of the Rights Offering, the Company Common Stock received in the
Distribution may not be sold or otherwise disposed of pursuant to a restriction
on transfer contained in the Company's Certificate. Prices at which Company
Common Stock may trade on a "when-issued" basis or after the closing of the
Rights Offering cannot be predicted. Until the Company Common Stock is fully
distributed, the Rights Offering is closed and an orderly market develops, the
prices at which trading in such stock occurs may fluctuate significantly. The
prices at which Company Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for Company Common Stock, investor perception of the
Company and the industries in which the Company or its customers participate,
and other general economic and market conditions. See "RISK FACTORS--No Prior
Market for Common Stock."
The Company has applied to have the Company Common Stock listed for
quotation on The Nasdaq SmallCap Market under the symbol "EVCL" and the Boston
Stock Exchange under the symbol " " following the closing of the Rights
Offering. The Company initially will have approximately 1,800 stockholders based
upon the number of beneficial stockholders of ERC as of February 3, 1999.
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company has been advised by its counsel, Brown, Rudnick, Freed & Gesmer,
that the Distribution will qualify as a tax free spin-off under Sections 355 and
368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Distribution is conditioned upon receipt of an opinion of counsel satisfactory
to the ERC Board to the same effect. So long as the Distribution qualifies under
Sections 355 and 368(a)(1)(D) of the Code, in the opinion of Brown, Rudnick,
Freed & Gesmer, the principal Federal income tax consequences of the
Distribution will be as follows:
(1) No gain or loss will be recognized by (and no amount will be
included in the income of) a holder of ERC Common Stock upon the receipt of
Common Stock in the Distribution, other than on account of cash received in
lieu of fractional shares. A stockholder who receives cash in lieu of
fractional shares will recognize gain or loss equal to the difference
between the amount of cash received and the allocated basis of the
fractional share deemed surrendered in exchange for such cash. Provided the
fractional share is a capital asset in the hands of the stockholder, such
gain or loss will be capital gain or loss.
(2) The aggregate basis of the ERC Common Stock and the Company Common
Stock (including fractional shares in lieu of which cash will be issued) in
the hands of the stockholders of ERC immediately after the Distribution will
be the same as the aggregate basis of the ERC Common Stock held immediately
before the Distribution, allocated in proportion to the fair market value of
each.
(3) The holding period of the Company Common Stock (including fractional
shares in lieu of which cash will be issued) received by the stockholders of
ERC will include the holding period of ERC Common Stock with respect to
which the Distribution will be made, provided that such stockholder held the
ERC Common Stock as a capital asset on the Distribution Date.
(4) No gain or loss will be recognized by ERC upon the Distribution.
THE FOREGOING IS ONLY A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW, AND DOES NOT TAKE INTO
ACCOUNT ANY SPECIAL CIRCUMSTANCES THAT MAY APPLY TO PARTICULAR STOCKHOLDERS.
EACH STOCKHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR
CONSEQUENCES OF THE DISTRIBUTION TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION
OF STATE, LOCAL AND FOREIGN TAX LAWS, AND AS TO POSSIBLE CHANGES IN TAX LAWS
THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE. THIS SUMMARY MAY NOT BE
APPLICABLE TO STOCKHOLDERS WHO RECEIVED THEIR ERC COMMON STOCK PURSUANT TO THE
EXERCISE OF EMPLOYEE
27
<PAGE>
STOCK OPTIONS, UNDER AN EMPLOYEE STOCK PURCHASE PLAN OR OTHERWISE AS
COMPENSATION OR WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES.
The opinions of counsel referred to above would not be binding upon the
Internal Revenue Service (the "IRS") and would be subject to certain factual
representations and assumptions. ERC is not aware of any present facts or
circumstances which should cause such representations and assumptions to be
untrue. However, certain future events not within the control of ERC or the
Company, including certain extraordinary purchases of ERC Common Stock or
Company Common Stock, could cause the Distribution not to qualify as tax-free.
Depending on the event, the Company may be liable for some or all of the taxes
resulting from the Distribution not qualifying under Sections 355 and
368(a)(1)(D) of the Code as tax-free. See "THE DISTRIBUTION--Relationship
Between ERC and the Company after the Distribution--Tax Sharing Agreement." If
the Distribution were taxable, then (i) each holder of ERC Common Stock who
receives shares of Company Common Stock in the Distribution would be treated as
if such shareholder received a taxable distribution, taxed as a dividend to the
extent of such shareholder's pro rata share of ERC's current and accumulated
earnings and profits and then treated as a return of capital to the extent of
the holder's basis in the ERC Common Stock and finally as gain from the sale or
exchange of ERC Common Stock and (ii) corporate level taxes would be payable by
the affiliated group of which ERC is the common parent, based upon the excess of
the fair market value of the Company Common Stock on the date of the
Distribution over ERC's tax basis therein. ERC does not intend to effect the
Distribution if, prior to the Distribution Date, ERC becomes aware of
circumstances that would result in the Distribution being a taxable transaction.
Information with respect to the allocation of tax basis between Company
Common Stock and ERC Common Stock will be provided to shareholders at the time
of distribution of the account statements reflecting ownership of shares of
Company Common Stock.
RELATIONSHIP BETWEEN ERC AND THE COMPANY AFTER THE DISTRIBUTION
For purposes of governing certain relationships between ERC and the Company
after the Distribution and providing for an orderly transition, ERC and the
Company have entered into or will enter into various agreements, including those
described below. Copies of certain of the agreements are included as exhibits to
the Company's Registration Statement on Form SB-2 under the Securities Act
relating to the Company Common Stock, and the following discussions with respect
to such agreements are qualified in their entirety by reference to the
agreements as filed.
DISTRIBUTION AGREEMENT
ERC and the Company have entered into a Distribution Agreement (the
"Distribution Agreement"), which provides for, among other things, the principal
corporate transactions required to effect the Distribution, the transfer to the
Company of the principal assets of the Battery Business Group, the division
between ERC and the Company of certain liabilities and obligations, the
distribution by ERC of all outstanding shares of the Company Common Stock to ERC
stockholders and certain other agreements governing the relationship between ERC
and the Company.
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of obligations and liabilities and
cross-indemnities designed to allocate financial responsibility for the
obligations and liabilities arising out of or in connection with the battery
business to the Company and financial responsibility for the obligations and
liabilities arising out of or in connection with the fuel cell business to ERC.
The Distribution Agreement provides that ERC will retain a limited license
to use the technology transferred by ERC to the Company until all consents and
approvals to the transfer to the Company of the Three Circles License Agreement
and related Joint Venture have been obtained.
28
<PAGE>
The Distribution Agreement also provides that each of the Company and ERC
will be granted access to certain records and information in the possession of
the other, and requires the retention by each of the Company and ERC for a
period of ten years following the Distribution of all such information in its
possession, and thereafter requires that each party give the other prior notice
of its intention to dispose of such information. In addition, the Distribution
Agreement provides for the allocation of shared privileges with respect to
certain information (including, for example, the attorney-client privilege) and
requires each of the Company and ERC to obtain the consent of the other prior to
waiving any shared privilege.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be charged to the party for whose benefit the expenses are
incurred.
TAX SHARING AGREEMENT
ERC and Company have entered into a tax sharing agreement (the "Tax Sharing
Agreement") that defines the parties' rights and obligations with respect to
filing of returns, payments, deficiencies and refunds of federal, state and
other income, franchise or certain other taxes relating to ERC's business for
periods prior to and including the Distribution and with respect to the Company
after the Distribution. With respect to periods ending on or before the last day
of the taxable year in which the Distribution occurs, ERC is responsible for (i)
filing both consolidated federal tax returns for the ERC affiliated group and
combined or consolidated state tax returns for any group that includes a member
of the ERC affiliated group, including, in each case, the Company for the
relevant periods of time that the Company was a member of the applicable group,
and (ii) paying the taxes relating to such returns (including any subsequent
adjustments resulting from the redetermination of such tax liabilities by the
applicable taxing authorities). The Company is responsible for filing returns
and paying taxes relating to it for periods that begin before and end after the
Distribution and for periods that begin after the Distribution. ERC and the
Company have agreed to cooperate with each other and to share information in
preparing such tax returns and in dealing with other tax matters.
SERVICES AGREEMENT
Pursuant to the terms of the Distribution Agreement, and as a condition
precedent to the consummation of the transactions contemplated thereby, ERC and
the Company have entered into a Services Agreement (the "Services Agreement"),
under the terms of which ERC will provide to the Company certain management and
administrative services, as well as the use of certain office, research and
development, and manufacturing and support facilities and services. The Services
Agreement shall continue until terminated by either party upon 120 days' notice.
In addition, the Company may terminate the Services Agreement as to one or more
of the services, upon 60 days' notice to ERC.
The types of services to be provided pursuant to the Services Agreement by
ERC, through its employees, include financial reporting, accounting, auditing,
tax, office services, payroll, human resources, analytical lab, microscopic
analysis, machine shop and drafting, as well as the part time management
services of Jerry Leitman and Joseph Mahler. ERC will also provide office,
research and development and manufacturing space for the Company. The method of
calculating the applicable charges to be paid by the Company for each type of
service are set forth in the Services Agreement; such charges are payable
quarterly.
The Company estimates that the net fees to be paid to ERC for services
performed will initially be approximately $208,000 per quarter, excluding
certain services billed on the basis of usage, such as purchasing, analytical
lab, microscopic analysis, machine shop and drafting, which amount takes into
account ERC's additional costs related to providing such services, and will
decline as the services performed decrease. The Company presently expects that
most of such services will be provided by ERC for approximately one year.
29
<PAGE>
LICENSE ASSISTANCE AGREEMENT
The Company and ERC have entered into a License Assistance Agreement (the
"License Assistance Agreement") pursuant to which the Company has agreed to
provide all services and assistance necessary for the Company to effectively
fulfill, on behalf of ERC, all of ERC's obligations under the Joint Venture
contract and the Three Circles License Agreement, pending the receipt of certain
consents and approvals to be obtained prior to the transfer of this contract and
agreement to the Company, in exchange for payment to the Company by ERC of all
future remuneration paid and other benefits accruing to ERC pursuant to such
contract and agreement. See "BUSINESS--Partnerships, Joint Ventures and
Licenses." The intent of the License Assistance Agreement is to provide that the
Company will bear the obligations and receive the benefits of ERC under the
Joint Venture contract and license agreement. In addition, until such consents
and approvals are obtained, ERC has agreed that should any vacancy occur in the
Board of Directors of the Joint Venture relating to a directorship which ERC is
entitled to appoint, ERC will request a nominee from the Company to fill such
vacancy. In addition, in the event that the transfer of the Joint Venture
contract and the license agreement to the Company has not taken place within six
months from the date of the License Assistance Agreement, upon the request of
the Company, ERC will replace its appointees to the Board of Directors of the
Joint Venture with nominees specified by the Company. ERC also agrees to
exercise its residual rights and powers in the Joint Venture interests including
voting rights, in accordance with the Company's instructions. The Company has
also agreed to reimburse ERC for any expenses incurred by ERC under the License
Assistance Agreement; the Company anticipates that such expenses, if any, will
be minimal.
LINE OF CREDIT AND GUARANTEES
On February 5, 1999, the Company entered into a Loan Agreement and Line of
Credit Note (the "Line of Credit") to borrow up to $3,450,000 (including
borrowings described below) from ERC for working capital and capital
expenditures purposes. Any outstanding borrowings will be secured by all of the
Company's tangible and intangible personal property and bear interest at the
London Interbank Offered Rate (LIBOR) plus 1 1/2%, payable monthly in arrears.
The Line of Credit terminates on the earlier of August 5, 2000 or the date on
which the Company has received net proceeds from the Rights Offering or from
other financing equal to at least $3,450,000.
In addition to the Line of Credit, ERC has unconditionally guaranteed the
Company's obligations under a loan from First Union National Bank. The loan was
entered into by the Company for the purpose of acquiring machinery and
equipment. As of January 22, 1999, the Company had borrowed $821,000 of the
$1,000,000 available under this facility. ERC has also pledged $1,000,000 in
cash as security for this loan which will be payable from proceeds of the Rights
Offering. ERC has also guaranteed the Company's performance under its lease for
manufacturing and office space. In the event of a default by the Company under
the lease, ERC's liability is limited to $500,000 reduced each anniversary date
of the lease by $100,000. Notwithstanding the foregoing, the guaranty terminates
after the first anniversary of the lease upon the Company's net worth exceeding
$3,000,000.
ADDITIONAL INFORMATION
Stockholders of ERC with inquiries related to the Distribution should
contact Joseph G. Mahler, Acting Chief Financial Officer, Evercel, Inc., 3 Great
Pasture Road, Danbury, Connecticut 06813, telephone (203) 825-6000; or the
Company's Distribution Agent, Continental Stock Transfer & Trust Company, Two
Broadway, New York, New York 10004, telephone: (212) 509-4000 ext. 535.
30
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Rights Offering
depends on the number of Rights exercised. The maximum net proceeds to be
received by the Company are estimated to be approximately $7,346,000 assuming
the exercise of 1,389,000 Rights at the Subscription Price of $6.00 per share
and after deducting underwriting discounts and commissions and the estimated
offering expenses payable by the Company.
The Company intends to use the net proceeds from the Rights Offering as
follows:
<TABLE>
<CAPTION>
% OF NET PROCEEDS
-----------------
<S> <C> <C>
Leasing and equipping a new facility for limited production
and manufacturing purposes................................. $2,175,000 29.6
Repayment of outstanding indebtedness........................ $821,000 11.2%
Working capital and other general corporate
purposes (1)............................................... $4,350,000 59.2%
</TABLE>
- ------------------------
(1) Working capital and other general corporate purposes includes inventory,
accounts receivable, selling expenses, general and administrative expenses
and research and development expenses.
The foregoing amounts represent estimates only, and there can be no
assurance that the net proceeds will be used as anticipated. In addition, the
Company may invest in additional joint ventures and acquire other businesses or
technologies or products which are compatible with the Company's business for
the purpose of expanding its business, however the Company has no current
agreements, commitments or arrangements with respect to any proposed acquisition
and no assurance can be given that any acquisition will be made in the future.
Pending such applications, net proceeds are expected to be invested by the
Company primarily in high quality interest or dividend bearing instruments.
31
<PAGE>
DILUTION
The net tangible book value of the Company as of October 31, 1998 was
approximately $104,000, or approximately $0.08 per share of Common Stock. Net
tangible book value per share represents the amount of the Company's tangible
assets, less total liabilities, divided by 1,389,000 shares of Common Stock
outstanding.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by investors purchasing shares of
Common Stock at the Subscription Price in this offering and the pro forma net
tangible book value per share of Common Stock immediately after this offering.
After giving effect to the sale by the Company of 1,389,000 shares of Common
Stock offered hereby (at the exercise price of $6.00 per share, and after
deduction of underwriting discounts and commissions and estimated offering
expenses), the pro forma net tangible book value of the Company as of October
31, 1998 would have been approximately $7.5 million, or $2.70 per share. This
represents an immediate increase in pro forma net tangible book value of $2.62
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $3.30 per share (55%) to the investors purchasing shares
of Common Stock at the Subscription Price in this offering. New stockholders who
acquire Common Stock from the Underwriters at prices greater than the
Subscription Price will experience greater dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 6.00
---------
Net tangible book value per share before the offering..................... $ 0.08
---------
Increase per share attributable to new investors.......................... $ 2.62
---------
Pro Forma net tangible book value per share after offering.................. $ 2.70
---------
Net tangible book value dilution per share to new investors................. $ 3.30
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of October 31, 1998,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price paid per share by
the existing stockholders and by the investors purchasing shares of Common Stock
in the offering (at the offering price of $6.00 per share, before deduction of
underwriting discounts and commissions and estimated offering expenses) payable
by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................................... 1,389,000 50.0% $ 0.00 0.0% $ 0.00
Purchasers in the Offering............................... 1,389,000 50.0 8,334,000 100.0 $ 6.00
---------- ----- ------------ -----
Total................................................ 2,778,000 100.0% $ 8,334,000 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
The foregoing tables and calculations exclude 166,666 shares issuable upon
exercise of options outstanding as of February 3, 1999, granted under the
Company's 1998 Equity Incentive Plan at a weighted average exercise price of
$6.00. To the extent that such options are exercised in the future, there will
be further dilution to new investors. See "Management--Equity Incentive Plan."
DIVIDEND POLICY
The payment and amount of cash dividends on Company Common Stock after the
Distribution will be subject to the discretion of the Company Board. The
Company's dividend policy will be reviewed by the Company's Board of Directors
from time to time as may be appropriate and payment of dividends as the Company
Board deems relevant. Subject to the foregoing, the Company does not intend to
declare and pay any dividends after the Distribution for the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at October 31, 1998, (ii) the pro forma adjustments giving effect to the
combination of Evercel, Inc. and the Battery Business Group of ERC, the proposed
amendment and restatement of the Company's Certificate of Incorporation to
increase the authorized capital stock to 11,000,000 shares, and the Distribution
as if it had been completed at that date and (iii) the pro forma capitalization
of the Company as adjusted to give effect to the Rights Offering of 1,389,000
Rights and the net proceeds therefrom.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ------------- AS ADJUSTED
----------- (000'S) -----------
<S> <C> <C> <C>
Stockholders' Equity:
Preferred stock, $.01 par value; authorized-1,000,000 shares; issued and
outstanding-none............................................................ $ -- $ -- $ --
Common stock, $.01 par value; authorized-3,000 shares, actual; 10,000,000
shares, pro forma and as adjusted; issued and outstanding-100 shares,
actual; and 1,389,000 shares, pro forma; 2,778,000 shares, as adjusted...... -- 14 28
Additional paid in capital.................................................... 1 409 7,741
--- ----- -----------
Total stockholders' equity and capitalization............................. $ 1 $ 423 $ 7,769
--- ----- -----------
--- ----- -----------
</TABLE>
33
<PAGE>
SELECTED FINANCIAL DATA
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's statement of
operations for the fiscal years ended October 31, 1997 and 1998, respectively,
and from the Company's balance sheet at October 31, 1998:
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Contracts................................................................................... $ 144 $ 19
License fee income.......................................................................... 292 419
--------- ---------
Total revenues................................................................................ 436 438
--------- ---------
Cost and expenses:
Cost of revenues............................................................................ 98 87
Depreciation and amortization............................................................... 40 45
Administrative and selling.................................................................. 268 1,805(1)
Research and development.................................................................... 897 1,832
--------- ---------
1,303 3,769
--------- ---------
Loss from operations before income tax benefit................................................ $ (867) $ (3,331)
Income tax benefit............................................................................ (295) (1,006)
--------- ---------
Net loss...................................................................................... $ (572) $ (2,325)
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31,
1998(2)
-----------------
<S> <C>
Balance Sheet Data:
Total assets................................................................................. $ 1,176
-------
Working capital.............................................................................. (718)
-------
Stockholders' equity/net assets.............................................................. 423
-------
</TABLE>
(1) Includes charges of approximately $280,000 related to an uncompleted
acquisition.
(2) Pro forma to reflect the Distribution.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company has operated as the battery group of ERC since 1970. As part of
ERC, the Company's product sales emphasized very high performance cells for
submarine, aerospace and military markets where application needs and
engineering excellence outweighed low cost as the greatest concern. Several
battery technologies were pursued, including silver-zinc ("Ag-Zn"), nickel
cadmium ("Ni-Cd"), and Ni-Zn. During the mid 1970's to early 1980's, the Company
manufactured high energy-density Ag-Zn batteries for submarines and submersibles
for both main propulsion and auxiliary power. During the 1980's considerable
development work was carried out for the US Navy to develop Ni-Cd batteries for
nuclear submarines and for the U.S. Department of Energy ("DOE") to develop
Ni-Zn batteries for electric vehicles. Historically, the Company's development
activities were funded through corporate and government contracts as well as
internal research and development funds.
34
<PAGE>
United States Government contracts, which represented the bulk of these
contracts, are generally multi-year, cost reimbursement type contracts. Under
cost-reimbursement contracts ERC is reimbursed for reasonable and allocable
costs of materials, subcontracts, direct labor, overhead, general and
administrative expenses, independent research and development costs and bid and
proposal preparation costs, provided the total of such costs do not exceed the
reimbursement limits set by the contract. In addition, the contract may bear a
fixed fee or profit. The Company recently completed a cost reimbursement
contract with the National Institutes of Health and currently has no other
government contracts.
In early 1997, ERC commenced the first stages of commercialization of its
Ni-Zn battery technology, by entering into a license agreement with Corning,
Inc. to develop the technology and to manufacture and market batteries
worldwide. The Corning license was exclusive for all applications with the
exception of electric vehicles and hybrid electric vehicles ("EV/HEVs") for
which ERC retained all rights. During the latter part of 1997 and early 1998,
Corning validated the performance of the Company's Ni-Zn battery technology.
During fiscal 1998, Corning terminated the license with ERC for strategic
business reasons.
In February 1998, ERC entered into a license agreement (the "NanYa License
Agreement") with a joint venture between NanYa Plastics Corporation of Taiwan, a
Formosa Plastics Group company, and Xiamen Three Circles Co., Ltd. (formerly
Xiamen Daily-Used Chemicals Co., Ltd.) of Xiamen, China for the use of the
Company's Ni-Zn batteries in EV/HEVs in China on an exclusive basis and for
certain countries in Southeast Asia on a non-exclusive basis. The NanYa License
Agreement calls for payment of $5,000,000 in three stages and a royalty for the
exclusive and non-exclusive territories. $1,500,000 has been paid to ERC under
the NanYa License Agreement; $1,300,000 of this payment will be retained by ERC
who will remain liable for any repayment of this amount which could be required
in the event of unsatisfactory test results pursuant to the NanYa License
Agreement. See "BUSINESS--Partnerships, Joint Ventures and Licenses."
In July 1998, ERC entered into a license agreement (the "Three Circles
License Agreement") with Xiamen Three Circles-ERC Battery Corp., Ltd. for the
use of the Company's Ni-Zn batteries in electric bicycles, scooters, miners' cap
lamps and other applications. The Three Circles License Agreement included an
initial payment to ERC of $3,000,000. ERC used this $3,000,000 to obtain a 50.5%
ownership in the Joint Venture. This Joint Venture will manufacture and sell
batteries and pay royalties to ERC for the benefit of the Company under the
terms of the Three Circles License Agreement. The Three Circles License
Agreement will be subject to the terms of the License Assistance Agreement
between ERC and the Company. ERC intends to obtain the consent of Xiamen and the
Joint Venture and the approval of the appropriate examination and approval
authority of the PRC to the transfer of the Joint Venture and the Three Circles
License Agreement to the Company. See "BUSINESS--Partnerships, Joint Ventures
and Licenses."
FISCAL 1998 COMPARED WITH FISCAL 1997
Contract revenue decreased 87% to $19,000 in the 1998 period from $144,000
in the 1997 period. The decrease was due primarily to the completion of funding
of the National Institutes of Health contract.
License fee income increased 43% to $419,000 in the 1998 period from
$292,000 in the 1997 period. The increase was due substantially to license fees
received under the NanYa License Agreement and the battery license agreement
with Corning, Inc. as described above. During the 1998 period, Corning, Inc.
terminated its license with the Company. License fee income, net, in future
periods will not include payments from Corning, Inc.
Cost of revenue decreased 11% to $87,000 in the 1998 period from $98,000 in
the 1997 period. The decrease was due primarily to the lower contract revenue
partially offset by increased license costs.
Administrative and selling expense increased 574% to $1,805,000 in the 1998
period from $268,000 in the 1997 period. The 1998 period reflects an increase in
costs related primarily to the acceleration of the
35
<PAGE>
commercialization of the Ni-Zi battery technology. These included salary and
fringe benefits, and legal and professional costs related to the creation of
joint venture and licensing agreements with the Company's Chinese partner, the
unconsummated acquisition of a battery manufacturing company, and the costs of
the proposed Distribution and Rights Offering in connection with the spin off of
the Battery Group. These costs amounted to $400,000, $280,000 and $240,000,
respectively. The administrative and selling expense also includes approximately
$620,000 of ERC's administrative and selling expenses allocated to the Company
due to expanded battery activities. The administrative and selling expenses were
allocated based upon revenue, research and development activity and
administrative activity. Depreciation increased 12% to $45,000 in the 1998
period from $40,000 in the 1997 period. The increase was due primarily to the
purchase of machinery, equipment and tooling to support the expanded battery
activities. Research and development expense increased 104% to $1,832,000 in the
1998 period from $897,000 in the 1997 period. This was a result of increased
costs as compared to fiscal 1997 relating to the commercialization of the
battery technology.
INCOME TAXES
The Company has recorded a tax benefit for its losses to the extent such
losses have been recognized in the consolidated tax return of ERC.
Subsequent to the Distribution, the Company's income tax provision will be
recorded on a separate company basis, pursuant to the requirements of Financial
Accounting Standard No. 109 "Accounting for Income Taxes."
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting
Comprehensive Income" and No. 131 "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 130 requires companies to report
comprehensive income and SFAS No. 131 requires companies to report segment
information as it is used internally to evaluate segment performance. These
statements provide for additional disclosure requirements. The Company is
required to adopt these new standards in fiscal 1999. In June 1998 the FASB
issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activity"
which is required to be adopted in all fiscal quarters in all fiscal years
beginning after June 15, 1999. SFAS No. 133 is not expected to have a material
impact on the Company at this time.
During 1998, the American Institute of Certified Public Accountants
("AICPA") released its Statement of Position No. 98-1 ("SOP 98-1") "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" and
Statement of Position No. 98-5 ("SOP 98-5") "Reporting on the Costs of Start-Up
Activities," both of which are effective for fiscal years beginning after
December 15, 1998. SOP 98-1 requires that certain costs related to the
development or purchase of internal-use software be capitalized and amortized
over the estimated useful life of the software. SOP 98-1 also requires that the
costs related to the preliminary project stage and the post-implementation stage
of an internal-use computer software development project be expensed as
incurred. SOP 98-5 requires that the costs of start-up activities be expensed as
incurred. SOP 98-5 requires companies to report the initial application of the
standard as a cumulative effect of an accounting change. The Company is not
required to adopt these standards until fiscal 2000. Management believes that
the adoption of these standards will not have a material effect on the Company's
results.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has obtained all of its financial needs from ERC.
ERC has provided funding for all battery research activities under its research
and development expense budget. ERC has
36
<PAGE>
also provided all of the funding for capital expenditures for the purchase of
machinery and equipment for all battery activities.
The Company has entered into a Services Agreement with ERC to provide
certain management and administrative services and office, research and
development and manufacturing support facilities and services to the Company.
See "THE DISTRIBUTION--Relationship Between ERC and the Company after the
Distribution--Services Agreement."
The Company has entered into a lease for manufacturing and office space in
Danbury, CT. The lease term is five years with a five-year option to extend. The
annual rent is $171,000 for the first three years and increases to $178,125 in
year four and $185,250 in year five. ERC has guaranteed the Company's
performance of this lease. In the event of a default by the Company, ERC's
liability is limited to $500,000 reduced each anniversary date of the lease by
$100,000. Notwithstanding the foregoing, ERC's Guaranty terminates after the
first anniversary of the lease upon the Company's Net Worth exceeding
$3,000,000.
The Company has entered into an agreement pursuant to which it can borrow up
to $1,000,000 from First Union National Bank for the purpose of acquiring
machinery and equipment for the new battery manufacturing plant. As of January
22, 1999, the Company had borrowed $821,000 under this facility. The note is due
on June 30, 1999. ERC has unconditionally guaranteed the commitment and has
pledged $1,000,000 of cash against the Note. The Note is payable from the
proceeds of the Rights Offering.
Additionally, on February 5, 1999, the Company entered into a Loan Agreement
and Line of Credit Note to borrow up to $3,450,000 (including borrowings noted
above) from ERC for working capital and capital expenditures purpose. The Line
of Credit terminates on the earlier of August 5, 2000 or the date on which the
Company has received net proceeds from the Rights Offering or other financing
equal to at least $3,450,000. (See Note 11 to Notes to Financial Statements).
The Company anticipates that it will raise at least $7,000,000 of net
proceeds from the Rights Offering. The Company believes that these net proceeds,
together with license payments anticipated to be received under the NanYa
License Agreement, will be sufficient to support its planned operations for at
least the next twelve months. The Company estimates that it will use at least
$3,450,000 of cash to support its operations during this period, primarily to
lease and equip a new facility for limited production and manufacturing
purposes, for working capital and other general corporate purposes. See "USE OF
PROCEEDS." The Company's cash requirements will vary depending upon a number of
factors, many of which are beyond the control of the Company, including the
demand for the Company's products, the efforts and success of the Company's
licenses and joint venture partners in developing and marketing products
incorporating the Company's technology, the development of battery markets, the
level of competition faced by the Company and the ability of the Company to
develop, market and license new products and effectively manage operating
expenses. If and when the Company is required to raise additional funds, there
can be no assurance that the Company will be able to so on favorable terms if at
all. Failure of the Company to raise funds required to support its operations
would have a material adverse effect on the Company's business, financial
condition and results of operations and could result in a loss to the investors
in the Rights Offering of their entire investment.
Under the NanYa License Agreement, the Company expects to receive license
fee income upon the successful completion of a battery test required by that
Agreement. The Company expects to receive a portion of this license fee income
during the second fiscal quarter of 1999, assuming the test's successful
completion, and the remainder of the license fee income in fiscal year 2000. The
amount of these payments is expected to be $2,000,000 and $1,500,000 in fiscal
years 1999 and 2000, respectively.
The Company expects to continue to enter into license agreements, to
participate in joint manufacturing ventures and to expand its battery
manufacturing facilities. To participate in joint manufacturing ventures and to
expand its manufacturing facilities it may require additional capital.
37
<PAGE>
Working capital at October 31, 1998 was a negative $718,000. To date, ERC
has provided all of the working capital needs of the Company.
YEAR 2000 COMPLIANCE
The Year 2000 issue is a computer programming concern that may adversely
affect the Company's information technology systems. The Company believes that
it has taken reasonable steps to implement a Year 2000 compliance program
designed to ensure that the Company's computer systems and applications will
function properly beyond 1999. The Company is in the process of implementing a
new system that is Year 2000 compliant and believes that adequate resources have
been allocated for this purpose and expects the system implementation to be
completed on a timely basis. The Company does not expect to incur significant
expenditures to address this issue. However, there can be no assurance that the
Company will identify all Year 2000 problems in its computer and other systems
in advance of their occurrence or that the Company will be able to successfully
remedy any problems that are discovered. The expenses of the Company's efforts
to address such problems, or the expenses or liabilities to which the Company
may become subject as a result of such problems, could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the revenue stream and financial stability of existing or future
licensees, joint venture partners or customers may be adversely impacted by Year
2000 problems, which could cause fluctuations in the Company's revenues and
operating profitability.
QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE EXPOSURE
The Company's exposure to market risk for changes in interest rates relates
to the Company's short and long term debt obligations. The Company's notes
payable are expected to be paid in full in 1999 and have terms ending in 2000.
Based on the Company's overall interest exposure at October 31, 1998, including
all interest rate sensitive instruments, a near-term change in interest rate
movement would not materially affect the results of operations or financial
position of the Company.
CURRENCY RATE EXPOSURE
The Company's functional currency is the U.S. dollar. During 1998, ERC
invested $3,000,000 in the Joint Venture. ERC intends to transfer the Joint
Venture to the Company. This investment is currently being maintained in U.S.
dollars. Since the cash deposit with the Joint Venture is in U.S. dollars, the
Company's foreign currency risk is limited to the investment in the Joint
Venture. To the extent that the Company expands its international operations,
the Company will be exposed to increased risk of currency fluctuation.
38
<PAGE>
BUSINESS
THE COMPANY
The Company is engaged in the development and commercialization of an
innovative, patented, Nickel-Zinc ("Ni-Zn") rechargeable battery, as well as the
research and design of other advanced battery technologies. The Company believes
that its Ni-Zn battery technology offers high energy density and low material
costs, resulting in a low weight, high power battery with a substantial price
advantage over other comparable technologies. The Company's Ni-Zn battery has
been used on a limited test basis in a range of rechargeable battery
applications, including bicycles, scooters, electric vehicles, trolling motors
for boats, and lawn mowers. The Company also believes that its Ni-Zn battery may
be used in other rechargeable battery applications, including electric
wheelchairs, golf carts, power tools, and consumer and electronic products. The
Company intends to commercialize its Ni-Zn technology through a combination of
direct sales, licensing agreements and joint venture relationships.
The Company has operated as the battery group of ERC since 1970. Since its
inception, ERC has exclusively focused on the development and engineering of
electricity production and storage by electrochemical means. The technologies
which the Company, as part of ERC, has developed are appropriate for large
advanced rechargeable batteries for electric vehicles as well as small
rechargeable batteries for consumer products.
As part of ERC, the Company's product sales emphasized very high performance
cells for submarine, aerospace and military markets where application needs and
engineering excellence outweighed low cost as the greatest concern. Several
battery technologies were pursued, including silver-zinc ("Ag-Zn"), nickel
cadmium ("Ni-Cd"), and Ni-Zn. During the mid 1970's to early 1980's, the Company
manufactured high energy density Ag-Zn batteries for submarines and submersibles
for both main propulsion and auxiliary power. During the 1980's considerable
development work was carried out for the US Navy to develop Ni-Cd batteries for
nuclear submarines and for the U.S. Department of Energy ("DOE") to develop
Ni-Zn batteries for electric vehicles. Historically, the Company's development
activities were funded through corporate and government contracts as well as
internal research and development funds.
At present, the Company is focusing its efforts on the development,
demonstration and commercialization of its advanced Ni-Zn rechargeable battery.
The Company has developed patented technologies for use in its Ni-Zn batteries
which permit the manufacture of batteries that have long cycle life and are
lighter in weight and lower in cost than comparable batteries currently
available. The Company believes its batteries can compete cost-effectively with
Ni-Cd and nickel metal hydride ("NiMH") batteries and with lead acid batteries
in certain applications. Use of the Company's proprietary process in the
construction of Ni-Zn batteries has the additional advantage of having very low
environmental impact compared to lead-acid or Ni-Cd batteries.
The Company believes that its Ni-Zn batteries represent a potential source
of significant revenue once commercialization of such products is fully
undertaken. ERC has begun licensing the Ni-Zn technology to third parties within
the past year and currently has two license agreements, the NanYa License
Agreement, which will be assigned to the Company, for the use of the Company's
technology in batteries developed for EV/HEVs in China, Taiwan and certain other
countries in Southeast Asia, and the Three Circles License Agreement for the use
of the Company's technology in batteries to be used in miners' cap lamps and two
and three wheel vehicles, including bicycles, scooters and off-road vehicles in
China and Southeast Asia. In connection with the Three Circles License
Agreement, ERC has also entered into a joint venture agreement with Xiamen Three
Circles Co., Ltd. and has received a 50.5% ownership interest in the Xiamen
Three Circles-ERC Battery Corp., Ltd., for the manufacture and sale of batteries
under the terms of the Three Circles License Agreement. The benefits and
obligations of the Three Circles License Agreement and the Joint Venture
Agreement will be transferred to the Company pursuant to the terms of the
License Assistance Agreement.
39
<PAGE>
To further commercialize its Ni-Zn technology, the Company intends to pursue
a range of battery markets, each of which has performance requirements aligned
with the benefits Ni-Zn offers. However, since these markets range from
moderately-sized, current battery applications to large future markets, such as
electric vehicles, the Company intends to pursue a range of business strategies.
To capitalize on these opportunities, the Company plans to manufacture and sell
directly to OEMs, as well as continue to enter into joint venture agreements,
and license its technology to larger organizations with established
manufacturing or distribution capabilities in specific markets.
BATTERY TECHNOLOGY
A battery is an electrochemical apparatus used to store energy and release
it in the form of electricity. There are two types of batteries, primary and
rechargeable batteries, also known as secondary batteries. A primary, or
disposable, battery is used until discharged and then discarded. A rechargeable,
or secondary, battery can, after discharge, be recharged and used again. The
Company's Ni-Zn batteries are designed to be rechargeable.
Rechargeable batteries can often be used in battery applications where
primary batteries are most commonly employed. The Company is conducting research
and development of an advanced, rechargeable zinc-manganese dioxide battery
designed to compete with the most common consumer AA, C, D, etc. batteries.
Primary batteries are, in most cases, too costly for widespread use in
applications currently utilizing rechargeable batteries.
No one battery system is ideal for all rechargeable applications. There are
numerous performance variables which vary in importance by application. Each
commercially available battery system is stronger in certain areas and weaker in
others. Important variables include: voltage; energy capacity per unit weight
(energy density); energy capacity per unit of volume (volumetric energy
density); power or discharge rate capability (how rapidly energy can be drawn
from the battery or specific power); cycle life and how this varies with
discharge rate and depth of discharge; response to ambient temperatures; rate of
self-discharge; shelf life in charged and discharged states; size, shape and
design flexibility; time and other constraints on recharging; safety,
environmental and disposal considerations; and various application-specific
considerations. The needs of various battery applications place a different
priority on these characteristics, and, thus, require different solutions. In
addition, for each anode/cathode combination there are many alternative ways to
design a battery, involving choices of electrolyte and electrode materials and
how components are shaped and manufactured. Design choices involve trade-offs,
and as a result improvement in one element of a battery's performance often
comes at a sacrifice of another characteristic. A battery optimized for just one
characteristic may not be competitive if its performance in other areas is
inferior.
The Company selected Ni-Zn for development because of its potential to
compete well in several large rechargeable battery markets. The following chart
compares Ni-Zn to certain other competitive battery technologies.
BATTERY PERFORMANCE CHARACTERISTICS
<TABLE>
<CAPTION>
NICKEL-ZINC LEAD-ACID(1) NICKEL-CADMIUM(1) NICKEL-MH(1) LITHIUM-ION(1)
-------------- -------------- ---------------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Energy Density (Wh/kg)... 60--80 35-40 45--55 60--80 100--150
Specific Power (W/kg).... 500 >200 500 100--185 100
Cycle Life (deep
discharge)............. 600 200--300 700--1200 700--1200 400--1200
Cost ($/Wh).............. 0.15--0.50(2) 0.10--0.30 0.5--1.50 1.00--3.00 1.50--5.00
</TABLE>
- ------------------------------
(1) Handbook of Batteries, Edited by D. Linden (Second Edition) McGraw-Hill
Publisher (1995).
(2) The cost estimate assumes the high volume production levels anticipated to
be achieved in a large-scale manufacturing facility. There can be no
assurance that the Company will achieve these cost estimates.
40
<PAGE>
The following explains some of the key characteristics by which battery
systems are measured and compared:
ENERGY DENSITY measures the capability of the battery to store energy, in
watt-hours per kilogram, which is critical to a battery's competitiveness. The
greater the energy density, the lower the weight and generally the smaller the
package required to store and deliver a given amount of energy. Ni-Zn has about
twice the energy density of lead-acid systems and also has higher energy density
than Ni-Cd. Ni-MH has an energy density comparable to Ni-Zn, and is currently
being used for electric vehicle applications.
SPECIFIC POWER measures the ability to deliver power on demand and satisfy
the needs of a high current-drain device. Lead-acid is typically the best known
for starting a car. This is one of Ni-Zn's strongest capabilities, with
instantaneous power equal to Ni-Cd and significantly greater than Ni-MH. In
power tools, HEV and EV applications, this characteristic is as important as
energy density or total capacity. In lower current-drain applications like
laptops or hearing aids, energy density and practical run-time are more
important and lithium-ion and high energy-density, low current-drain zinc-air
systems are commonly used.
CYCLE LIFE is a measure of how many times the battery can be recharged
before it is replaced, which is important in affecting the cost in use and, to
an extent, convenience. Discharge and recharge cycles can be repeated a number
of times in rechargeable batteries, but the achievable number of cycles (cycle
life) varies among technologies and is an important competitive factor. All
rechargeable batteries experience a small, but measurable loss in energy with
each cycle. The industry commonly measures cycle life in number of cycles a
battery can achieve until 80% of the battery's initial energy capacity remains.
With only a modest 10% discharge, a Ni-Zn battery would be capable of over
11,000 (shallow discharge) cycles. Cycle life is application-specific,
temperature-dependent and driven by several other factors.
The deep discharge cycle life of the Company's current Ni-Zn battery is
competitive for its intended applications. However, gradual improvement from
over 600 cycles currently to 1000 deep discharge cycles in the future is one
research objective. This would increase the life-span in use for motive power
applications and make the cells even more cost-competitive.
COST is obviously important to the success of a battery system. With
automated production lines, lead-acid is the lowest cost rechargeable battery
today. In volume production the Company believes its Ni-Zn's cost will be close
to that of lead-acid and will offer higher performance. Competing
high-performance battery systems, such as Ni-Cd or Ni-MH, are unlikely to match
Ni-Zn's cost even with mass production, due to substantially higher material
costs. However, because the Company has not yet produced any of its Ni-Zn
batteries for volume production, there can be no assurance that the Company's
estimates of cost of volume production of its batteries will be accurate.
ENVIRONMENTAL AND SAFETY ISSUES surround most battery systems. Both nickel
and zinc, while not entirely harmless, are relatively benign compared to other
high-performance, rechargeable electrode materials. Lead is toxic, however there
are currently systems in place in the developed world to recycle lead. There is
pressure in Europe to ban or require recycling of Ni-Cd batteries due to the
poisonous nature of cadmium. It would be desirable, but difficult, to recycle
metal hydrides, given their high cost. Recharging batteries produces heat and,
in some systems, hydrogen. Li-ion batteries have caught fire. The Company's
Ni-Zn design appears to have no intrinsic safety problems. The prospect of
stricter environmental legislation relating to the manufacture, disposal and
recycling of batteries containing lead or cadmium, both of which are hazardous
and toxic, if enacted, could enhance the attractiveness of the Company's Ni-Zn
battery.
COMPANY PRODUCTS
The Company believes that its Ni-Zn battery represents a promising
commercial battery technology because of its long cycle life, high energy
density, and low material costs. Additionally, the low environmental impact of
materials contained in the Company's batteries compared to that of lead-acid or
Ni-Cd batteries provides advantages from an environmental standpoint. The
Company's Ni-Zn battery combines
41
<PAGE>
a low-cost, light-weight nickel electrode with the high-energy of
environmentally benign zinc to produce a rechargeable battery having a voltage
30% higher and an energy density per unit weight approximately 30% greater than
that of conventional Ni-Cd batteries. In tests conducted by the Company, the
Company's batteries have approximately 600 deep discharge cycles and
approximately 11,000 shallow discharge cycles. The Company believes that its
Ni-Zn batteries are suited to a wide range of applications including, among
other things, scooters and bicycles, electric vehicles, electric wheelchairs,
trolling motors for boats, lawn mowers, power tools, consumer and electronic
products, emergency and other portable lighting systems and automobile starting,
lighting and ignition.
The rechargeable Ni-Zn battery was first patented in 1923. During the early
1980's extensive research and development efforts were made by others to develop
a Ni-Zn battery with a satisfactory cycle life; these efforts were not
successful. More recently, the Company has solved many of the problems which had
been associated with the short cycle life. Patents have been granted to ERC and
will be transferred to the Company as part of the Distribution in which the zinc
electrode solubility (shape change) has been greatly reduced and construction
features provide for a sealed maintenance-free construction. In tests conducted
by the Company, the Company's batteries have achieved over 600 charge-discharge
cycles with only a 20% loss in capacity.
The Ni-Zn cell developed by the Company consists of layers of positive
(nickel) electrodes and negative (zinc) electrodes separated by both electrolyte
absorptive layers and microporous separator layers. The Company plans to
manufacture a range of cells in various energy capacities. These cells can then
be arranged in series and packaged to produce convenient voltages, such as
typical 12 volt blocks. The Company is supplying demonstration batteries to
various potential customers for evaluation and is conducting in-house testing of
its batteries for electric vehicles, electric bicycles and scooters. The EV
batteries are being evaluated in a European vehicle produced in Germany and are
also being supplied for evaluation to another European vehicle produced in
Norway. The batteries being evaluated in these vehicles have both recently
undergone successful preliminary testing, achieving ranges for these vehicles
approximately 2.5 times greater than that produced by lead acid batteries of
approximately equivalent weight. Also, batteries are being supplied to an
Italian company for electric scooters and to several start-up electric bicycle
companies in the United States. The Company is also working with bicycle
companies in China through ERC's joint venture partnership in Xiamen, China
(Xiamen Three Circles-ERC Battery Corp., Ltd.) to begin manufacture of the
Company's batteries which is currently anticipated to begin on a small scale in
late fiscal 1999.
The Company operates an extensive test facility for evaluation of all the
various size cells and modules being manufactured. At any given time there are
usually over 300 cells and batteries being life-tested by the Company.
BUSINESS STRATEGY
The Company's strategic goals are to rapidly commercialize its Ni-Zn
technology, maintain and increase its technical leadership in Ni-Zn, develop new
battery businesses which build on its Ni-Zn technology and continue to develop
other advanced battery technologies. The Company is implementing a business
strategy with the following components:
MANUFACTURE AND SELL RECHARGEABLE BATTERIES TO OEMS: The Company plans to
lease and equip a small-scale manufacturing plant in the United States to make
Ni-Zn batteries for sale to OEMs beginning in mid-1999. This plant is intended
to supply the lower volume, more specialized target markets which are expected
to be early users of Ni-Zn such as wheelchairs, lawn mowers, marine and other
motorized products.
LICENSE NI-ZN TECHNOLOGY: The Company has, and intends to continue to,
license its technology to entities who have the capability to develop
geographical markets for Ni-Zn batteries. License agreements are expected to be
restricted for selected application markets and geographical territories.
Licensing
42
<PAGE>
arrangements will require licensees to pay the Company royalties on sales and,
where feasible and appropriate, up-front fees for technology transfer.
ENTER INTO JOINT VENTURES AND EQUITY PARTICIPATIONS WITH LICENSEES: ERC has
and the Company may continue to seek equity participation in the battery
businesses of its licensees. Ownership positions in such licensees may be part
of the license structure. Cash payments for ownership positions negotiated to
date have been made from the proceeds of license fee payments payable to ERC.
IDENTIFY LICENSEES TO PRODUCE SPIRAL-WOUND NI-ZN BATTERIES: The Company
does not currently plan to invest in the manufacture of standard-sized, small,
spiral-wound rechargeable batteries comparable to the AA, Sub-C and C
conventional batteries used in high-volume applications such as consumer and
electronic products. The Company intends to pursue one or more licensees to
produce and market these cells. These licensee partners may be established
battery manufacturers rather than OEMs or new entrants into the battery
business.
IMPROVE NI-ZN BATTERY AND DEVELOP ALKALINE BATTERY: The Company intends to
continue its research and development efforts to improve its Ni-Zn battery, most
notably with respect to cycle life. In addition, the Company plans to devote
substantial research and development efforts to developing another related
alkaline battery technology.
Because the Company's strategy is a long term strategy, the Company does not
anticipate that the net proceeds from the Offering will be sufficient to fully
implement its strategy.
MARKETS
Electric vehicles and hybrid electric vehicles and a range of motive power
applications are significant potential markets for the Company's Ni-Zn battery.
The Company believes that markets for the Ni-Zn battery include the existing
markets for Ni-MH and Ni-Cd, such as power tools, high-end portable lighting,
and consumer and electronic products. In addition, the Ni-Zn battery has the
potential to compete in the upper cost segment of the lead acid battery markets
where it would enjoy a substantial weight advantage.
SIZE AND GROWTH
The world battery industry totals approximately $33 billion of
manufacturers' shipments, growing at 6-8% per year. This total includes primary
batteries ($9.8 billion), motive power batteries ($2.1 billion), high
performance rechargeable batteries ($6.1 billion) and starting, lighting and
ignition batteries ($15 billion). These four major types of batteries are sold
into a wide array of different markets, some of which the Company does not
intend to enter. These different markets frequently require different battery
systems and have different competitors.
REQUIREMENTS
EVS AND MOTIVE: The Company estimates that the total worldwide market for
EVs/HEVs and other motive power that could use the Company's batteries was $700
million in 1997; however, precise statistics are not available. The market for
electric vehicles is now in the early stages of development and many of the
vehicles on the road are prototypes. The market for EVs is predicted to grow
rapidly after the year 2000, and projections for annual growth rates for EV's
and motive batteries are expected to accelerate from 7% annually from 1997-2002
to approximately 22% annually, reaching $8 billion of sales in 2007.
Successful battery development has been a barrier to the emergence of a
large EV market. Lead-acid batteries, while potentially cost effective, are too
heavy to give adequate vehicle range. Other higher energy density battery
systems including Ni-MH, Ni-Cd, lithium-ion ("Li-ion") as well as Ni-Zn are
being tested in vehicles. The Company believes that its Ni-Zn battery has
adequate energy density to permit acceptable vehicle range and has the potential
to be produced at lower cost than the most likely other contenders for the EV
market.
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Recently, HEVs have also received more interest and development efforts. An
HEV combines a battery/electric motor drive, which is typically used for
acceleration to a predetermined speed, with an alternative drive system, such as
a small internal combustion engine, which takes over when the power requirements
are lower at steady highway speed. Toyota has reported mileages of greater than
60 mpg for its Prius HEV. HEVs are likely to use similar battery systems to EVs,
albeit in smaller capacity battery packs.
The other motive power applications for rechargeable batteries include
scooters and bicycles; industrial trucks; neighborhood vehicles; golf carts;
electric wheelchairs, and marine batteries. These markets are primarily supplied
by lead-acid (and some Ni-Cd) batteries today. These markets have been grouped
with EVs rather than automotive batteries because of their need for the deeper
discharge (deep cycle) capability which is required in the EV/HEV markets.
The motive power markets differ in their requirements, however. Target
markets for the Company's battery include the electric bicycle market,
particularly in China and the electric wheelchair market; however, there can be
no assurance that these markets will develop as projected. The deep-cycle marine
market values the benefit Ni-Zn offers in providing a multi-year life; the
industrial truck market, in contrast, sees little benefit to weight savings as
lead-acid batteries are used as counterweights. The Company believes its Ni-Zn
technology is particularly well suited to motive power applications due to its
combination of low weight, high specific power and acceptable cost.
HIGH PERFORMANCE AND OTHER RECHARGEABLE BATTERIES: The worldwide market for
rechargeable batteries, excluding automotive, motive power and specialty battery
systems is approximately $6.1 billion, growing at 7% to 8% per year. The
following table details the market size and growth of this market, and are
estimated from a variety of industry sources. The growth rate of individual
application markets varies widely, with the small cell, portable rechargeable
markets generally representing the faster-growing sectors, resulting primarily
from the continued development and proliferation of new portable electronic
products. There can be no assurance that these projected growth rates will be
achieved.
<TABLE>
<CAPTION>
1997 SALES GROWTH RATE
($ BILLION) (% PER YEAR)
------------- -----------------
<S> <C> <C>
Power Tools......................................................... 2.0 8
Emergency Power & Light............................................. 1.5 7
Telephones & Communications......................................... .8 10
Military/Aerospace.................................................. .5 4
Computers & Electronics............................................. .4 12
Medical............................................................. .3 15
Toys................................................................ .3 6
Power Condition..................................................... .15 5
Signaling........................................................... .15 5
-- --
TOTAL............................................................. 6.1 7.8
-- --
-- --
</TABLE>
The market for portable rechargeable batteries consists of three major
technologies and is measured on a per unit basis as follows: 1) Ni-Cd, presently
approximately 62% of the market, 2) Ni-MH, approximately 31% of the market and
3) lithium-ion ("Li-ion"), approximately 7% of the market. Approximately 75% of
all cells are assembled into battery packs for use in a variety of portable
devices. Increasingly, these packs contain sophisticated electronics for power
management and safety.
Ni-Cd is the oldest commercialized rechargeable system in the market. Ni-Cd
cells can be employed in battery packs without high-cost electronics and safety
devices and enjoy a substantial price advantage over Ni-MH and Li-ion cells. In
the last decade, Ni-Cd has increasingly been the subject of tightening
environmental and workplace regulations and related pressures for recycling and
mandatory collection due to the toxicity of cadmium as a principal component.
However, pressures to enforce mandatory collection
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schemes or even to ban Ni-Cd have partially abated due to industry-wide
recycling efforts. Although Ni-Cd will remain attractive in certain applications
which do not experience a significant performance benefit from other
technologies and are sensitive to their higher cost, industry analysts believe
growth in this segment will remain relatively flat.
Ni-MH technology, which typically offers a 25% to 40% advantage in energy
density relative to Ni-Cd, was commercialized in the early 1990's. Because it
employs a metal hydride electrode rather than a cadmium electrode, Ni-MH is
considered an environmentally preferred technology and has increased its market
penetration in several applications and geographic regions as a result of this
attribute. However, Ni-MH cells and batteries typically carry a substantial cost
premium relative to Ni-Cd.
Li-ion battery technology was also commercialized in the early 1990's.
Production of Li-ion cells has increased from 15 million cells in 1994 to an
estimated 200 million cells in 1997. Li-ion technology offers the highest energy
density of all commercial rechargeable technologies on the market today. On a
weight basis, the technology offers 2 to 3 times the energy content of Ni-Cd and
offers higher voltage (3.6 volts per cells) than Ni-MH or Ni-Cd (1.2 volt)
technologies. Lithium-based technologies are expected to experience high growth
rates. Li-ion cells and batteries are expected to continue to be more expensive
than the Company's Ni-Zn cells.
Ni-Zn technology is in the early stages of commercialization by the Company.
Ni-Zn cells can be employed in battery packs without high-cost electronics and
safety devices. Ni-Zn cells are considered the safest and most environmentally
benign of the rechargeable technologies available today. The Company expects
Ni-Zn to enjoy a substantial price advantage over Ni-Cd, as well as Ni-MH and
Li-ion battery system, assuming high volume production levels. Ni-Zn cells offer
a 30% volts per cell advantage over Ni-MH and Ni-Cd. The Company believes that
Ni-Zn's greatest benefits will be in rechargeable battery markets that require a
high specific power (i.e., a high wattage capability per unit of weight), high
specific energy (i.e., a high capacity per unit) and a favorable cost, such as
EV/HEV, power tools, bicycles and neighborhood transportation.
Ni-Zn also offers a weight advantage over current starting, lighting and
ignition batteries, due to its higher specific energy, as well as other
performance advantages which the Company believes may be of only minor benefit
to automotive OEMs. The Company's Ni-Zn batteries are being tested by a European
automotive OEM for use in higher voltage electrical systems for vehicles. These
benefits may offset the moderately higher cost of Ni-Zn. The success of the
Company in capturing a market share in the starting, lighting and ignition
market will depend on, among other factors, the timing and degree to which
automotive manufacturers adopt these higher voltage electrical systems.
PRIMARY BATTERIES: Primary battery sales were estimated to be $9.8 billion
in 1997 on a worldwide basis. This market is estimated to be growing at an
annual rate of 7-8%, resulting primarily from sales growth of consumer and
electronic products.
The portable primary battery industry consists primarily of three major
technologies: alkaline 69% of the market; carbon-zinc or chloride-zinc, 7% of
the market; and lithium, 7% of the market. An additional 7% of the market is
comprised of other primary chemistries including silver-oxide, zinc-air and
mercury batteries.
Alkaline batteries, with a growth rate of approximately 9% annually, are
expected to continue to dominate the consumer market. Consumer applications
range widely, from flashlights to products such as motorized toys, electronic
games, tape players, compact disk players, radios and other portable electronics
products. Industrial applications include battery powered equipment used in the
workplace and for OEM applications including computer clock power supplies and
various portable products packaged with batteries.
Portable rechargeable batteries compete for many of the same markets as
primary batteries, particularly in those applications which require a relatively
high current drain where disposable batteries can be costly. Ni-Cd rechargeables
have the largest share of these markets. The Company does not intend to
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compete with its Ni-Zn batteries for the primary battery market, other than
through licensees, although research is being conducted by the Company with
respect to other zinc rechargeable batteries which may offer consumers the
economic savings of rechargeability at a modest initial cost premium over an
alkaline battery. See "--Research and Development."
COMPETITION
Competition in the battery industry is, and is expected to remain, intense.
Competitors range from development stage companies to major domestic and
international companies, most of which have financial, technical, manufacturing,
marketing, sales and other resources significantly greater than those of the
Company. There are at least two, and possibly more, other battery manufacturers
in the world who have demonstrated interest in developing and marketing Ni-Zn
rechargeable batteries. The Company does not perceive these competitors, who are
significant battery producers, to be its prime competition as their technology
development is believed to be less advanced than that of the Company. The
Company expects to be competing against suppliers of lead-acid, Ni-Cd, and Ni-MH
rechargeables, as well as other rechargeables and potentially primary battery
technologies. The Company is competing on the basis of battery performance, the
price and economics of its batteries, as well as usage considerations
(stability, safety, environmental).
Lead-acid rechargeable batteries are mass produced at low cost for the
automotive starting, lighting and ignition market. Ni-Zn batteries are likely to
remain more costly than lead-acid batteries but offer advantages in performance.
The Company only intends to compete against lead-acid batteries in the more
specialized markets willing to pay a price premium for superior performance.
Major suppliers of such batteries include Johnson Controls and Exide. Several
other battery manufacturers are attempting to develop and market higher
performance versions of lead-acid batteries. The Company believes it is unlikely
that those developments will match the performance of Ni-Zn.
Most of the world's major automotive companies are engaged in electric
vehicle development and limited production. Vehicles vary from prototypes to
commercial offerings. Many automotive companies, as well as major battery
manufacturers, are sponsoring the development of higher performance batteries
for EV's. For example, General Motors, Ford and Chrysler are members of the US
Advanced Battery Consortium. Numerous battery chemistries are being pursued so
that there is uncertainty over the system of choice long term. Ni-MH appears to
currently be the most popular choice among technologies which can broadly match
Ni-Zn's performance. Because of significantly higher material costs the Company
believes Ni-MH batteries will be more costly to produce than Ni-Zn.
Ni-Cd and Ni-MH rechargeable batteries are mass produced. The Company
believes that its Ni-Zn batteries can be made at lower cost in volume production
and offer generally comparable to superior performance. Ni-Cd and Ni-MH
batteries are currently supplied to consumer products and consumer electronics
OEMs by battery manufacturers who are frequently affiliated with the OEMs. These
relationships and the substantial lead times OEMs require to incorporate new
battery designs into their products, could hinder the Company's attempt to
substitute for Ni-Cd and Ni-MH batteries.
Lithium-based battery systems offer significant performance advantages over
many other rechargeable battery technologies. Lithium batteries are currently
substantially more costly than Ni-Cd and even Ni-MH cells but have found
applications willing to pay the price premium for enhanced performance. The
Company only intends to compete with Ni-Zn against lithium in those applications
where there is a value-conscious sector of the market. Several manufacturers
currently offer lithium batteries to consumers and to OEMs in substantial
volumes, and have announced that they are increasing manufacturing capacity.
SALES AND MARKETING
The Company intends to build a sales and marketing organization to focus on
the following;
- To generate direct sales to OEMs and distributors in selected applications
and geographical territories.
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- To develop joint venture partnerships for manufacturing and distribution
in applications and geographical territories for which the Company
believes strategic partners can improve its chances of success.
- To license its technology and know-how to strategic partners in
applications and geographical territories for which the above two business
models are not appropriate.
The Company will focus its direct marketing efforts on those applications
which represent specialty niches where the Ni-Zn battery technology has
significant competitive advantages and where the channels of distribution are
relatively narrow. An example of such an application is the electric wheelchair
market. For those areas where broad distribution is required, the Company
believes a joint venture manufacturing and/or sales partnership with companies
who have a position in the distribution channels will be a more effective way to
exploit the technology in a shorter amount of time. An example of such an
application and a geographical area is the Company's license agreement and joint
venture with Xiamen for China and Southeast Asia. The Company intends to license
its technology for those applications which require very large capital
investment in manufacturing and very broad distribution channels, such as
consumer electronics and power tools. See "--Partnerships, Joint Ventures and
Licenses."
Upon establishment of the core joint venture manufacturing and sales
agreements, the Company expects to use the manufacturing capability of the joint
ventures to sell directly to OEMs in other geographical territories. An example
may be to use the China joint venture production capability for batteries for
bicycles to satisfy the North American and/or European markets for these
products.
The Company expects to employ an initial sales and marketing organization
consisting of a marketing and sales manager and three sales engineers, each
specializing on one or more applications. The Company has hired a new Director
of Marketing and Sales. See "MANAGEMENT--Key Employees." The Company currently
employs a sales representative for Europe, MATEC GmbH, and the representative
arrangement is expected to continue.
PARTNERSHIPS, JOINT VENTURES AND LICENSES
In January 1997 ERC entered into a license agreement with Corning, Inc. to
continue the development of the Ni-Zn battery and to manufacture and market
batteries worldwide. This license was exclusive for all applications with the
exception of EV/HEVs for which ERC, the parent of the Company, retained all
rights.
After approximately one and one-half years and having successfully validated
the performance of the Company's technology, Corning decided for strategic
business reasons to discontinue its development of certain energy related
products, including the Company's batteries, and as a result discontinued the
license agreement with ERC. This has allowed the Company to seek business
opportunities which had previously been reserved exclusively for Corning.
In February 1998, ERC entered into a license agreement (the "NanYa License
Agreement") with a joint venture between NanYa Plastics Corporation of Taiwan, a
Formosa Plastics Group company, and Xiamen Three Circles Co., Ltd. of Xiamen,
China for the use of the Company's Ni-Zn batteries in EV/HEVs in China, Taiwan,
Hong Kong and Macao on an exclusive basis and for certain other Southeast Asian
countries on a non-exclusive basis. The license agreement calls for the payment
of $5,000,000 in three stages. The payments include $1,500,000 received by ERC
in 1998, $1,300,000 of which will not be transferred to the Company, a further
$2,000,000 to be paid to the Company upon completion of certain conditions which
the Company expects will occur in the second fiscal quarter of 1999, and a final
payment of $1,500,000 to be paid to the Company upon completion of duplication
of the battery at its facilities in China. In addition, the NanYa License
Agreement requires the licensee to pay to the Company royalties on sales of
batteries during the term of the Agreement. At either party's option, the
license may become non-exclusive with respect to all covered territories after a
certain time period, in which case the percentage royalty payable on product
sales will be reduced. The NanYa License Agreement provides that
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<PAGE>
ERC has the right to invest the final payment in equity in the joint venture
manufacturing and sales organization formed between NanYa Plastics and Xiamen
Three Circles Co., Ltd. ERC has agreed to seek the consent of the other parties
to the NanYa License Agreement to the assignment of such Agreement to the
Company; while the Company does not anticipate a problem in obtaining this
consent, the failure to do so could result in the Company being unable to invest
in such joint venture even if it chooses to do so.
In July 1998, ERC entered into a joint venture with Xiamen Three Circles
Co., Ltd. ("Xiamen"), called Xiamen Three Circles--ERC Battery Corp., Ltd. (the
"Joint Venture"). Prior to forming the Joint Venture, ERC entered into a
Technology Transfer and License Contract (the "Three Circles License Agreement")
with Xiamen for the use of the Company's Ni-Zn batteries in electric bicycles,
scooters, three-wheel vehicles, off-road vehicles, and miner's safety lamps in
China on an exclusive basis and in Southeast Asia on a non-exclusive basis. The
license was entered into with the agreement of Xiamen to make the Joint Venture
a party to the Three Circles License Agreement in its place following the
formation of the Joint Venture. The license included an initial payment to ERC
of $3,000,000. ERC used this $3,000,000 as its initial investment in the joint
venture, and received a 50.5% share of the Joint Venture. ERC reserves exclusive
rights for exporting batteries from the Joint Venture to other territories
outside of the exclusive and non-exclusive field territories. The Company
expects to use the production capability of this Joint Venture to produce
batteries to sell to OEMs and distributors. Pursuant to the Three Circles
License Agreement, the Joint Venture must also pay ERC certain royalties based
upon the net sales of Ni-Zn batteries sold, leased or transferred in the
applicable territories. In addition the Joint Venture may sub-license the
Company's technology to third parties in China, Hong Kong, Taiwan and Macao on a
non-exclusive basis.
The Joint Venture is managed by a Board of Directors consisting of five
individuals, two of whom are appointed by Xiamen-Three Circles Co., Ltd. and
three of whom are appointed by ERC. Under the Joint Venture contract, ERC is
responsible for assisting the Joint Venture with the selection and purchase of
machinery, equipment and materials outside China; assisting the Joint Venture in
marketing, sales and distributions of batteries outside of China; assisting the
Joint Venture's working personnel in obtaining visas for entrance to the United
States for necessary training; handling matters in respect to export licenses
for technology as relates to the Three Circles License Agreement; and handling
other matters as requested by the Board of Directors of the Joint Venture.
The Joint Venture contract anticipates that the Joint Venture will derive
revenue primarily from sales of batteries ("Battery Revenue") and from
sub-licenses of ERC's technology, including revenue received from payment for
the transfer of the technology ("Sub-License Transfer Revenue") and revenue
received from the payment of royalties for use of the technology ("Sub-License
Royalty Revenue") (collectively, "Sub-License Revenue"). The Joint Venture will
allocate the costs and expenses of producing Battery Revenue and Sub-License
Revenue to separate accounts containing funds received in respect of Battery
Revenue and Sub-License Revenue. Sub-License Revenue will be allocated to
sub-accounts for Sub-License Transfer Revenue and Sub-License Royalty Revenue.
Under the terms of the contract, after certain royalties and other priority
returns are paid to the Joint Venture partners from the Battery Revenue and
Sub-License Revenue sub-accounts, the net income of the Joint Venture is shared
by the Joint Venture partners in accordance with their respective interests.
Distributions are generally either made quarterly or annually, depending upon
the nature of the payment.
The Joint Venture contract may be terminated by either party upon a material
breach of the contract or upon bankruptcy of either party to the contract. The
Joint Venture contract is governed by the laws and pertinent rules and
regulations of the PRC.
In order for ERC to transfer the Joint Venture contract and the Three
Circles License Agreement to the Company, ERC has been advised by its local
counsel that the consent of Xiamen and the Joint Venture and the approval of the
appropriate examination and approval authority of the People's Republic of China
is required. ERC has agreed to seek these consents and approvals, however, there
can be no assurance that these consents and approvals will be obtained on a
timely basis or at all. Pending receipt of these consents
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and approvals, ERC and the Company have entered into a License Assistance
Agreement pursuant to which the Company has agreed to provide all services and
assistance necessary for the Company to effectively fulfill, on behalf of ERC,
all of ERC's obligations under the Joint Venture contract and Three Circles
License Agreement in exchange for payment to the Company by ERC of all
remuneration paid and other benefits accruing to ERC pursuant to such
agreements.
The relationship between ERC and the Company in connection with The Three
Circles License Agreement and the Joint Venture contract will also be governed
by the License Assistance Agreement. See "THE DISTRIBUTION--Relationship Between
ERC and the Company after the Distribution--License Assistance Agreement."
MANUFACTURING AND RAW MATERIALS
All the materials required to manufacture the Company's Ni-Zn battery are
readily available from multiple sources in North America. The Company's
principal raw materials for the production of its battery products are nickel
and zinc. Prices for both nickel and zinc, as commodities, are subject to market
forces beyond the control of the Company.
FACILITIES AND EQUIPMENT
CURRENT FACILITIES
The current battery group's facilities occupy 7,300 square feet of space
within an ERC building, comprising research and development laboratories, an
electrical cycling/testing area, a prototype battery building area and 1000
square feet of office space. The Services Agreement provides for the use of this
space until the Company moves into its new facilities in mid-1999 in exchange
for the payment of the Company's pro rata portion of all building related costs
and expenses.
Capital equipment currently in use by the battery group will be transferred
at its depreciated book value to the Company. This includes six electrical
formation and test systems, four Schultz French rolling machines, an Amtech
Advanced Ultrasonic welding system, a metal perforating system, and an
electrochemistry laboratory.
NEW FACILITIES
The Company has entered into a lease for approximately 28,500 square feet of
space in Danbury, Connecticut, to be used as a small-scale manufacturing plant
for Ni-Zn battery production and for office space. The lease term is five years
with an option for the Company to extend the term for an additional five years.
The annual rent is $171,000 for the first three years and increases to $178,000
in year four and $185,000 in year five. ERC has guaranteed the Company's
performance under the lease. In the event of a default by the Company, ERC's
liability is limited to $500,000 reduced each anniversary date of the lease by
$100,000. Notwithstanding the foregoing, ERC's Guaranty terminates after the
first anniversary of the lease upon the Company's net worth exceeding
$3,000,000. The small-scale Ni-Zn manufacturing plant will be designed to be
flexible enough to produce batteries for the different markets which will be
pursued. Different size batteries will be produced by combining different
numbers of a common cell design into varying combinations of cells in series and
parallel arrangements. The intended flexibility precludes investment in a
completely automated facility which would have the potential for the lowest
direct labor cost per unit. As the markets for higher volume batteries are
proven, the Company intends to progressively automate production to reduce
production costs.
ENVIRONMENTAL, SAFETY AND REGULATORY
Ni-Zn batteries are more environmentally acceptable than other commonly
available rechargeable battery systems. Ni-Zn batteries contain no cadmium,
mercury or other highly toxic materials which are difficult to dispose of under
current environmental regulation. The Company anticipates very little waste
generation due to the simple manufacturing technology utilized. There are no
effluents in waste water.
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Electrode materials in dough form can be reprocessed and reutilized in the
process, thereby producing low levels of waste. The solvent used in the
electrode production process can be reclaimed, purified and reintroduced into
the manufacturing process with low levels of waste.
PATENTS, TRADE SECRETS AND TRADEMARKS
The Company has ten US patents with an average of 11 years left before
expiration. The Company's patents will expire during the period from 1998
through 2017. The Company does not believe that the expiration of any of its
earlier patents will have a material adverse effect on the Company's business.
The Company has Illuma as a registered trademark at this time and the Company
has applied to use "Evercel" as a trademark. There can be no assurance that the
Company will receive trademark protection for "Evercel."
The Company seeks to protect its technology through U.S. patents and trade
secrets and other agreements. Many of these patents are also filed in Canada,
Europe, Japan, and China. The Company has received one new U.S. battery patent
in fiscal year 1997. Also, the Company has three outstanding battery patent
applications filed in recent years.
Many of the Company's United States patents were the result of
government-funded research programs. The Government does not impose significant
restrictions on the Company's use of government-sponsored patents, except that
military and national security applications of technology remain the property of
the United States Government. Patents of the Company that were the result of
government-funded research prior to January 1988 (the date the Company qualified
as a small business under applicable government regulations) belong to the
Government unless the Government waives its rights to these patents. In most of
these cases, the Company's patents are owned by the United States Government.
The Company has received a license to use these patents, which is revocable only
in the limited circumstances where it has been demonstrated that the Company is
not making an effort to commercialize the invention. Patents resulting from
government-funded research after January 1988 automatically belong to the
Company because of ERC's small business status. In both instances, however, the
Government retains a royalty free right to use the patents for government
purposes and "march-in" rights with respect to the patents. March-in rights
allow the Government to take title to the patents and to license the patented
technology to others if the Government believes that the Company is not
utilizing the patents. A number of the Company's patents are subject to march-in
rights. The Company believes, however, that the likelihood of the Government
exercising these rights is very small and would only occur if the Company ceased
its commercialization efforts.
There can be no assurance that the issued patents or the licensing rights of
the Company will fully, or even partially, protect the Company's technology from
competitors' approaches, or that new patent applications will be allowed. There
can be no assurance that the Company would be successful if any challenges are
made by the Company to the patents of other parties or that other parties will
not be successful in asserting infringement claims against the Company. Further,
because of the intense competition in battery technology and the large number of
patents filed, or being filed, no assurance can be given that the Company will
not need another Company's patent under a license agreement, if such an
agreement could be reached or what the terms of that agreement might be. Any
determination that the Company's products or manufacturing processes have
infringed on the product or process rights held by others could have a material
adverse effect on the Company's business and results of operation. Additionally,
adverse determinations could result in the Company's loss of proprietary rights,
subject the Company to liability to third parties or prevent the Company from
manufacturing or selling its products, any of which could have a material
negative effect on the Company's business and hinder the Company's
commercialization initiatives.
The Company has not filed for patent protection in certain potential major
markets such as India and Southeast Asia. Agreements reached with partners in
these areas would have to be based on trade secrets and know-how. In the future,
the Company may seek patent protection in those areas.
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The Company also relies on know-how and trade secrets to establish its
battery technologies for commercial applications and there is no assurance it
can adequately protect this information in its dealings with other entities.
There can be no assurance that other organizations will not develop similar or
better information through their own efforts.
RESEARCH AND DEVELOPMENT
DEVELOPMENT OF NI-ZN
The Company expects to continue working on improving the characteristics of
its Ni-Zn batteries to provide a longer cycle life and higher energy density,
including the following research objectives:
SUPPORT FOR POTENTIAL AND CURRENT LICENSEES: New applications for Ni-Zn
offer the opportunity to optimize the cell design to better meet the customer's
desired specifications. Troubleshooting and general technical service for
existing licensees will be conducted by the research and development group.
TESTING OF NI-ZN IN EV'S, ELECTRIC BICYCLES AND SCOOTERS: The Company
started to conduct performance testing with vehicles from several different EV
manufacturers during the second quarter of 1998. Goals include measuring range
and other performance characteristics as a function of varied vehicle duty
cycles. Electric bicycles from Golden Dragon Bicycle Company in Xiamen have also
been received for testing, along with a scooter from another company.
BATTERY MANAGEMENT SYSTEM DEVELOPMENT ("BMS"): One of the primary reasons
for the Company conducting the EV tests in-house is to be able to monitor the
way individual cells, as well as the vehicle, behave during discharge/recharge
cycles. Finalizing the Ni-Zn BMS design is important to ensure customers get the
performance the cells are designed to provide and that the practical cycle-life
matches design. This task also will be completed by the ZSW Institute in Germany
under contract to ERC.
PERFORMANCE IMPROVEMENT: The performance of all batteries varies with
temperature; with specific power declining as temperature declines. The Company
plans to conduct research to improve the low temperature performance of its
Ni-Zn battery. Other technical goals include increasing cycle life from over 600
to 1000 and further improving energy density. The work will center on improved
electrode materials and separator systems.
OTHER ZINC BATTERIES
The research and development of other rechargeable zinc battery technologies
is the main non-Ni-Zn battery research being pursued. The Company is developing
a rechargeable zinc battery which if successful has the potential to compete for
the primary cell market at a price close to that of common primary cells, using
the Company's zinc electrode technology. The overall near-term goals for the
program are to achieve greater than 100 cycles with only a 20% decay in capacity
and achieve a potential production cost that is not significantly higher than
that of commonly available alkaline cells. If this product is successfully
developed, it has the potential to open up a different, large consumer market
for the Company.
Certain research and development on this battery is being conducted through
a cooperative technology joint venture which includes ERC and Xiamen, with
assistance from Xiamen University. In the Distribution Agreement, ERC has agreed
to endeavor to cause the Company to become a party to this technology joint
venture. ERC has also agreed that the joint venture will not undertake any
projects involving battery technology without the Company's prior consent, until
the Company becomes a party to the joint venture.
There can be no assurance that these other batteries will be successfully
developed by the Company, and, even if they are successfully developed, there
can be no assurance that they will be commercially successful and profitable for
the Company.
51
<PAGE>
EMPLOYEES
At present the Company employs a staff of twenty-two including a manager of
manufacturing, manager of engineering, manager of research and development,
support engineers and technicians and cell assemblers. The Company has recently
hired a manager of marketing and three additional engineers to support
manufacturing, development, testing and quality control.
When the small-scale manufacturing facility is completed about approximately
25 production employees, and three quality control support inspectors will be
hired. Additional employees may be hired if the facility operates a second or
third work shift.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceeding.
52
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Jerry D. Leitman..................................... 56 Chairman and Acting President and Chief Executive
Officer
Bernard S. Baker..................................... 62 Director
Thomas L. Kempner.................................... 71 Director
William A. Lawson.................................... 65 Director
Warren D. Bagatelle.................................. 60 Director
Richard M.H. Thompson................................ 63 Director
James D. Gerson...................................... 55 Director
Allen Charkey........................................ 57 Executive Vice President, Chief Operating Officer and
Director
Joseph G. Mahler..................................... 46 Acting Chief Financial Officer, Treasurer and
Secretary
</TABLE>
JERRY D. LEITMAN has been the Chairman and Acting President and Chief
Executive Officer of the Company since its formation. He has been President,
Chief Executive Officer and a Director of ERC since August 1997. Mr. Leitman was
previously President of ABB Asea Brown Boveri's global air pollution control
businesses from 1992 to 1995. Prior to joining ABB Mr. Leitman was Group
Executive Vice President of FLAKT AB, a Swedish multinational, responsible for
FLAKT's worldwide industrial businesses from 1989 to 1992. Mr. Leitman is also a
Director and a member of the Audit Committee of Esterline Technologies Inc.
BERNARD S. BAKER has been a director of the Company since September 1998. He
joined ERC in 1970 and was President of ERC from 1973 to August 1997 when he
became Chairman of the Board of Directors and a consultant to ERC. He was Chief
Executive Officer and a Director of ERC from March 1992 to August 1997. He
received a Ph.D from the Illinois Institute of Technology in 1969, and was a
Fulbright Fellow at the Laboratory for Electrochemistry at the University of
Amsterdam subsequent to his receiving his Master of Science in Chemical
Engineering from the University of Pennsylvania in 1959.
THOMAS L. KEMPNER has been a director of the Company since September 1998.
He has been Chairman and Chief Executive Officer of Loeb Partners Corporation
since 1979 and a general partner of Loeb Investors Co. LXXV, an affiliate of
Loeb Partners Corporation and an investment partnership. Mr. Kempner is a
director of Alcide Corporation, IGENE Biotechnology, Inc., Intermagnetics
General Corporation, CCC Information Services Group, Inc., and Roper Starch
Worldwide, Inc. and director emeritus of Northwest Airlines, Inc. Mr. Kempner is
a director of ERC and was the Chairman of the Board of Directors of ERC from
March 1992 to August 1997.
WILLIAM A. LAWSON has been a director of the Company since September 1998.
He has been President since 1987 of W.A. Lawson Associates, an industrial and
financial consulting firm. Mr. Lawson has been Chairman of the Board of
Directors of Newcor, Inc. since March 1991, and Chairman and Chief Executive
Officer of Bernal International Inc. since March 1997 (formerly Atlantic Eagle
Inc.). Mr. Lawson is a director of ERC.
WARREN D. BAGATELLE has been a director of the Company since September 1998.
He has been a Managing Director of Loeb Partners Corporation since 1988. Mr.
Bagatelle is a director of ERC and of Genisys Reservation Systems, Inc.
(formerly Corporate Travel Link, Inc.) which owns and operates an internet
travel business.
RICHARD M.H. THOMPSON has been a director of the Company since September
1998. He was the President and Director of Rotary Power International, Inc., a
company that designed and built rotary
53
<PAGE>
engines for military and commercial uses from November 1991 through December
1997. Mr. Thompson has been a director and Chairman of the Executive Committee
of ERC since January 1988. Since March 1987, he has been President of Richard
M.H. Thompson & Associates, Inc., a private investment company and financial
advisor serving a variety of technology and emerging growth companies.
JAMES D. GERSON has been a director of the Company since September 1998. He
has been Senior Vice President of Fahnestock & Co., Inc. since March 1993 and is
currently Portfolio Manager of the Hudson Capital Appreciation Fund, a mutual
fund. Mr. Gerson also serves as a director of ERC, Ag Services of America, Inc.,
American Power Conversion Corp., Arguss Holdings, Inc., and Hilite Industries,
Inc.
ALLEN CHARKEY has been a director of the Company since its formation and
Executive Vice President and Chief Operating Officer since October 1998. He
joined ERC in 1970, has held various positions of increasing responsibility at
ERC and has been Vice President of ERC's battery business group since January
1997. Prior to joining ERC, Mr. Charkey was employed by Yardney Electric
Corporation from 1963 to 1970 as a battery scientist.
JOSEPH MAHLER joined the Company in October 1998 as Acting Chief Financial
Officer, Treasurer and Secretary and as Vice President, Chief Financial Officer,
Corporate Secretary and Treasurer of ERC. Prior to joining ERC, Mr. Mahler was
Vice President-Chief Financial Officer at Earthgro, Inc. from 1993 to 1998 and
prior to that, he was a Partner at Ernst & Young.
KEY EMPLOYEES
The Company has recently hired Glen V. Bowling as its new Director of
Marketing and Sales. Prior to joining the Company, he was Vice President of
Sales for the Saft Lithium and Military Battery Division of the Saft Group from
1997 to 1998, responsible for worldwide sales efforts for a $55 million dollar
business. From 1991 to 1997, he was Director of Sales and Marketing for the
Lithium Battery Division in Valdese, NC, where he was responsible for all
commercial actions for the facility and the LiSO(2) and LiSOCI(2) product. Mr.
Bowling received his MBA from Wright State University in 1982 and a BS from the
University of Florida in 1979.
COMMITTEES OF THE BOARD OF DIRECTORS
There will be two standing committees of the Board of Directors of the
Company: the Audit Committee and the Compensation Committee, each comprised of
one or more directors. The members of these committees will be appointed on or
about the Distribution Date.
The primary purpose of the Audit Committee will be to (i) select the firm of
independent accountants that will audit the consolidated financial statements of
the Company, (ii) discuss the scope and the results of the audit with the
accountants and (iii) review the Company's financial accounting and reporting
principles. The Audit Committee will also examine the summary reports of the
internal auditors of the Company and discuss the adequacy of the Company's
financial controls with the independent accountants and with management. The
members of the Audit Committee are Mr. Bagatelle (Chairman), Mr. Thompson and
Mr. Lawson.
The functions of the Compensation Committee are to review, approve and
recommend to the Board of Directors the terms and conditions of incentive bonus
plans applicable to corporate officers and key management personnel, to review
and approve the annual salary of the chief executive officer, and to administer
the Company's 1998 Equity Incentive Plan. The members of the Compensation
Committee are Mr. Lawson (Chairman), Mr. Thompson and Mr. Gerson.
DIRECTOR COMPENSATION
Directors will be compensated for their services according to a standard
arrangement authorized by resolution of the Company Board. An annual retainer
fee of $12,000 will be paid to each director. Directors who are employees of the
Company will not receive retainers. The Company will also reimburse
54
<PAGE>
certain directors for reasonable expenses incurred in connection with the
performance of their duties as directors.
In accordance with the terms of the Option Agreement (the "Leitman Option
Agreement") entered into by ERC and Mr. Leitman at the time that Mr. Leitman
joined ERC, which provides for the grant by ERC to Mr. Leitman of stock options
(the "ERC Options") to acquire 250,000 shares of ERC Common Stock, the
Distribution Agreement provides that the Company will issue to Mr. Leitman one
share of Company Common Stock for every three shares of ERC Common Stock which
he purchases pursuant to his exercise of the ERC Options (the "Distribution
Agreement Option"). The ERC Options began to vest in August 1997 in annual
installments of 50,000 shares and will become fully vested in August 2001. The
Distribution Agreement provides that ERC and the Company will allocate the
exercise price of the ERC Options between them based proportionately upon the
relative fair market values of the ERC Common Stock and the Company Common
Stock.
The Company has also agreed to issue to Mr. Leitman a non-transferable
option (the "Company Option") to acquire 83,333 shares of Company Common Stock
exercisable at the Subscription Price. This Company Option will be exercisable
to acquire 33,333 vested shares and 50,000 restricted (unvested) shares during
the Rights Offering and will terminate on the Expiration Date. The restricted
(unvested) shares acquired pursuant to the Company Option will vest in
accordance with the vesting terms and conditions set forth in the Leitman Option
Agreement, i.e. an additional 16,667 shares become vested in each of August 1999
and 2000, and all shares are vested in August 2001.
Mr. Leitman may exercise the Company Option with respect to the 50,000
restricted (unvested) shares by issuing to the Company a nonrecourse note (the
"Note") in the amount of the total exercise price. The Note shall provide that,
at such time as these restricted (unvested) shares would otherwise vest, Mr.
Leitman can pay the applicable installment of the Note (i.e. the Note shall be
payable in three installments corresponding to the three remaining vesting dates
set forth in the Leitman Option Agreement). However, until the applicable
installment of the Note is repaid, the shares will remain restricted. In the
event the Note is not fully repaid by August 1, 2001, the shares shall be
forfeited to the Company for no consideration.
The Company has also agreed to register under the Securities Act of 1933, as
amended, the shares of Common Stock to be issued to Mr. Leitman pursuant to the
exercise of the options granted by the Leitman Option Agreement and the Company
Option.
EXECUTIVE COMPENSATION
The following table sets forth, as to the acting Chief Executive Officer of
the Company and the other most highly compensated individual who will become an
executive officer of the Company (the "named executive officers") immediately
after the Distribution, information concerning the compensation paid by ERC for
services in all capacities to ERC and its subsidiaries to or for the benefit of
such persons during the periods indicated. Mr. Leitman, the acting President and
Chief Executive Officer of the Company is an employee of ERC and not of the
Company. His compensation, therefore, is paid by ERC; the Company will pay to
ERC its pro rata portion of such compensation allocated based upon the relative
number of employees of the Company and ERC (currently 11%). In addition, the
Company will pay its pro rata portion of Joseph Mahler's compensation.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2)
- ----------------------------------------------------------------- --------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Jerry D. Leitman(1) 1998 $ 320,000 $ 0 $ 6,217
Acting President, Chief Executive Officer 1997 73,848 0 0
Allen Charkey 1998 122,512 18,000 14,500
Executive Vice President, 1997 116,168 9,000 11,265
Chief Operating Officer 1996 101,300 9,000 10,289
</TABLE>
- ------------------------------
(1) Mr. Leitman joined ERC as President and Chief Executive Officer on August 4,
1997.
(2) Represents employer contributions to the ERC Defined Contribution Pension
Plan of approximately 4% of total annual compensation and employer
contributions to the ERC Section 401(k) Plan of approximately 5% of total
annual compensation.
55
<PAGE>
EQUITY INCENTIVE PLAN
The Company has adopted the 1998 Equity Incentive Plan (the "1998 Plan")
pursuant to which it has awarded and may in the future award stock options and
equity incentive awards to its officers, directors, key employees and
consultants. 300,000 shares of Common Stock have been reserved for issuance
pursuant to the 1998 Plan. See "--Director Compensation" for a description of
the Company Option which has been issued to Mr. Leitman pursuant to the 1998
Plan. In addition, the Company has issued to Mr. Mahler and Mr. Charkey pursuant
to the 1998 Plan options to acquire 16,666 shares and 33,333 shares of the
Company's stock, respectively, at the Subscription Price. These options will
vest in 25% installments over a four year period beginning December 11, 1999.
The Company has also issued an aggregate of 33,334 additional options to other
non-executive Company employees.
CERTAIN TRANSACTIONS
Mr. Gerson, a director of ERC and the Company, has entered into an agreement
with MTU-Friedrichshafen GmbH a subsidiary of Daimler Chrysler ("MTU"), a
principal shareholder of ERC and the Company, pursuant to which Mr. Gerson and a
colleague have agreed to purchase from MTU all of the Rights issued to MTU in
connection with the Rights Offering for $0.50 per Right. Assuming that Mr.
Gerson will exercise the Rights he receives in the Rights Offering as well as
his 50% share of the Rights purchased from MTU, following the Rights Offering,
Mr. Gerson will beneficially own approximately 7.8% of the outstanding Common
Stock of the Company including shares as to which Mr. Gerson disclaims
beneficial ownership and excluding any shares which he might acquire pursuant to
the exercise of his Oversubscription Rights. Mr. Gerson has advised the Company
of his intention to exercise all of his Basic Subscription Rights, including
with respect to his 50% share of the Rights which he acquires from MTU.
Certain directors of the Company, including Mr. Bagatelle, Dr. Baker, and
Mr. Gerson, who together will own an aggregate of 124,083 shares of Company
Common Stock following the Distribution, have advised the Company that they
intend to exercise their Basic Subscription Rights. Loeb Investors Co. LXXV, an
affiliate of one of the Underwriters and of certain directors, which will own
120,555 shares of Company Common Stock following the Distribution, has also
advised the Company of its intent to exercise its Basic Subscription Rights. In
addition, Mr. Leitman has advised the Company that he intends to exercise his
right to acquire 33,333 shares of Company Common Stock pursuant to his Company
Option. None of the parties who have indicated their intent to exercise their
Basic Subscription Rights have any obligation to effect these exercises.
All future transactions between the Company and its officers, directors or
5% stockholders, and their respective affiliates, will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of the independent, disinterested directors of the
Company.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY
The amended and restated Certificate of Incorporation of the Company
provides that a director of the Company will not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the Delaware General Corporation Law ("DGCL") as the same exists
or may thereafter be amended. Based on the DGCL as presently in effect, a
director of the Company will not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions, or (iv) for any transactions from which the director
derived an improper personal benefit.
56
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-laws of the Company ("By-laws") provide that the Company will
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may thereafter be amended, any person (an
"Indemnitee") who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he,
she, or a person for whom he or she is the legal representative, is or was a
director or officer of the Company or, while a director or officer of the
Company, is or was serving at the request of the Company as a director, officer,
employee or agent of another company or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee.
The By-laws further provide that the Company will pay the expenses
(including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding will be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under the
relevant section of the By-laws or otherwise.
The By-laws also provide (i) that the rights conferred on any Indemnitee
thereby are not exclusive of any other rights which such Indemnitee may have or
thereafter acquire under any statute, provision of the Certificate, the By-laws,
agreement, vote of stockholders or disinterested directors or otherwise, (ii)
that the Company's obligation, if any, to indemnify or to advance expenses to
any Indemnitee who was or is serving at its request as a director, officer,
employee or agent of another company, partnership, joint venture, trust,
enterprise or nonprofit entity will be reduced by any amount such Indemnitee may
collect as indemnification or advancement of expenses from such other company,
partnership, joint venture, trust, enterprise or nonprofit enterprise, and (iii)
that any repeal or modification of the relevant provisions of the By-laws will
not adversely affect any right or protection thereunder of any Indemnitee in
respect of any act or omission occurring prior to the time of such repeal or
modification.
The By-laws also expressly state that the provisions thereof will not limit
the right of the Company, to the extent and in the manner permitted by law, to
indemnify and to advance expenses to persons other than Indemnitees when and as
authorized by appropriate corporate action.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shares of Common Stock of the Company to
be beneficially owned by the officers, directors and 5% stockholders of the
Company following the Distribution, but prior to the consummation of the Rights
Offering, based upon one-third of the beneficial ownership of such individuals
of the Common Stock of ERC as of February 3, 1999.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OWNERSHIP(1) OF CLASS
- ----------------------------------------------------------------------------- ------------------------- -----------
<S> <C> <C>
Warren D. Bagatelle 167,094(2) 12.0%
c/o Loeb Partners Corp.
61 Broadway
New York, NY 10006
Thomas L. Kempner 120,555(2) 8.7%
c/o Loeb Partners Corp.
61 Broadway
New York, NY 10006
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
Loeb Investors Co. LXXV 120,555(2) 8.7%
61 Broadway
New York, NY 10006
James D. Gerson 70,111(3) 5.0%
c/o Fahnestock and Co.
780 3rd Avenue
New York, NY 10017
Bernard S. Baker 7,433(4) *
Richard M.H. Thompson 24,250(5) 1.7%
William A. Lawson 18,555 1.3%
Jerry D. Leitman 116,666(6) 8.4%
Allen Charkey -- *
Joseph G. Mahler -- *
Daimler Benz affiliate MTU-Friedrichshafen GmbH (MTU) 152,586(7) 10.9%
Abt. VC, Gebaude 6.1
Zimmer 102A D-85521
Ottobrunn Germany
All Directors and Executive Officers as a Group (9 persons) 404,109 29.1%
</TABLE>
- ------------------------------
* Less than one percent
(1) Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to the shares listed.
(2) Messrs. Bagatelle and Kempner, by virtue of being general partners of Loeb
Investors Co. LXXV, may each be deemed to beneficially own the shares of
Loeb Investors Co. LXXV. Each of Mr. Kempner and Mr. Bagatelle is a member
of a group, as that term is used in Section 13(d) of the Exchange Act, which
group, in the aggregate, owns 167,094 shares of Common Stock.
(3) Mr. Gerson's shareholdings include 12,133 shares held by his wife, Barbara
Gerson as Custodian for two minor children and also includes 5,266 shares
held by a private foundation, of which Mr. Gerson is President and a
Director. Mr. Gerson disclaims beneficial ownership of the securities held
by his wife and of the private foundation. Mr. Gerson has entered into an
agreement with MTU pursuant to which he and an associate have agreed to
purchase from MTU all of the Rights issued to MTU in connection with the
Rights Offering for $0.50 per Right. See "MANAGEMENT--Certain Transactions."
(4) Includes 2,300 shares owned by Dr. Baker's wife Cornelia Baker.
(5) Mr. Thompson's shareholdings are held jointly with his wife, Elizabeth
Thompson. Mr. Thompson's shareholdings do not include (i) 925 shares owned
beneficially by Intervalora Investments Inc. ("Intervalora"), a company
owned by a trust, the sole beneficiaries of which are Mr. Thompson's
children or (ii) 32,000 shares owned beneficially by Malbena Foundation
Vaduz ("Malbena"), a trust, the sole beneficiaries of which are Mr.
Thompson's children. Mr. and Mrs. Thompson disclaim beneficial ownership in
the Common Stock owned by Intervalora and Malbena.
(6) Mr. Leitman's shareholdings include 33,333 shares of Common Stock which may
be acquired pursuant to the currently exercisable options issued under the
Leitman Option Agreement as well as currently exercisable options to
purchase 83,333 shares of Common Stock, 50,000 of which shares would be
restricted (unvested) shares. See "--Director Compensation".
(7) MTU has entered into an agreement with Mr. Gerson pursuant to which Mr.
Gerson and a colleague have agreed to purchase from MTU all of the Rights
issued to MTU in connection with the Rights Offering for $0.50 per Right.
See "MANAGEMENT--Certain Transactions."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Rights Offering, the Company will have approximately
2,778,000 shares of Common Stock outstanding (assuming no exercise of
outstanding options). Of these shares, the 1,389,000 shares issued in the
Distribution will not be transferable until the closing of the Rights Offering.
Following the closing of the Rights Offering, such shares and the 1,389,000
shares sold in the Rights Offering will be freely tradeable without restriction
or further registration under the Securities Act, except that any shares issued
to or purchased by "affiliates" of the Company, as that term is defined in Rule
144 ("Rule 144") under the Securities Act ("Affiliates"), may generally only be
sold in compliance with the limitations of
58
<PAGE>
Rule 144 described below beginning 90 days after the date of this Prospectus. In
addition, the Company has agreed to cause its Affiliates, including its officers
and directors, to agree not to offer to sell, transfer, hypothecate or otherwise
encumber any Rights or Common Stock for a period of not less than 180 days
following the effective date of this Prospectus (the "Lock-Up Expiry Date")
without the prior written consent of Burnham Securities Inc., on behalf of the
Underwriters.
In general, under Rule 144 as currently in effect, an Affiliate is entitled
to sell, within any three-month period, a number of shares (other than
"restricted securities" as defined in Rule 144 as to which a holding period is
applicable) that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock (approximately 27,000 shares immediately
after this Offering, assuming all rights are exercised) or (ii) the average
weekly trading volume in the Common Stock on the Nasdaq SmallCap Market during
the four calendar weeks preceding the date on which notice of such sale is
filed. Sales under Rule 144 are also subject to certain limitations on manner of
sale, notice requirements, and availability of current public information about
the Company.
OPTIONS
As of February 3, 1999, options to purchase a total of 166,666 shares of
Common Stock were outstanding, options for 83,333 shares being not yet
exercisable. In addition, Mr. Leitman may acquire up to 83,333 shares of Common
Stock pursuant to the Distribution Agreement Option. An additional 133,334
shares of Common Stock are available for future grants under the Company's stock
option plan. All future issuances of options will state that the exercise price
of such options will be at least 85% of the fair market value of the Common
Stock on the date of grant.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options. The Company expects to file these registration
statements promptly following the closing of the Offering, and such registration
statements are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
markets, except as described above with respect to Affiliates.
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<PAGE>
DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Prior to the Distribution Date, the Company Board and ERC, as sole
stockholder of the Company, will amend and restate the Certificate of
Incorporation of the Company (as amended and restated, the "Certificate"), and
ERC, as sole stockholder of the Company, will restate the By-laws of the
Company. Under the Certificate, the Company's authorized capital stock will
consist of 10,000,000 shares of Company Common Stock and 1,000,000 shares of
Preferred Stock.
COMPANY COMMON STOCK
The holders of Company Common Stock will be entitled to one vote for each
share on all matters on which stockholders generally are entitled to vote. The
holders of Company Common Stock will possess 100% of the voting power. The
Certificate does not provide for cumulative voting.
Under the Certificate, the holders of Company Common Stock will be entitled
to such dividends as may be declared from time to time by the Company Board and
paid from funds legally available therefor, and the holders of Company Common
Stock will be entitled to receive pro rata all assets of the Company available
for distribution upon liquidation. All shares of Company Common Stock received
in the Distribution will be fully paid and nonassessable, and the holders
thereof will not have any preemptive rights.
There is no established public trading market for Company Common Stock,
although a "when issued" market is expected to develop prior to the closing of
the Rights Offering. The shares of Company Common Stock received in the
Distribution may not be sold or otherwise disposed of until after the closing of
the Rights Offering pursuant to a restriction in the Company's Certificate. The
Company has applied for listing of the Company Common Stock for quotation on The
Nasdaq SmallCap Market and the Boston Stock Exchange following the closing of
the Rights Offering.
The declaration of dividends on Company Common Stock will be at the
discretion of the Company Board. The Company Board has not adopted a dividend
policy as such, and the Company does not expect to pay any dividends in the near
future. Subject to legal and contractual restrictions, its decisions regarding
dividends will be based on all considerations that in its business judgment are
relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions and anticipated developments
concerning the Company's business and operations. For additional information
concerning the payment of dividends by the Company, see "RISK FACTORS--Dividends
Policy."
The Company's cash flow and the consequent ability of the Company to pay any
dividends on Company Common Stock will be substantially dependent upon the
earnings and cash flow of the Company available after its debt service.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
The Certificate, the By-laws, and the DGCL contain certain provisions that
could make the acquisition of the Company by means of a tender offer, a proxy
contest or otherwise more difficult. The description set forth below is intended
as a summary only and is qualified in its entirety by reference to the
Certificate, and the By-laws which are attached as exhibits to the Company's
Registration Statement on Form SB-2 relating to Company Common Stock.
CLASSIFIED BOARD OF DIRECTORS The Certificate provides that the Company
Board will be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. The Company Board consists of the persons
referred to in "MANAGEMENT--Executive Officers and Directors" above. The
Certificate provides that, of the initial directors of the Company,
approximately one-third will continue to serve until the first succeeding annual
meeting of the Company's stockholders, approximately one-third
60
<PAGE>
will continue to serve until the second succeeding annual meeting of the
Company's stockholders and approximately one-third will continue to serve until
the third succeeding annual meeting of the Company's stockholders. Of the
initial directors, Messrs. Baker, Kempner and Lawson will serve until the first
succeeding annual meeting of the Company's stockholders, Messrs. Bagatelle,
Thompson and Gerson will serve until the second succeeding annual meeting of the
Company's stockholders and Messrs. Leitman and Charkey will serve until the
third succeeding annual meeting of the Company's stockholders. At each annual
meeting of the Company's stockholders, one class of directors will be elected
for a term expiring at the third succeeding annual meeting of stockholders.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Company Board. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the members of the Company Board.
Such a delay may help ensure that the Company's directors, if confronted by a
stockholder attempting to force a proxy contest, a tender or exchange offer, or
an extraordinary corporate transaction, would have sufficient time to review the
proposal as well as any available alternatives to the proposal and to act in
what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the Company Board would be
beneficial to the Company and its stockholders and whether or not a majority of
the Company's stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. The classification of the
Company Board could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of the Company's stock by purchasers
whose objective is to take control of the Company and remove a majority of the
members of the Company Board, the classification of the Company Board could tend
to reduce the likelihood of fluctuations in the market price of Company Common
Stock that might result from accumulations of large blocks for such a purpose.
Accordingly, stockholders could be deprived of certain opportunities to sell
their shares of Company Common Stock at a higher market price than might
otherwise be the case.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES The Certificate provides
that the business and affairs of the Company will be managed by and under the
direction of a Board of Directors. The By-laws provide that the Company Board
shall consist of not less than three nor more than sixteen directors, the exact
number thereof to be determined from time to time by vote of a majority of the
Company Board. In addition, the By-laws provide that any vacancy on the Company
Board that results from an increase in the number of directors may be filled by
a majority of the Company Board then in office, provided that a quorum is
present, and any other vacancy occurring in the Company Board may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. The Certificate provides that any director elected to
fill a vacancy shall hold office for the remaining term of the class to which
such director is elected.
Under the DGCL, unless otherwise provided in the Certificate, directors
serving on a classified board may only be removed by the stockholders for cause.
The Certificate does not provide that directors may be removed without cause.
SPECIAL MEETINGS The By-laws provide that special meetings of stockholders
will be called by the Company Board. Moreover, the business permitted to be
conducted at any special meeting of stockholders is limited to the purposes
specified in the notice of meeting given by the Company.
STOCKHOLDER MEETINGS The By-laws provide that the Company Board and the
chairman of a meeting may adopt rules for the conduct of stockholder meetings
and specify the types of rules that may be adopted
61
<PAGE>
(including the establishment of an agenda, rules relating to presence at the
meeting of persons other than stockholders, restrictions on entry at the meeting
after commencement thereof and the imposition of time limitations for questions
by participants at the meeting). The Certificate provides that the Company's
stockholders may not take action by written consent.
PREFERRED STOCK The Certificate authorizes the Company to issue 1,000,000
shares of Preferred Stock. Pursuant to the Certificate, the Company Board may
provide for one or more series of Preferred Stock and, with respect to each such
series, to fix the number of shares constituting such series and the designation
of such series, the voting powers (if any) of the shares of such series, the
dividend rate (if any) of the shares of such series, whether or not the shares
of such series shall be redeemable, and, if redeemable, the price, terms and
manner of redemption, the preferences (if any) and the special and relative
rights of the shares of such series upon liquidation of the Company, whether or
not the shares of such series shall be subject to the operation of a sinking or
purchase fund, and, if so, the terms and provisions of such fund, whether or not
the shares of such series shall be convertible into shares of any class of stock
of the corporation and, if so, the conversion price or ratio and other
conversion rights, and the preferences and relative, participating, optional or
other special rights, if any, and any qualifications, limitations or
restrictions thereof, of the shares of such series.
The Company believes that the ability of the Company Board to issue one or
more series of Preferred Stock will provide the Company with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock, as
well as shares of Common Stock, will be available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded.
Although the Board has no intention at the present time of doing so, it
could issue a series of Preferred Stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The Board will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its stockholders. The
Board, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt through which an acquiror may be able to
change the composition of the Board, including a tender offer or other
transaction that some, or a majority, of the Company's stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then current market price of such stock.
ANTI-TAKEOVER LEGISLATION Section 203 of the DGCL provides that, subject to
certain exceptions specified therein, a corporation shall not engage in any
"business combination" with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares) or (iii) on or subsequent to such time, the business combination
is approved by the board of directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Section 203 of the DGCL generally defines an
"interested stockholder" to include (x) any person that is the owner of 15% or
more of the outstanding voting stock of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within three years immediately prior
to the relevant date and (y) the affiliates and associates of any such person.
Section 203 of the DGCL generally defines a "business combination" to include
(1) mergers and sales or other dispositions of 10% or more of the assets of the
corporation with or to an interested stockholder, (2) certain transactions
resulting in the issuance or transfer to the interested stockholder of any stock
of the corporation or its subsidiaries, (3) certain transactions which would
result in increasing the proportionate share of the stock of the corporation or
its
62
<PAGE>
subsidiaries owned by the interested stockholder and (4) receipt by the
interested stockholder of the benefit (except proportionately as a stockholder)
of any loans, advances, guarantees, pledges, or other financial benefits.
Under certain circumstances, Section 203 of the DGCL makes it more difficult
for a person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
certificate of incorporation or stockholder-adopted by-laws may exclude a
corporation from the restrictions imposed thereunder. Neither the Certificate
nor the By-laws exclude the Company from the restrictions imposed under Section
203 of the DGCL. It is anticipated that the provisions of Section 203 of the
DGCL may encourage companies interested in acquiring the Company to negotiate in
advance with the Company Board since the stockholder approval requirement would
be avoided if the Company Board approves, prior to the time the stockholder
becomes an interested stockholder, either the business combination or the
transaction which results in the stockholder becoming an interested stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is the Continental
Stock Transfer & Trust Company, telephone no. (212) 509-4000.
THE STANDBY UNDERWRITING
The Company and the Underwriters have entered into the Standby Underwriting
Agreement on the date hereof, pursuant to which the Underwriters are required,
subject to certain terms and conditions (all of which are summarized below), to
purchase all shares of Company Common Stock remaining unsubscribed after the
Rights Offering (the "Unsubscribed Shares") in accordance with the percentages
set forth below. If all of the Rights are exercised, there will be no
Unsubscribed Shares and the Underwriters will not be required to purchase any
shares of Common Stock.
<TABLE>
<CAPTION>
UNDERWRITERS % OF UNSUBSCRIBED SHARES
- -------------------------------------------------------------- ---------------------------
<S> <C>
Loeb Partners Corporation 50%
Burnham Securities Inc. 50%
</TABLE>
The Underwriters have agreed, subject to the condition that the Company
complies with its obligations under the Standby Underwriting Agreement and
subject to the Underwriters' right to terminate their obligations under the
Standby Underwriting Agreement (as specified below), to purchase all of the
Unsubscribed Shares at the Subscription Price. The Company will pay the
Underwriters a financial advisory fee equal to 3.75% of the Subscription Price
for each share of Common Stock included in the Rights Offering. The financial
advisory fee is for services and advice rendered in connection with the
structuring of the Rights Offering and financial advice to the Company before
and during the Rights Offering. An additional fee of 5.25% of the Subscription
Price will be paid to the Underwriters for each share of Common Stock purchased
by the Underwriters pursuant to the Standby Underwriting Agreement. In addition,
the Company has agreed to pay all expenses incurred by the Underwriters in
conducting their due diligence investigation of the Company and all legal fees
and expenses of the Underwriters' counsel incurred in connection with the Rights
Offering, up to an aggregate of $75,000, plus all legal fees and expenses of the
Underwriters' counsel incurred in connection with complying with "blue sky" or
other state securities laws and in connection with the NASD's review of the
Underwriters' participation in the offering.
The Company has granted to the Underwriters an option (the "Overallotment
Option") to purchase up to a maximum of 208,350 shares of Company Common Stock,
reduced by the number of shares, if any, sold by the Company to holders of
Rights under the Oversubscription Option, at the Subscription Price. The Company
will pay the Underwriters a financial advisory fee of 3.75% of the Subscription
Price and an
63
<PAGE>
additional fee of 5.25% of the Subscription Price for each share of Common Stock
purchased by the Underwriters pursuant to the Overallotment Option. The
Underwriters have advised the Company that they may offer shares of Common Stock
to certain dealers at a price that represents a concession of not more than
$ per share, and such dealers may reallow a concession of not more than
$ per share to certain other dealers. The Overallotment Option will be
exercisable by the Underwriters not later than thirty days after the Company's
transfer agent provides the Underwriters with a final accounting of the number
of shares of Company Common Stock sold pursuant to the exercise of Rights,
including pursuant to Oversubscription Privileges. To the extent the
Underwriters exercise this option, each Underwriter will be committed to
purchase the percentage of additional shares of Company Common Stock shown in
the foregoing table.
Prior to the Expiration Date, the Underwriters may offer shares of Common
Stock on a when-issued basis, including shares to be acquired through the
purchase and exercise of Rights, at prices set from time to time by the
Underwriters. After the Expiration Date, the Underwriters may offer shares of
Common Stock, whether acquired pursuant to the Standby Underwriting Agreement,
the exercise of the Rights or the purchase of Common Stock in the market, to the
public at a price or prices to be determined. The Underwriters may thus realize
profits or losses independent of the Underwriting Discount and the Financial
Advisory Fee. Shares of Common Stock subject to the Standby Underwriting
Agreement will be offered by the Underwriters when, as and if sold to, and
accepted by, the Underwriters and will be subject to their right to reject
orders in whole or in part.
Prior to the Rights Offering, there has been no public market for the Common
Stock. The Subscription Price has been determined by the Company's Board of
Directors based upon a number of factors, including the anticipated initial
capital requirements of the Company, market valuations of development stage
companies in related businesses, the early stage of the Company's business
development, the business potential and prospects of the Company and other
factors deemed relevant. In making its determination, the Board of Directors did
not obtain an independent valuation of the Company or its assets. Moreover, the
Subscription Price bears no direct relation to the book value, earnings, assets
or other generally accepted valuation criteria of the Company.
The Underwriters will be prohibited from engaging in any market making
activities with respect to the Company's when-issued Common Stock and Common
Stock until the Underwriters have completed their participation in the
distribution of shares offered hereby. As a result, the Underwriters may be
unable to provide a market for the Company's when-issued Common Stock and Common
Stock should it desire to do so, during certain periods of the distribution of
shares offered hereby.
In connection with the Rights Offering, the Underwriters and certain selling
group members may engage in stabilizing, syndicate covering transactions or
other transactions that stabilize, maintain or otherwise affect the market price
of the Common Stock. A "syndicate covering transaction" is the placing of any
bid or the effecting of any purchase on the behalf of the Underwriters to reduce
a short position created in connection with the Rights Offering. After the
opening of quotations for the Common Stock on the Nasdaq SmallCap Market,
stabilizing bids for the purpose of preventing or retarding a decline in the
market price may be initiated by the Underwriters or selling group members in
any market at a price no higher that the last independent transaction price for
the Common Stock and then maintained, reduced or raised to follow the
independent market. Such transactions may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales of shares of the Rights or the Common Stock to any
accounts over which they exercise discretionary authority without the prior
specific written approval of the customer.
The Company has agreed to indemnify the Underwriters against certain
liabilities arising out of or based upon misstatements or omissions in this
Prospectus or the Registration Statement of which this
64
<PAGE>
Prospectus is a part and certain liabilities, including liabilities under the
Securities Act, and to contribute to certain payments that the Underwriters may
be required to make.
The Underwriters may terminate their obligations under the Standby
Underwriting Agreement (i) if any calamitous domestic or international event or
act or occurrence has disrupted the general securities market in the United
States; (ii) if trading in the Common Stock (on a when-issued basis) shall have
been suspended by the Securities and Exchange Commission, the Nasdaq SmallCap
Market or the Boston Stock Exchange; (iii) if trading on the New York Stock
Exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq
SmallCap Market, the Boston Stock Exchange or in the over-the-counter market
shall have been suspended, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been required
on the over-the-counter market by the NASD or by order of the Securities and
Exchange Commission or any other government authority having jurisdiction; (iv)
if the United States shall have become involved in a war or major hostilities
which, in the Underwriters' opinion, will affect the general securities market
in the United States; (v) if a banking moratorium has been declared by a New
York, Connecticut or federal authority; (vi) if the Company shall have sustained
a loss material to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act, whether or not such loss
shall have been insured, or from any labor dispute or any legal or governmental
proceeding; (vii) if there shall be such material adverse market conditions
(whether occurring suddenly or gradually between the date of this Prospectus and
the closing of the offering) affecting markets generally as in the Underwriters'
reasonable judgment would make it inadvisable to proceed with the offering, sale
or delivery of the shares of Common Stock offered hereby: (viii) if, in the
reasonable judgment of the Underwriters, there shall have been such material
adverse change, or any development involving a prospective material adverse
change, in the financial condition, net worth or results of operations of the
Company since December 31, 1998 or in the business prospects or conditions of
the Company since the date of this Prospectus, or that materially and adversely
impacts the Standby Underwriting Agreement; (ix) if the Dow Jones Industrial
Average shall have fallen by more than 12.5% from its closing price on the day
immediately preceding the closing date; (x) if the Rights shall not have been
mailed to the stockholders of the Company prior to 5:00 p.m. New York time on
February , 1999 (provided the Underwriters provide notice of such termination
prior to the Company mailing the Rights); (xi) if the Company makes any material
changes to the terms of the Rights Offering without the consent of the
Underwriters; or (xii) if the Rights Offering shall not have closed by April 30,
1999.
The Company has agreed that, without the prior written consent of the
Underwriters, it will not offer, sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock (or securities convertible into
shares of Common Stock) (collectively, the "Securities") until after the Lock-Up
Expiry Date, other than (i) Common Stock to be sold in the Rights Offering, (ii)
Company option issuances and sales of Common Stock pursuant to the Distribution
Agreement and the 1998 Plan and (iii) Securities issued as consideration for an
acquisition if the party being issued the Securities agrees not to transfer,
sell, offer for sale, contract or otherwise dispose of such Securities until
after the Lock-Up Expiry Date. Each director and executive officer of the
Company and certain stockholders of the Company who will beneficially own an
aggregate of approximately 556,695 shares of Common Stock after the completion
of the Distribution, have agreed with the Underwriters that they will not sell
or otherwise dispose of any shares of Common Stock (other than shares of Common
Stock sold in the Rights Offering) until after the Lock-Up Expiry Date without
the prior written consent of Burnham Securities Inc. on behalf of the
Underwriters.
Loeb Partners Corporation, one of the Underwriters, is affiliated with Loeb
Investors Co. LXXV, a principal stockholder of the Company. In addition, Thomas
Kempner, the Chairman and Chief Executive Officer of Loeb Partners Corporation,
and Warren Bagatelle, a Managing Director of Loeb Partners Corporation, are
directors of the Company.
Under Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers ("NASD") ("Rule 2720"), Loeb Partners Corporation may be
deemed to be an "affiliate" of the Company and to
65
<PAGE>
have a "conflict of interest" with the Company by virtue of the fact that
affiliates of Loeb Partners Corporation may be deemed to beneficially own
greater than 10% of the voting stock of the Company immediately following the
Distribution. This offering is being conducted in accordance with Rule 2720,
which provides that, among other things, when an NASD member participates in the
underwriting of an affiliate's equity securities the public offering price per
share can be no higher than that recommended by a qualified independent
underwriter ("QIU") meeting certain standards. In accordance with this
requirement, Burnham Securities Inc. has assumed the responsibilities of acting
as QIU and will recommend a public offering price for the Common Stock in
compliance with the requirements of Rule 2720. In connection with this offering,
Burnham Securities Inc. is performing due diligence investigations and reviewing
and participating in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part. Burnham Securities Inc. will
receive a fee of $10,000 from the Company as compensation to act as QIU. The
Company has agreed to indemnify Burnham Securities Inc. against certain
liabilities it may incur in connection with its responsibilities as QIU, or to
contribute to payments that Burnham Securities Inc. may be requested to make in
respect thereof.
LEGAL MATTERS
Certain legal matters in connection with the Rights Offering will be passed
upon for the Company by Brown, Rudnick, Freed & Gesmer, Boston, Massachusetts.
Certain legal matters in connection with the Rights Offering will be passed upon
for the Underwriters by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The financial statements of the Battery Business Group of ERC as of October
31, 1998, and for each of the years in the two-year period ended October 31,
1998 and the balance sheet of Evercel, Inc. as of October 31, 1998, have been
included herein and in the registration statement in reliance upon the reports
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
66
<PAGE>
EVERCEL, INC.
INDEX TO FINANCIAL STATEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Balance Sheet as of October 31, 1998....................................................................... F-3
</TABLE>
BATTERY BUSINESS GROUP OF ERC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-4
Balance Sheet as of October 31, 1998................................................. F-5
Statements of Operations for the Year ended October 31, 1997 and 1998................ F-6
Statements of Cash Flows for the Year ended October 31, 1997 and 1998................ F-7
Notes to Financial Statements........................................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evercel, Inc. and
Energy Research Corporation ("ERC")
We have audited the accompanying balance sheet of Evercel, Inc. (a wholly-owned
subsidiary of ERC, hereafter referred to as the Company) as of October 31, 1998.
This financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in that balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Evercel, Inc. as of October 31,
1998 in conformity with generally accepted accounting principles.
KPMG LLP
Stamford, Connecticut
January 22, 1999
F-2
<PAGE>
EVERCEL, INC.
Balance Sheet
October 31, 1998
<TABLE>
<S> <C>
Cash................................................................................ $ 1,000
---------
---------
Common stock, $.01 par value, 3,000 shares authorized, 100 shares issued and
outstanding........................................................................ 1
Additional paid-in capital.......................................................... 999
---------
Total equity................................................................ $ 1,000
---------
---------
</TABLE>
NOTE TO BALANCE SHEET
Evercel, Inc. was organized on June 22, 1998 under the laws of the State of
Delaware as a wholly-owned subsidiary of ERC. The only transaction to date has
been the initial capitalization of $1,000. Evercel, Inc. will be used to receive
the net assets of the Battery Business Group of ERC in connection with the
proposed spin-off by ERC.
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Energy Research Corporation ("ERC"):
We have audited the accompanying balance sheet of the Battery Business Group
of ERC (the Company) as of October 31, 1998, and the related statements of
operations and cash flows for the years ended October 31, 1997 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Battery Business Group
of ERC as of October 31, 1998, and the results of its operations and its cash
flows for the years ended October 31, 1997 and 1998 in conformity with generally
accepted accounting principles.
KPMG LLP
Stamford, Connecticut
January 22, 1999, except as to the third paragraph
of Note 11 which is as of February 5, 1999
F-4
<PAGE>
BATTERY BUSINESS GROUP OF ERC
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
OCTOBER 31,
1998
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable................................................................................ $ 17
-----------
Total current assets........................................................................... 17
-----------
PROPERTY, PLANT AND EQUIPMENT:
Costs.............................................................................................. 1,680
Accumulated depreciation........................................................................... 855
Net................................................................................................ 825
-----------
Other assets....................................................................................... 333
-----------
Total Assets................................................................................... $ 1,175
-----------
-----------
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Accrued liabilities................................................................................ $ 80
Accounts payable................................................................................... 53
Due to ERC......................................................................................... 603
-----------
Total current liabilities...................................................................... 736
-----------
Deferred income tax liability........................................................................ 17
Total liabilities.............................................................................. 753
Net assets of Battery Business Group of ERC.......................................................... 422
-----------
TOTAL LIABILITIES AND NET ASSETS................................................................... $ 1,175
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
BATTERY BUSINESS GROUP OF ERC
Statements of Operations
(in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
----------------------
1997 1998
----------- ---------
<S> <C> <C>
Revenues:
Contracts................................................................................ $ 144 $ 19
License fee income....................................................................... 292 419
----------- ---------
Total revenues....................................................................... 436 438
----------- ---------
Cost and expenses:
Cost of revenues......................................................................... 98 87
Depreciation and amortization............................................................ 40 45
Administrative and selling expenses...................................................... 268 1,805
Research and development................................................................. 897 1,832
----------- ---------
1,303 3,769
----------- ---------
(Loss) from operations before income tax (benefit)......................................... (867) (3,331)
Income tax (benefit)....................................................................... (295) (1,006)
----------- ---------
Net (loss)................................................................................. $ (572) $ (2,325)
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
BATTERY BUSINESS GROUP OF ERC
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Cash flows from operating activities:
Net (loss)................................................................................. $ (572) $ (2,325)
Depreciation and amortization............................................................ 40 45
Changes in operating assets and liabilities:
Accounts receivable.................................................................... 9 16
Other current assets................................................................... (42) 42
Other assets........................................................................... -- (333)
Accounts payable....................................................................... 12 36
Accrued liabilities.................................................................... 1 32
--------- ---------
Net cash provided by/(used in)
operating activities............................................................... (552) (2,487)
--------- ---------
Cash flows from investing activities:
Capital expenditures....................................................................... (120) (652)
--------- ---------
Net cash provided by/(used in)
investing activities............................................................... (120) (652)
--------- ---------
Cash flows from financing activities:
Contributions from ERC..................................................................... 672 2,536
Due to ERC................................................................................. -- 603
--------- ---------
Net cash provided by /(used in)
financing activities............................................................... 672 3,139
--------- ---------
Net increase/(decrease) in cash...................................................... -- --
Cash, beginning of period.................................................................... -- --
--------- ---------
Cash, end of period.......................................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
BATTERY BUSINESS GROUP OF ERC
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
(Dollars in thousands)
(1) GENERAL INFORMATION
In September, 1998, the Energy Research Corporation ("ERC") Board of
Directors approved a restructuring program to enhance stockholder value. This
program included an intention to separate ERC into two publicly held companies:
Evercel, Inc., a newly formed corporation which will own and operate the Battery
Business Group, and ERC, which will continue to own and operate its fuel cell
business. Accordingly, the ERC Board of Directors will declare a special
distribution (the "Distribution") of one share of common stock of Evercel, Inc.
for every three shares of ERC common stock outstanding as of a record date to be
determined. The Distribution will be treated as a tax-free dividend for tax
reporting purposes. The "Company" refers to Evercel, Inc. or the Battery
Business Group of ERC, as appropriate.
Immediately after the Distribution, the Company will grant at no cost to
holders of its Common Stock as of a record date to be determined, transferable
subscription rights to subscribe for and purchase additional shares of the
Company Common Stock (a "Right"). Each holder of Common Stock of the Company
will receive one transferable Right for each share of Common Stock held on the
record date. Each Right will be exercisable to purchase one share of Common
Stock of the Company at a purchase price of $6.00 per share ("Subscription
Price").
Each holder of Rights who elects to exercise his right to purchase for the
Subscription Price a share of Common Stock for each Right held ("Basic
Subscription Privilege"), may also subscribe at the Subscription Price for an
unlimited number of additional Underlying Shares (the "Oversubscription
Privilege") that are not otherwise purchased pursuant to the Basic Subscription
Privilege.
The Company intends to use the net proceeds from the Rights Offering
primarily to lease and equip a new facility for limited production and
manufacturing purposes, for working capital, and general corporate purposes.
(see note 11)
After the distribution, the Company and ERC will operate as separate,
publicly held corporations. In order to effect the segregation of these
businesses, prior to the Distribution, ERC will transfer to the Company the
principal assets related to its Battery Business Group, and the Company will
assume certain liabilities related to those assets.
As part of the separation of the Company's business from ERC, the Company
will enter into various agreements with ERC including a Distribution Agreement,
Tax Sharing Agreement, Service Agreement and License Assistance Agreement.
The Distribution Agreement will provide for, among other things, the
principal corporate transactions required to effect the Distribution, the
transfer to the Company of the assets of the battery business, the division
between ERC and the Company of certain liabilities and obligations, the
distribution by ERC of all outstanding shares of the Company Common Stock to ERC
stockholders and certain other agreements governing the relationship between ERC
and the Company after the Distribution. Subject to certain exceptions, the
Distribution provides for assumptions of obligations and liabilities and
cross-indemnities designed to allocate financial responsibility for the
obligations and liabilities arising out of or in connection with the battery
business to the Company and financial responsibility for the obligations and
liabilities arising out of or in connection with the fuel cell business to ERC.
F-8
<PAGE>
BATTERY BUSINESS GROUP OF ERC
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
(Dollars in thousands)
The Tax Sharing Agreement defines the parties' rights and obligations with
respect to the filing of returns, payments, etc. relating to ERC's business for
periods prior to and including the Distribution and with respect to certain tax
attributes of ERC after the distribution.
The Services Agreement provides that ERC will provide to the Company certain
management and administrative services, as well as the use of certain office,
research and development, manufacturing and support facilities and services of
ERC. The Services Agreement shall continue until terminated by either party upon
120 days' notice. In addition, the Company may terminate the Services Agreement
as to one or more of the Services upon 60 days' notice to ERC.
The types of services to be provided pursuant to the Services Agreement by
ERC, through its employees, include financial reporting, accounting, auditing,
tax, office services, payroll, human resources, analytical lab, microscopic
analysis, machine shop and drafting, as well as the part time management
services of ERC's Chief Executive Officer and Chief Financial Officer. ERC will
also provide office, research and development and manufacturing space for the
Company. The method of calculating the applicable charges to be paid by the
Company for each type of service are set forth in the Services Agreement; such
charges are payable quarterly.
The Company estimates that the net fees to be paid to ERC for services
performed will initially be approximately $208 per quarter, excluding certain
services billed on the basis of usage, such as purchasing, analytical lab,
microscope analysis, machine shop and drafting, which amount takes into account
ERC's additional costs related to providing such services, and will decline as
the services performed decrease. The Company presently expects that most of such
services will be provided by ERC for approximately one year.
LICENSE ASSISTANCE AGREEMENT
In order for ERC to transfer the Joint Venture contract and the Three
Circles License Agreement to the Company, ERC must obtain the consent of Xiamen
Three Circles Co., Ltd. and the Joint Venture and the approval of the
appropriate examination and approval authority of the People's Republic of
China. ERC has agreed to seek these consents and approvals, however, there can
be no assurance that these consents and approvals will be obtained on a timely
basis or at all. Pending receipt of these consents and approvals, ERC and the
Company have entered into a License Assistance Agreement pursuant to which ERC
has retained the Company to provide all services and assistance necessary for
the Company to effectively fulfill, on behalf of ERC, all of ERC's obligations
under the Joint Venture contract and Three Circles License Agreement in exchange
for payment to the Company by ERC of all remuneration paid and other benefits
accruing to ERC pursuant to such agreements.
(2) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Battery Business Group of ERC is engaged in the development and
commercialization of an innovative, patented, Nickel-Zinc rechargeable battery,
as well as the research and design of other advanced battery technologies. The
Battery Business Group of ERC has been an integral part of ERC and has received
all of its funding from ERC to date.
F-9
<PAGE>
BATTERY BUSINESS GROUP OF ERC
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
(Dollars in thousands)
BASIS OF PRESENTATION
The accompanying financial statements are presented as if the Battery
Business Group of ERC had existed as a corporation separate from ERC for the
periods presented and include the historical assets, liabilities, revenues and
expenses that are directly related to the business that will comprise the
Company's operations.
For the periods presented certain general and administrative expenses
reflected in the financial statements include allocations of certain corporate
expenses from ERC, which took into consideration personnel, space, estimates of
time spent to provide services, or other appropriate bases. Management believes
the foregoing allocations were made on a reasonable basis; however, they do not
necessarily equal the costs which would have been or will be incurred by the
Company on a stand-alone basis.
The financial information included herein may not necessarily reflect the
financial position and results of operations of the Company in the future or
what the financial position and results of operations of the Company would have
been had it been a separate, stand-alone company during the periods covered.
SIGNIFICANT ACCOUNTING POLICIES
CASH
The Company did not have any cash at October 31, 1998. All cash needs have
been provided by ERC to date.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation provided on the straight- line method over the estimated useful
lives of the respective assets. Leasehold improvements are amortized on the
straight-line method over the shorter of the estimated useful lives of the
assets or the term of the lease. When property is sold or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in operations for the period. The
Company capitalizes interest costs as part of the cost of constructing major
facilities and equipment. There were no interest costs capitalized in 1997 and
1998.
OTHER ASSETS
Organization costs associated with the formation of the Company have been
deferred and are being amortized using the straight line method over five years.
Rights offering costs represent legal and professional costs directly
attributed to the Company's underwritten rights offering. These costs will be
offset against the net proceeds therefrom.
REVENUE RECOGNITION
Revenues and fees on long-term contracts, including government cost
reimbursement contracts, are recognized on the percentage of completion method.
Percentage-of-completion method is measured by costs (including applicable
general and administrative) incurred and accrued to date as compared with the
estimated total costs for each contract. Contracts typically extend over a
period of one or more years. In accordance with industry practice, receivables
include amounts relating to contracts having production
F-10
<PAGE>
BATTERY BUSINESS GROUP OF ERC
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
(Dollars in thousands)
cycles longer than one year and a portion thereof will not be realized within
one year. Provisions for estimated losses, if any, are made in the period in
which such losses are determined. License fee income arises from license
agreements whereby the Company grants the right to use Company patents and know-
how. Amounts are recognized when earned in accordance with the terms of the
agreements.
During the fiscal years ended October 31, 1997 and 1998, cost exceeded the
revenue by $1,126 and $3,658, respectively, as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER
31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Contract revenue........................................................... 144 19
--------- ---------
Cost and expenses.......................................................... $ 1,303 $ 3,769
Less license expense....................................................... 33 92
--------- ---------
Contract costs............................................................. 1,270 3,677
--------- ---------
Cost in excess of revenue.................................................. $ 1,126 $ 3,658
--------- ---------
--------- ---------
</TABLE>
A portion of the cost in excess of revenue for the above indicated reporting
periods was included in the revenue of ERC. Certain of the costs indicated above
were recovered under cost reimbursement contracts and as Independent Research
and Development allowed under government contracts awarded to ERC. After the
Distribution the Company will no longer participate in the cost reimbursement
contracts of ERC.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
Prior to the Distribution, the Battery Business Group was included in the
consolidated tax filings of ERC. The provision for income taxes of the Company
represents an allocation of a portion of the ERC consolidated U.S federal income
tax provision to the battery group. The allocated tax provision is determined
based upon the income or loss of each group as if a separate tax return was
filed. If ERC is unable to recognize the tax benefit of an operating loss
generated by a group through offset of the loss against income of other members
of the consolidated group, or carryback of the loss to reduce prior year's
consolidated taxable income, such benefit is not allocated to the group. To the
extent that ERC is subsequently able to recognize previously unrecorded tax
benefits relating to losses of a group, the benefit is allocated to that group
as the group generates future taxable income up to the amount of prior losses
giving rise to the unrecognized tax benefit.
USE OF ESTIMATES
Management has made estimates and assumptions relating to the reporting of
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from these
estimates.
F-11
<PAGE>
BATTERY BUSINESS GROUP OF ERC
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
(Dollars in thousands)
(3) LICENSE AGREEMENTS AND JOINT VENTURE CONTRACT
On May 29, 1998, ERC entered into a Technology Transfer and License Contract
(the "License Contract") with Xiamen Three Circles Co., Ltd. ("Xiamen"). In
connection with this transaction, ERC received $3,000 in payment for granting a
license of its nickel-zinc ("Ni-Zn") batteries to Xiamen. As required by the
License Contract, ERC entered into a Joint Venture Contract with Xiamen on July
24, 1998 for the construction of a manufacturing facility for the production of
Ni-Zn batteries. As a result, Xiamen Three Circles-ERC Battery Corp., Ltd. (the
"Joint Venture") was formed. The Joint Venture will manufacture batteries for
electric bicycles, scooters, wheel chairs, miners cap lamp and other
applications for sale within the licensed territories. In accordance with the
License Contract requirements, ERC contributed the $3,000 license fee received
plus an addition $80 to the Joint Venture in exchange for a 50.5% ownership
interest.
In connection with the proposed spin-off, ERC and the Company entered into a
License Assistance Agreement pursuant to which the Company will provide all
services and assistance necessary for the Company to effectively fulfill, on
behalf of ERC, all of ERC's obligations under the Joint Venture Contract and the
License Contract, until such time as ERC obtains the approval for the assignment
of the agreements to the Company. In return for such assistance, ERC will pay
the Company an amount equal to the sum of all money, dividends, profits,
reimbursements, distributions and payments actually paid to ERC in cash or in
kind or otherwise accruing to ERC pursuant to the Joint Venture Contract and the
License Contract. All expenses and costs incurred by the Company in meeting the
obligations under the License Assistance Agreement shall be solely those of the
Company, and ERC shall not be liable for their payment. The Company will account
for its involvement in the Joint Venture under the License Assistance Agreement
in a manner similar to the equity method of accounting.
In February 1998, ERC entered into a license agreement (the "NanYa License
Agreement") with a joint venture between NanYa Plastics Corporation of Taiwan
and Xiamen for the use of the Company's Ni-Zn batteries in EV/HEVs in China,
Taiwan, Hong Kong and Macao on an exclusive basis and for certain other
Southeast Asian countries on a non-exclusive basis. Under the NanYa License
Agreement, which is to be assigned by ERC to the Company pursuant to the
Distribution Agreement, the joint venture would be required to pay $2,000 to the
Company upon completion of certain conditions, and a final payment of $1,500
upon completion of duplication of the battery at its facilities in China. In
addition, the NanYa License Agreement requires the licensee to pay to the
Company royalties on sales of batteries during the term of the Agreement. The
NanYa License Agreement provides that the licensor has the right to invest the
final payment in equity in the joint venture manufacturing and sales
organization formed between NanYa Plastics and Xiamen. ERC has agreed to seek
the consent of the other parties to the NanYa License Agreement to the
assignment of such Agreement to the Company.
F-12
<PAGE>
BATTERY BUSINESS GROUP OF ERC
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
(Dollars in thousands)
(4) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
1998
---------------
<S> <C>
U.S. Government.................................................................. $ 12
Commercial....................................................................... 5
---
$ 17
---
---
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL OCTOBER 31,
LIFE 1998
---------- -----------
<S> <C> <C>
Machinery and equipment.............................................. 3-8 years $ 1,068
Furniture and fixtures............................................... 10 years 9
Construction in progress............................................. 603
-----------
$ 1,680
-----------
-----------
</TABLE>
(6) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
1998
-------------
<S> <C>
Rights offering costs............................................................ $ 307
Security deposits................................................................ 14
Organizational costs............................................................. 12
-----
$ 333
-----
-----
</TABLE>
(7) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
1998
---------------
<S> <C>
Accrued vacation................................................................. $ 21
Accrued salaries and wages....................................................... 23
Accrued health benefits.......................................................... 17
Other accrued liabilities........................................................ 19
---
$ 80
---
---
</TABLE>
F-13
<PAGE>
BATTERY BUSINESS GROUP OF ERC
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
(Dollars in thousands)
(8) EQUITY
At the Distribution Date, holders of ERC common stock will receive one share
of the Company's common stock for every three shares of ERC stock held. If the
Distribution had taken place on October 31, 1998, approximately 1,376,424 shares
of the Company's common stock would have been issued.
The Company's operations to date have been substantially funded by ERC.
The changes in the Company's equity are as follows:
<TABLE>
<S> <C>
BALANCE AT OCTOBER 31, 1996........................................ $ 111
Net loss........................................................... (572)
Net cash transfer from ERC......................................... 672
---------
BALANCE AT OCTOBER 31, 1997........................................ 211
Net loss........................................................... (2,325)
Net cash transfer from ERC......................................... 2,536
---------
BALANCE AT OCTOBER 31, 1998........................................ $ 422
---------
---------
</TABLE>
(9) INCOME TAXES
The income tax benefit consists entirely of current federal income tax
benefit. There were no differences between the expected income tax benefit at
the statutory rate of 34% and the actual benefit in 1997. In 1998 the actual
benefit was 30.2% due to certain nondeductible expenditures.
State income taxes have historically been reimbursed under U.S. government
cost reimbursement contracts awarded to the ERC.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The principal temporary differences relate to the excess of tax
over book depreciation relative to the Company's property, plant and equipment
in the amount of $17.
(10) EMPLOYEE BENEFITS
The Company has participated in the ERC Capital Accumulation Plan. The
Company charged $25 and $28 to expense under the Capital Accumulation Plan of
ERC during the years ended October 31, 1997 and 1998, respectively.
The Company has participated in the ERC Pension Plan. The Company charged
$20 and $33 to expense under the ERC Pension Plan during the years ended October
31, 1997 and 1998, respectively.
The Company has adopted the 1998 Equity Incentive Plan. It has awarded and
may in the future award stock options and equity incentive awards to its
officers, directors, key employees and consultants. 300,000 shares of Common
Stock have been reserved for issuance pursuant to the Plan. As of October 31,
1998, no options had been granted under the 1998 Equity Incentive Plan.
The Company and ERC have agreed to issue to the Chief Executive Officer one
share of the Company's Common Stock for every three shares of ERC Common Stock
which he purchases pursuant to his exercise of ERC Options. Under this agreement
an option has been granted to acquire a total of 83,333
F-14
<PAGE>
BATTERY BUSINESS GROUP OF ERC
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
(Dollars in thousands)
shares of Evercel's Common Stock at an exercise price based proportionately upon
the relative fair market values of ERC Common Stock and the Company's Common
Stock.
(11) SUBSEQUENT EVENTS
On December 22, 1998, Evercel, Inc. entered into a commitment to borrow up
to $1,000 from First Union National Bank ("First Union Line of Credit") for the
purpose of acquiring machinery and equipment for the new battery manufacturing
plant. As of January 22, 1999, the Company had borrowed $821 against this
commitment. The note is due on June 30, 1999. ERC has unconditionally guaranteed
the commitment and has pledged $1,000 of cash against the Note. The Note is
payable from the proceeds of the planned Evercel, Inc. Rights Offering.
On January 15, 1999, Evercel, Inc. entered into a lease for manufacturing
and office space in Danbury, CT. The lease term is five years with an option to
extend for an additional five years. The annual rent is $171 for the first three
years and increases to $178 in year four and $185 in year five. ERC has
guaranteed the performance of the lease ("Lease Guaranty"). In the event of a
default by Evercel, ERC's liability is limited to $500 reduced each anniversary
date of the lease by $100. Notwithstanding the foregoing, the guaranty
terminates after the first anniversary of the lease upon Evercel's net worth
exceeding $3,000.
On February 5, 1999, Evercel, Inc. entered into a Loan Agreement and Line of
Credit Note (Line of Credit) to borrow up to $3,450 (including borrowings noted
above) from ERC for working capital and capital expenditures purposes. Any
outstanding borrowings will be secured by all of the Company's tangible and
intangible personal property and bear interest at the London Interbank Offered
Rate (LIBOR) plus 1 1/2%, payable monthly in arrears. The $3,450 Line of Credit
represents the maximum borrowing limit and is being reduced by the sum of the
following: a) any outstanding advances under the First Union Line of Credit; b)
any amounts ERC has paid on account of the Lease Guaranty; c) the net proceeds
received on account of any sale or issuance of any equity securities by the
Company, including the Rights Offering; and d) the amount of any loans
(excluding the First Union Line of Credit) obtained by the Company after the
date of this agreement, including the present value of the Company's lease
obligations. The Line of Credit terminates on August 5, 2000 or the date on
which the Company has received net proceeds from items c) and d) above equal to
at least $3,450, whichever is earlier.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY U.S. UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Additional Information............... 2
<S> <C>
Forward-Looking Statements........... 2
Prospectus Summary................... 3
Summary Financial Data............... 8
Risk Factors......................... 9
The Rights Offering.................. 19
Distribution......................... 25
Use of Proceeds...................... 31
Dilution............................. 32
Dividend Policy...................... 32
Capitalization....................... 33
Selected Financial Data.............. 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 34
Business............................. 39
Management........................... 53
Security Ownership of Certain
Beneficial Owners and Management.... 57
Shares Eligible for Future Sale...... 58
Description of Securities............ 60
The Standby Underwriting............. 63
Legal Matters........................ 66
Experts.............................. 66
Index to Financial Statements........ F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE EXPIRATION DATE), ALL DEALERS THAT
EFFECT TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THE
RIGHTS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,389,000 SHARES
EVERCEL, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Ninth of the Registrant's Amended and Restated Certificate of
Incorporation eliminates the personal liability of directors to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty to the
full extent permitted by Delaware law. Article Ninth also provides that the
Registrant may indemnify its officers and directors to the full extent permitted
by the Delaware General Corporation Law. Section 145 of the Delaware General
Corporation Law authorizes a corporation to indemnify directors, officers,
employees and agents of the corporation if such party acted in good faith in a
manner he believed to be in or not opposed to the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, as determined in
accordance with the Delaware General Corporation Law. Section 145 further
provides that indemnification shall be provided if the party in question is
successful on the merits or otherwise. The effect of these provisions is to
permit such indemnification by the Registrant for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant also
expects to obtain directors and officers liability insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The costs of issuance and distribution which will be borne by the Registrant
are as follows:
<TABLE>
<S> <C>
SEC Registration Fee............................................. 2,973
NASD Filing Fee.................................................. 1,450
Nasdaq Listing Fee............................................... 7,778
Blue Sky Fees and Expenses....................................... 25,000
Subscription Agent, Transfer Agent and Registrar Fees............ 25,000
Accounting Fees and Expenses..................................... 125,000
Legal Fees and Expenses.......................................... 375,000
Printing and Engraving........................................... 100,000
Miscellaneous.................................................... 12,799
Total........................................................ 675,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 27. EXHIBITS
Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------
<C> <S> <C>
1 Form of Standby Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of
Incorporation of the Company.
3.2 Form of Restated By-laws of the Company.
4.1 Form of Specimen Stock Certificate.
4.2 Form of Subscription Certificate for the Rights.
4.3 Form of Rights Agent Agreement between the Company
and Continental Stock Transfer & Trust Company.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------
<C> <S> <C>
4.4 Subscription Instructions, including Notice of
Guaranteed Delivery and Notice of Guaranteed
Payment.
5 Opinion of Brown, Rudnick, Freed & Gesmer.
8 Form of Opinion of Brown, Rudnick, Freed & Gesmer
regarding Tax Matters.
10.1 Distribution Agreement between the Company and
ERC.
10.2 Services Agreement between the Company and ERC.
10.3 License Assistance Agreement between the Company
and ERC.
10.4 Tax Sharing Agreement between the Company and ERC.
10.5 Evercel, Inc. 1998 Equity Incentive Plan.
10.6 Technology Transfer and License Contract for Ni-Zn
Battery Technology among Xiamen ERC Battery
Corp. Ltd., Xiamen Daily-Used Chemicals Co., Ltd
and ERC dated May 29, 1998.+**
10.7 Cooperative Joint Venture Contract between Xiamen
Three Circles Co., Ltd. and ERC for the
establishment of Xiamen Three Circles--ERC
Battery Corp., Ltd dated July 7, 1998.+**
10.8 Technology Transfer and License Agreement for
Ni-Zn Battery Technology among Xiamen Three
Circles Co., Ltd. (formerly Xiamen Daily-Used
Chemicals Co., Ltd.), Nan Ya Plastics
Corporation and ERC dated February 21, 1998.+**
10.9 Employment Agreement between the Company and Allen
Charkey, dated as of December 15, 1998.
10.10 $3,450,000 Line of Credit Note, dated February 5,
1999, issued by the Company in favor of ERC.
10.11 Security Agreement dated, February 5, 1999,
between the Company and ERC.
10.12 Trademark Security Agreement, dated February 5,
1999, between the Company and ERC.
10.13 Patent Security Agreement, dated February 5, 1999,
between the Company and ERC.
10.14 Loan Agreement, dated February 5, 1999, between
the Company and ERC.
10.15 Lease dated January 15, 1999, between the Company
and Shelter Lee, LLC, including Guarantee of
Lease by ERC in favor of Shelter Lee, LLC.
10.16 Promissory Note, dated December 22, 1998, between
First Union National Bank and the Company.
10.17 Unconditional Guaranty by ERC in favor of First
Union National Bank, dated December 22, 1998.
10.18 Pledge and Assignment Agreement between ERC and
First Union National Bank, dated December 22,
1998.
23.1 Consent of KPMG LLP.**
23.2 Consent of Brown, Rudnick, Freed & Gesmer
(contained in Exhibit 5).
24 Power of Attorney (contained in the signature page
to this Registration Statement).**
27 Financial Data Schedule.**
99 Form of letter to stockholders regarding
Distribution and Rights Offering.
</TABLE>
- ------------------------
* To be filed by amendment.
II-2
<PAGE>
** Previously Filed.
+ Confidential treatment has been requested for portions of this document.
ITEM 28. UNDERTAKINGS
(a) If the Registrant is registering securities under Rule 415 of the
Securities Act, the Registrant will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 24.--Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant will provide to the underwriters, at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
(d) In the event that the Registrant reoffers to the public any securities
not taken by security holders in the Rights Offering, the Registrant will
supplement the prospectus after the end of the subscription period, to include
the results of the subscription offer, the transactions by the underwriters
during the subscription period, the amount of unsubscribed securities that the
underwriters will purchase and the terms of any later reoffering. If the
underwriters make any public offering of the securities on terms different from
those on the cover page of the prospectus, the Registrant will file a
post-effective amendment to state the terms of the offering.
(e) If the Registrant relies on Rule 430A under the Securities Act, the
Registrant will:
II-3
<PAGE>
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4), or 497(h)
under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
BONA FIDE offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has duly caused this Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the Town of Danbury, State of Connecticut, on February 8,
1999.
EVERCEL, INC.
By: /s/ JERRY D. LEITMAN
-----------------------------------------
Jerry D. Leitman
Acting President and
Chief Executive Officer
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT NO. 2 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JERRY D. LEITMAN
- ------------------------------ Principal Executive February 8, 1999
Jerry D. Leitman Officer and Director
*
- ------------------------------ Principal Financial and February 8, 1999
Joseph G. Mahler Accounting Officer
*
- ------------------------------ Director February 8, 1999
Bernard S. Baker
*
- ------------------------------ Director February 8, 1999
Thomas L. Kempner
*
- ------------------------------ Director February 8, 1999
William A. Lawson
*
- ------------------------------ Director February 8, 1999
Warren D. Bagatelle
*
- ------------------------------ Director February 8, 1999
Richard M.H. Thompson
*
- ------------------------------ Director February 8, 1999
James D. Gerson
*
- ------------------------------ Director February 8, 1999
Allen Charkey
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JERRY D. LEITMAN
-------------------------
Jerry D. Leitman
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
Exhibit 1
1,389,000 Shares of Common Stock
EVERCEL, INC.
STANDBY UNDERWRITING AGREEMENT
February , 1999
Burnham Securities Inc.
Loeb Partners Corporation
c/o Burnham Securities Inc.
1325 Avenue of the Americas
17th Floor
New York, New York 10019
Dear Sirs:
Evercel, Inc., a Delaware corporation (the "COMPANY"), proposes to grant
(the "RIGHTS OFFERING") to its stockholders of record on February __, 1999 (the
"RECORD DATE") rights (the "Rights") to purchase 1,389,000 shares of common
stock, par value $.01 per share ("COMMON STOCK") of the Company, plus up to an
additional 208,350 shares (the "Oversubscription Shares") of Common Stock to
cover exercises of excess oversubscription privileges as more fully described in
Section 4 below, and to issue and to sell to Burnham Securities Inc. and Loeb
Partners Corporation (the "UNDERWRITERS") any and all of the 1,389,000 shares of
Common Stock which had been offered by the Company pursuant to the Rights but
which were not acquired through the exercise of Rights in the Rights Offering
(the "UNSUBSCRIBED SHARES"). In addition, the Company has granted to the
Underwriters an option to purchase up to an additional 208,350 shares (the
"OPTIONAL SHARES") of Common Stock, as provided in Section 2(b) of this
Agreement. The Unsubscribed Shares and, if and to the extent issued, the
Optional Shares are collectively called the "Underwritten Shares." The shares of
Common Stock acquired pursuant to the exercise of Rights (including the
Oversubscription Shares, if and to the extent issued) and the Underwritten
Shares are collectively called the "SHARES."
<PAGE>
The Company has prepared and filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement on Form SB-2 (File No.
333-64931), including a prospectus subject to completion, for the registration
of the Rights and the Shares under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (collectively, the "Act"). The
Company may have filed one or more amendments thereto, including a prospectus
subject to completion, each of which has previously been furnished to the
Underwriters. After the Registration Statement has been declared effective by
the Commission under the Act and after the execution of this Agreement, the
Company will file with the Commission a prospectus in the form most recently
included in an amendment to such registration statement, with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act and as have been provided to and approved by the
Underwriters prior to execution of this Agreement. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the Act,
including any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A under the Act, is called the "REGISTRATION
STATEMENT." Any prospectus subject to completion included in the Registration
Statement is called a "PRELIMINARY PROSPECTUS." The prospectus first filed with
the Commission pursuant to Rule 424(b) under the Act is called the "PROSPECTUS."
All references in this Agreement to the Registration Statement, a Preliminary
Prospectus, the Prospectus or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). For
purposes of the representations and warranties contained herein, to the extent
reference is made to the Prospectus and at the relevant time the Prospectus is
not yet in existence, such reference shall be deemed to be to the most recent
Preliminary Prospectus.
For all periods prior to February ___, 1999, the date of the execution
of that certain Distribution Agreement between the Company and Energy Research
Corporation, a New York corporation, references in this Agreement to the Company
shall include the battery business group of Energy Research Corporation.
The Company hereby confirms its agreements with the Underwriters as
follows:
1. REPRESENTATION AND WARRANTIES. The Company represents and warrants
to and agrees with each Underwriter that:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement has been declared effective by the Commission under the Act. The
Company has complied with all requests of the Commission for additional or
supplemental information. Neither the Commission nor any Blue Sky or securities
authority of any jurisdiction has issued any order preventing or suspending the
use of any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto. No stop order suspending the effectiveness of the Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
<PAGE>
Each Preliminary Prospectus and the Prospectus when filed
complied or will comply in all material respects with the Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Act), the text of such electronic transmission was or
will be identical to the text of the copy thereof delivered to the Underwriters
for use in connection with the offer and sale of the Underwritten Shares. Each
of the Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will comply
in all material respects with the Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement or any post-effective amendment thereto or the Prospectus or any
amendments or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
the Underwriters expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement which have not been or will not be described or
filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to the Underwriters two complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and Preliminary Prospectuses, as amended or supplemented, in such
quantities and at such places as the Underwriters have reasonably requested.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company has
not distributed and will not distribute, prior to the completion of the
Underwriters' distribution of the Underwritten Shares, any offering material in
connection with the offering and sale of the Underwritten Shares other than the
Prospectus or the Registration Statement.
(d) INCORPORATION, GOOD STANDING AND QUALIFICATION. The Company
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of Delaware with full power and authority to own, lease,
and operate its properties (which term wherever used in this Agreement with
reference to the Company includes material contractual rights, unless otherwise
indicated by the context) and to conduct its business as described in the
Registration Statement and the Prospectus and to enter into and perform its
obligations under this Agreement. The Company is duly qualified to conduct
business as a foreign corporation and is in good standing in all jurisdictions
in which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such jurisdictions
where the failure to so qualify or to be in good standing would not have a
material adverse effect on its business, operations, financial condition, income
or business prospects.
3
<PAGE>
(e) PREPARATION OF FINANCIAL STATEMENTS. The Company's financial
statements, together with related notes, filed with the Commission as part of
the Registration Statement and included in the Prospectus, present fairly the
financial position, results of operations and cash flows of the Company at the
respective dates and for the respective periods to which they apply. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied consistently throughout the periods involved,
except as otherwise expressly stated in the related notes thereto, and all
adjustments necessary for a fair presentation of results for such periods have
been made. No other financial statements or supporting schedules are required to
be included in the Registration Statement. The financial data set forth in the
Registration Statement and the Prospectus under the captions "Prospectus
Summary--Summary Financial Data," "Capitalization" and "Selected Financial Data"
fairly present the information set forth therein on a basis consistent with that
of the audited financial statements contained in the Registration Statement and
the books and records of the Company.
(f) INDEPENDENT ACCOUNTANTS. KPMG LLP are independent public
accountants within the meaning of the Act and have certified those financial
statements designated as audited which have been filed with the Commission as
part of the Registration Statement and, as experts, have reviewed certain
information of a financial or accounting nature included in the Registration
Statement and the Prospectus.
(g) CAPITALIZATION, AUTHORIZATION OF THE SHARES AND OTHER CAPITAL STOCK
MATTERS. The authorized, issued, and outstanding capital stock of the Company is
as set forth in the Registration Statement and the Prospectus under the caption
"Capitalization." The Common Stock (including the Shares) conforms to the
description thereof contained in the Registration Statement and the Prospectus.
All of the issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
have been issued in compliance with federal and state securities laws. All of
the Rights have been duly authorized and, when issued and distributed as
described in the Registration Statement and the Prospectus, will be legally
issued and valid and binding obligations of the Company having the rights
described in the Registration Statement and the Prospectus. None of the
outstanding shares of Common Stock were issued in violation of any preemptive
rights, rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. None of the Rights when issued will have
been issued in violation of any preemptive rights, rights of first refusal or
other similar rights. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company other than those described in the Registration
Statement and the Prospectus. The description of the Company's equity incentive
plan and other stock plans or arrangements, and the options or other rights
granted thereunder, set forth in the Registration Statement and the Prospectus
fairly presents the information required to be shown with respect to such plans,
arrangements, options and rights. The shares of Common Stock acquired pursuant
to the exercise of Rights have been duly authorized for issuance and sale to the
holders of the Rights and, when any such shares are issued and delivered by the
Company pursuant to the exercise of
4
<PAGE>
Rights, such shares will be duly and validly issued and fully paid and
nonassessable. The Underwritten Shares have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when any
Underwritten Shares are issued and delivered by the Company pursuant to this
Agreement, such shares will be duly and validly issued and fully paid and
nonassessable.
(h) STOCK EXCHANGE LISTING. The Common Stock (including the Shares) has
been approved for listing on the Boston Stock Exchange and the Nasdaq SmallCap
Market.
(i) SUBSIDIARIES AND OTHER ENTERPRISES. Except as described in the
Registration Statement and the Prospectus, the Company has no subsidiaries and
has no ownership or proprietary interest in any other business, corporation,
firm, partnership, joint venture, association or other entity and is not party
to any agreement or understanding, written or oral, regarding the acquisition
of, or of an interest in, any business, corporation, firm, partnership, joint
venture, association or other entity.
(j) TITLE TO PROPERTIES. The Company has good and marketable title to
all properties and assets reflected as owned by it in the financial statements
referred to in Section 1(e) above (or elsewhere in the Registration Statement or
the Prospectus), free and clear of all security interests, mortgages, liens,
charges, encumbrances, restrictions, claims and other defects, except such as
(i) are described in the Registration Statement and the Prospectus or (ii) do
not materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by the Company. The real property, improvements, equipment and personal property
held under lease by the Company are held under valid and enforceable leases,
with such exceptions as are not material and do not materially interfere with
the use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company.
(k) NECESSARY PERMITS, etc. Except as described in the Registration
Statement and the Prospectus, the Company possesses such valid and current
certificates, authorizations or permits issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies necessary to conduct its
business, and the Company has not received any notice of any proceeding relating
to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit.
(l) CONSENTS, APPROVALS, etc. No consent, approval, authorization, or
order of, or registration or filing with, any court or any governmental or
regulatory agency or body is required for the consummation by the Company of the
transactions contemplated by this Agreement or by the Registration Statement and
the Prospectus, except such as may be required under the Act or Blue Sky or
securities laws of any jurisdiction and by the National Association of
Securities Dealers, Inc. ("NASD").
(m) TAX LAW COMPLIANCE. The Company has filed all tax returns required
to be filed by it, or has received extensions of the time within which such
returns must be filed, and is not
5
<PAGE>
in default in the payment of any taxes which have become due pursuant to any law
or any assessment. The Company has made adequate charges, accruals and reserves
in the applicable financial statements referred to in Section 1(e) above in
respect of all taxes for all periods as to which the tax liability of the
Company has not been finally determined.
(n) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable federal or state
securities laws or public policy underlying such laws and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(o) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; Compliance with Laws.
The Company is neither in violation of its certificate of incorporation or
bylaws nor in default (or, with the giving of notice or lapse of time, would be
in default) ("DEFAULT") in the performance or observance of any obligation,
agreement, covenant, or condition contained in any bond, debenture, note, or
other evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, or other agreement or instrument to which the Company is a
party or by which the Company or any of its properties or assets may be subject
(each, an "EXISTING INSTRUMENT"), except for such Defaults as would not,
individually or in the aggregate, have a material adverse effect on the
Company's business, operations, financial condition, income or business
prospects. The Company is not in violation of any law, order, rule, regulation,
writ, injunction or decree of any government, governmental instrumentality or
court, domestic or foreign , except for such violations as would not,
individually or in the aggregate, have a material adverse effect on the
Company's business, operations, financial condition, income or business
prospects. The Company's execution, delivery and performance of this Agreement
and consummation of the transactions contemplated hereby and by the Registration
Statement and the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions of the
Company's certificate of incorporation or bylaws, (ii) will not conflict with or
constitute a breach of, or Default under, or result in the creation or
imposition of any security interest, mortgage, lien, charge, encumbrance,
restriction, claim or other defect upon any property or assets of the Company
pursuant to, or require the consent of any other party to, any Existing
Instrument, except for such conflicts, breaches, Defaults, security interests,
mortgages, liens, charges, encumbrances, restrictions, claims or other defects
as would not, individually or in the aggregate, have a material adverse effect
on the Company's business, operations, financial condition, income or business
prospects, and except for such consents as have been obtained and (iii) will not
result in any violation of any law, order, rule, regulation, writ, injunction,
or decree of any government, governmental instrumentality, or court, domestic or
foreign, except for such violations as would not, individually or in the
aggregate, have a material adverse effect on the Company's business, operations,
financial condition, income or business prospects.
6
<PAGE>
(p) NO MATERIAL ADVERSE CHANGE. Since the respective dates as of which
information is given in the Prospectus and prior to the First Closing Date (as
defined in Section 3(a) below), except as may otherwise be stated in the
Prospectus, (i) there has not been and will not be any material adverse change,
or any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, of the Company, or in
the business, operations, income, properties, management, or business prospects
of the Company, whether or not arising in the ordinary course of business, (ii)
there has not been and will not be any transactions or agreements entered into
by the Company, other than transactions or agreements in the ordinary course of
business or transactions or agreements which are not material to the Company,
(iii) there has not been and will not be any dividend or distribution of any
kind declared, paid, or made by the Company on its capital stock, (iv) the
Company has not incurred and will not incur any liabilities or obligations
(indirect, direct or contingent), except in the ordinary course of business, (v)
there has not been and will not be any change in the capital stock of the
Company or any increase in the long-term indebtedness of the Company and (vi)
the Company has not and will not have sustained a loss of, or damage to, its
properties (whether or not insured) which could reasonably be expected to affect
materially and adversely the business, operations, financial condition, income
or business prospects of the Company.
(q) NO MATERIAL ACTIONS OR PROCEEDINGS. Except as may otherwise be
stated in the Registration Statement and the Prospectus, no action, suit, or
proceeding at law or in equity is pending or, to the knowledge of the Company,
threatened against the Company or any officer or director of the Company or
affecting the Company's properties or assets in, before, or by any court,
governmental commission, board, or other administrative agency, in which an
unfavorable decision, ruling or finding could reasonably be expected,
individually or in the aggregate, to affect materially and adversely the
consummation of the transactions contemplated by this Agreement and the
Registration Statement and the Prospectus or the business, operations, financial
condition, income, properties, management or business prospects of the Company.
(r) NO UNLAWFUL PAYMENTS. Neither the Company nor, to the best
knowledge of the Company and its management after reasonable investigation, any
employee or agent of the Company has made any payment to any official of, or
candidate for, any federal, state or foreign office prohibited by law or of the
character required to be disclosed in the Prospectus, and no funds of the
Company have been set aside to be used for any such payment.
(s) REGISTRATION RIGHTS. Other than as disclosed in the Registration
Statement and the Prospectus, there are no contracts, agreements or
understandings between the Company and any person granting such person the right
to require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the Act.
7
<PAGE>
(t) NO FINDER'S FEES. No person other than the Underwriters is
entitled, directly or indirectly, to compensation from the Company or from the
Underwriters for services as a finder in connection with the transactions
contemplated by this Agreement or the Registration Statement or the Prospectus.
(u) INTELLECTUAL PROPERTY RIGHTS. The Company owns or possesses
sufficient patents, patent applications, trademarks, trademark applications,
trade names, service marks, copyrights, franchises, and other intangible
properties and assets (all of the foregoing being herein called "INTANGIBLES")
reasonably necessary to conduct its business as presently conducted and as the
Registration Statement and the Prospectus indicate it contemplates conducting.
All Intangibles material to the Company's business that the Company owns or has
pending, or which it is licensed, are in good standing and the Company has not
received any notice that any such Intangibles are contested. The Company has not
granted any other person any right to use any Intangible used in the business of
the Company as presently conducted or as the Registration Statement and the
Prospectus indicate it contemplates conducting (except as may be so designated
in the Registration Statement or the Prospectus). The Company has not infringed,
is not infringing, and has not received notice of infringement with respect to
asserted Intangibles of others. To the knowledge of the Company, there is no
infringement by others of Intangibles of the Company. To the knowledge of the
Company, there is no Intangible of others that has had or may in the future have
a materially adverse effect on the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the Company.
(v) INSURANCE. The Company is insured by recognized, financially sound
and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for its business including, but not limited to, policies covering real
and personal property owned or leased by the Company against theft, damage,
destruction and acts of vandalism. The Company has no reason to believe that it
will not be able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar institutions
as may be necessary or appropriate to conduct its business as now conducted and
at a cost that would not have a material adverse effect on the Company's
business, operations, financial condition, income or business prospects (without
taking into account cost changes in the insurance industry unrelated to the
Company).
(w) NO PRICE STABILIZATION OR MANIPULATION. Neither the Company, nor to
the Company's best knowledge, any of its affiliates (other than as described in
the Registration Statement and the Prospectus under the caption "The Standby
Underwriting"), has taken or will take, directly or indirectly, any action
designed to or that could be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Underwritten Shares.
(x) RELATED PARTY TRANSACTIONS. There are no related-party transactions
involving the Company or any other person required to be described in the
Registration Statement and the Prospectus which have not been described as
required.
8
<PAGE>
(y) ACCOUNTING SYSTEMS. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles as applied in the United States and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(z) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not,
individually or in the aggregate, have a material adverse effect on the
Company's business, operations, financial condition, income or business
prospects, (i) the Company is not in violation of any federal, state, local or
foreign law or regulation relating to pollution or protection of human health or
the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum products
(collectively, "MATERIALS OF ENVIRONMENTAL CONCERN"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"ENVIRONMENTAL LAWS"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations required for
the operation of the business of the Company under applicable Environmental
Laws, or noncompliance with the terms and conditions thereof, nor has the
Company received any written communication, whether from a governmental
authority, citizens group, employee or otherwise, that alleges that the Company
is in violation of any Environmental Law; (ii) there is no claim, action or
cause of action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no written
notice received by the Company from any person or entity alleging potential
liability for investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries, attorneys' fees
or penalties arising out of, based on or resulting from the presence, or release
into the environment, of any location owned, leased or operated by the Company,
now or in the past (collectively, "Environmental Claims"), pending or, to the
best of the Company's knowledge, threatened against the Company or any person or
entity whose liability for any Environmental Claim the Company has retained or
assumed either contractually or by operation of law; and (iii) to the best of
the Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that reasonably could result in a violation of any
Environmental Law or form the basis of a potential Environmental Claim against
the Company or against any person or entity whose liability for any such
Environmental Claim the Company has retained or assumed either contractually or
by operation of law.
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<PAGE>
(aa) ERISA Compliance. The Company and any "employee benefit plan" (as
defined under the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and published interpretations thereunder (collectively,
"ERISA")) established or maintained by the Company or its "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company is a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company or any of its ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company or any of its ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the Company nor
any of its ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each "employee benefit plan" established or maintained by the
Company or any of its ERISA Affiliates that is intended to be qualified under
Section 401(a) of the Code is so qualified and nothing has occurred, whether by
action or failure to act, which would cause the loss of such qualification.
2. SALE AND PURCHASE OF SHARES.
(a) UNSUBSCRIBED SHARES. On the basis of the representations,
warranties, and agreements and subject to the terms and conditions stated in
this Agreement, the Company agrees to issue and sell to the Underwriters, and
the Underwriters agree, severally and not jointly, to purchase from the Company,
any and all Unsubscribed Shares at the purchase price of $6.00 per share (the
"SUBSCRIPTION PRICE") in the percentages set forth opposite their names on
SCHEDULE A, subject to deduction of fees payable by the Company pursuant to
Section 6 of this Agreement.
(b) Optional Shares. In addition, on the basis of the representations,
warranties, and agreements and subject to the terms and conditions stated in
this Agreement, the Company hereby grants an option to the Underwriters to
purchase, severally and not jointly, up to an aggregate of 208,350 Optional
Shares from the Company at the purchase price per share equal to the
Subscription Price in the percentages set forth opposite their names on SCHEDULE
A. The number of Optional Shares subject to such option shall be reduced by the
number of Oversubscription Shares, if any, sold by the Company pursuant to the
Oversubscription Option (as defined in Section 4 below). The option granted
hereunder may be exercised in whole or in part at any time and from time to time
upon written or facsimile notice, or verbal or telephonic notice confirmed by
written or facsimile notice, by the Underwriters to the Company within 30 days
from the date on which the Company's transfer agent provides the Underwriters
with a final accounting of the number of shares of Common Stock sold pursuant to
the exercise of Rights in the Rights Offering. Such notice from the Underwriters
to the Company shall set forth the aggregate number of Optional Shares as to
which the Underwriters are exercising the option. If any Optional Shares are to
be purchased, each Underwriter agrees, severally and not jointly, to purchase
the percentage of Optional Shares (subject to such adjustments to eliminate
fractional shares as Burnham Securities Inc. may determine) set
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forth opposite its name on SCHEDULE A. Burnham Securities Inc. may cancel the
option at any time prior to its exercise by giving written notice of such
cancellation to the Company.
3. Delivery and Payment.
(a) THE FIRST CLOSING DATE. Delivery of certificates for the
Unsubscribed Shares to be purchased by the Underwriters and payment therefor
shall be made at the offices of Burnham Securities Inc.,1325 Avenue of the
Americas, New York, New York (or such other place as may be agreed to by the
Company and the Underwriters) at 9:00 a.m. New York time, on the fifth business
day after the date on which the Company's transfer agent provides the
Underwriters with a final accounting of the number of shares of Common Stock
sold pursuant to the exercise of Rights in the Rights Offering (the time and
date of such closing are called the "FIRST CLOSING DATE"). The First Closing
Date may be changed by the agreement of the Underwriters and the Company.
(b) THE SECOND CLOSING DATE. Delivery of certificates for the Optional
Shares, if any, to be purchased by the Underwriters and payment therefor shall
be made at the offices of Burnham Securities Inc.,1325 Avenue of the Americas,
New York, New York (or such other place as may be agreed to by the Company and
the Underwriters) at 9:00 a.m. New York time, on the fifth business day after
the date on which the Underwriters provide notice to the Company pursuant to
Section 2(b) of this Agreement that the Underwriters have elected to exercise
their option with respect to all or a portion of the Optional Shares (the time
and date of such closing are called the "SECOND CLOSING DATE," and the First
Closing Date and the Second Closing Date are each referred to as a "CLOSING
DATE"). The Second Closing Date may be changed by the agreement of the
Underwriters and the Company.
(c) PUBLIC OFFERING OF THE SHARES. The Underwriters hereby advise the
Company that the Underwriters intend to offer for sale to the public upon the
terms described in the Prospectus, their respective portions of the Underwritten
Shares as soon after this Agreement has been executed as the Underwriters, in
their sole judgment, have determined is advisable and practicable.
(d) PAYMENT FOR THE UNDERWRITTEN SHARES. Payment for the Underwritten
Shares purchased by the Underwriters pursuant to Section 2 of this Agreement
shall be made on the First Closing Date (and, if applicable, the Second Closing
Date) by certified check payable in immediately available funds drawn to the
order of the Company or by wire transfer of immediately available funds to the
order of the Company. The amount of such payments shall be reduced, in
accordance with Section 6(b) of this Agreement, by the amounts payable by the
Company to the Underwriters pursuant to Section 6(a) of this Agreement.
(e) DELIVERY OF THE UNDERWRITTEN SHARES. The Company shall deliver, or
cause to be delivered, to the Underwriters on the First Closing Date (and, if
applicable, the Second Closing Date) certificates for the Unsubscribed Shares
(and, in the case of the Second Closing Date, the Optional Shares) to be
purchased by the Underwriters pursuant to Section 2 of this Agreement against
payment therefor in accordance with Section 3(d) and Section 6(b) of this
Agreement. The
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certificates for such Underwritten Shares shall be in definitive form and
registered in such names and denominations as the Underwriters shall have
requested at least two full business days prior to the relevant Closing Date and
shall be made available for inspection on the business day preceding the
relevant Closing Date at a location in New York City as the Underwriters may
designate. Time shall be of the essence, and delivery at substantially the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
4. RIGHTS OFFERING. The Company shall issue to each shareholder of
record on the Record Date one right for each share of Common Stock held on that
date. Each right will be exercisable to purchase one share of Common Stock at
the Subscription Price. The Rights Offering will commence as soon as practicable
after the execution of this Agreement and shall remain open until 5:00 p.m. New
York time on March ___, 1999, or such later date to which the Company may extend
the Rights Offering, subject to the consent of the Underwriters, at which time
the Rights Offering will terminate. Each holder of rights who elects to exercise
all of his rights may also subscribe for an unlimited number of additional
shares of Common Stock that are not otherwise purchased by holders of Rights.
The Company has the option (the "OVERSUBSCRIPTION OPTION") to sell up to an
additional 208,350 Oversubscription Shares solely to cover exercises of such
oversubscription privileges exceeding the 1,389,000 shares of Common Stock
underlying the Rights.
5. ADDITIONAL COVENANTS OF THE COMPANY. The Company further covenants
and agrees with each Underwriter that:
(a) SECURITIES ACT COMPLIANCE; REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. The Company will promptly notify the Underwriters in writing (i) of
the receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing of any
post-effective amendment to the Registration Statement or any amendment or
supplement to any Preliminary Prospectus or the Prospectus, (iii) of the time
and date that any post-effective amendment to the Registration Statement becomes
effective, (iv) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or any post-effective amendment
thereto, (v) of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, (vi) of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction or (vii) of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock from any
securities exchange upon which it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any proceedings
for any of such purposes. If the Commission shall enter any such stop order at
any time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b) and 430A, as applicable, under
the Act and will use its reasonable efforts to confirm that any filings made by
the Company under such Rule 424(b) were received in a timely manner by the
Commission. During such period beginning on the date hereof and ending on the
later of the First Closing Date or such date as of which, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by law to be
delivered in connection with sales by an Underwriter or dealer (the "Prospectus
Delivery Period"), prior to amending or supplementing the Registration Statement
or the Prospectus, the Company shall furnish to the Underwriters for review a
copy of
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each such proposed amendment or supplement, and the Company shall not
file any such proposed amendment or supplement to which the Underwriters or
their counsel object.
(b) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any event
shall occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if in the opinion of the Underwriters or counsel for the
Underwriters it is otherwise necessary to amend or supplement the Prospectus to
comply with law, the Company agrees to promptly prepare (subject to Section 5(a)
hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(c) COPIES OF EACH PRELIMINARY PROSPECTUS, THE PROSPECTUS AND ANY
AMENDMENTS AND SUPPLEMENTS. The Company agrees to furnish the Underwriters and
counsel for the Underwriters, without charge, during the Prospectus Delivery
Period, as many copies of each Preliminary Prospectus, the Prospectus and any
amendments and supplements thereto as the Underwriters may reasonably request.
(d) BLUE SKY COMPLIANCE. The Company will cooperate in taking such
action as may be necessary to qualify or register the Shares for offer and sale
under (or obtain exemptions from the application of) the Blue Sky or securities
laws of such jurisdictions as the Underwriters may designate and to continue
such qualifications, registrations and exemptions in effect so long as may be
required for the purposes of the distribution of the Shares. In each
jurisdiction where the Shares may be qualified for offer and sale, the Company
will file such statements or reports as may be required by the laws of the
jurisdiction. No qualification will be required if as a result the Company would
be required to qualify as a foreign corporation to do business in any
jurisdiction where it is not already so qualified, to file any general consent
to service of process under the laws of any jurisdiction, or to subject itself
to taxation as doing business in any jurisdiction. The Company will advise the
Underwriters promptly of the suspension of the qualification or registration of
(or any such exemption relating to) the Shares for offering, sale or trading in
any jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its best efforts
to obtain the withdrawal thereof at the earliest possible moment.
(e) FUTURE REPORTS TO THE UNDERWRITERS. During the period of three
years from the First Closing Date, upon request by the Underwriters the Company
will deliver to the Underwriters as soon as practicable after the end of each
fiscal year copies of each annual report to the security holders of the Company,
and upon request by the Underwriters will deliver to the Underwriters:
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(1) within 90 days after the close of each fiscal year of the
Company, a financial report of the Company and its subsidiaries, if
any, on a consolidated basis, all such reports to include such
information and in such form as the Company shall be required to
include in reports for that fiscal year to be filed with the
Commission, and all to be certified by independent public accountants;
(2) within 45 days after the end of each quarterly fiscal period of
the Company other than the last quarterly fiscal period in any fiscal
year, copies of the financial statements of the Company and its
subsidiaries, if any, on a consolidated basis, for that period and as
of the end of that period, including such information and in such form
as the Company shall be required to include in reports for that period
to be filed with the Commission, all subject to year-end adjustment,
certified by the principal financial or accounting officer of the
Company;
(3) copies of all other statements, documents, or other information
which the Company shall mail or otherwise make available to any class
of its security holders, or shall file with the Commission, the NASD,
the Nasdaq Stock Market or any securities exchange; and
(4) such other information as may reasonably be requested with
reference to the properties, business, and affairs of the Company and
its subsidiaries.
(f) EARNINGS STATEMENT. As soon as practical, but in any event not
later than the first day of the fifteenth full calendar month following the
effective date of the Registration Statement, the Company will make generally
available to its security holders, in accordance with Section 11(a) of the Act,
and to the Underwriters, an earnings statement of the Company and its
subsidiaries, if any, in reasonable detail and covering a period of at least 12
months beginning after the effective date of the Registration Statement and will
advise the Underwriters that such statement has been so made available.
(g) USE OF PROCEEDS. The Company will apply the net proceeds from the
sale of the Shares sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) EXCHANGE ACT REGISTRATION. As soon as practicable, but in any
event not later than the effective date of the Registration Statement, the
Company will file with the Commission its registration statement to register
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Common Stock of the Company and, after making such filing,
will take all actions required by the applicable rules of the Commission to
cause such registration to become effective.
(i) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the Commission
and, if required, any securities exchange on which the Common Stock is listed or
quoted, all reports and documents required to be filed under the Exchange Act or
the rules of any such securities exchange. Additionally, the Company shall
include in its filings with the Commission all disclosure as may be required
under Rule 463 under the Act.
(j) TRANSFER AGENT. The Company shall engage and maintain, at
its expense, a transfer agent and registrar for the Common Stock reasonably
acceptable to the Underwriters.
(k) PUBLICITY. During the pendency of the Rights Offering, no
news releases or other publicity about the Company will be permitted without the
prior approval of legal counsel to the Underwriters and the Company.
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(l) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. During
the period of 180 days following the date of the Prospectus, the Company will
not, without the prior written consent of Burnham Securities Inc. (which consent
may be withheld at the sole discretion of Burnham Securities Inc.), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge, transfer
or establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the Act in
respect of, any shares of Common Stock, options or warrants to acquire shares of
Common Stock or securities exchangeable or exercisable for or convertible into
shares of Common Stock (other than pursuant to the Rights Offering and as
otherwise contemplated by this Agreement with respect to the Shares); PROVIDED,
HOWEVER, that the Company may issue shares of its Common Stock or options to
purchase its Common Stock, or shares of Common Stock upon exercise of options,
pursuant to any stock option, stock bonus or other stock plan or arrangement
described in the Prospectus and may issue shares of Common Stock in connection
with the acquisition of additional battery companies, but only if the holders of
such shares, options, or shares issued upon exercise of such options, agree in
writing not to sell, offer, dispose of or otherwise transfer any such shares or
options during such 180-day period without the prior written consent of Burnham
Securities Inc. (which consent may be withheld at the sole discretion of Burnham
Securities Inc.).
6. FEES; EXPENSES.
(a) Fees. As compensation to the Underwriters for their services in
connection with the transactions contemplated by this Agreement and their
commitment hereunder, the Company hereby agrees to pay to the Underwriters the
following fees:
(1) $312,525.00 (representing 3.75% of the Subscription Price for
each of the 1,389,000 shares of Common Stock underlying the Rights);
(2) 5.25% of the Subscription Price for each Unsubscribed Share
purchased by the Underwriters pursuant to Section 2(a) of this
Agreement;
(3) 3.75% of the Subscription Price for each Oversubscription Share
sold by the Company pursuant to the Oversubscription Option; and
(4) 9.00% of the Subscription Price for each Optional Share
purchased by the Underwriters pursuant to Section 2(b) of this
Agreement.
(b) PAYMENT OF FEES. Payment of the fees payable by the Company to the
Underwriters pursuant to Section 6(a) of this Agreement shall be made as
follows:
(5) In the event that the aggregate amount of fees payable by the
Company pursuant to Sections 6(a)(i), (ii) and (iii) is less than the
aggregate purchase price for the Unsubscribed Shares being purchased
by the Underwriters pursuant to Section 2(a) of this Agreement, then
the aggregate amount of such fees shall reduce the amount payable on
the First Closing Date by the Underwriters to the
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Company pursuant to Section 3(d) of this Agreement for the purchase
of the Unsubscribed Shares being purchased by the Underwriters
pursuant to Section 2(a) of this Agreement.
(6) In the event that the aggregate amount of fees payable by the
Company pursuant to Sections 6(a)(i), (ii) and (iii) is greater than
the aggregate purchase price for the Unsubscribed Shares being
purchased by the Underwriters pursuant to Section 2(a) of this
Agreement, then the aggregate amount of such fees shall be paid as
follows: (a) such amount shall first be applied toward the purchase
price of the Unsubscribed Shares being purchased by the Underwriters
pursuant to Section 2(a) of this Agreement, such that no amount shall
be payable on the First Closing Date by the Underwriters to the
Company pursuant to Section 3(d) of this Agreement, and (b) payment
for the remaining portion of such fees shall be made on the First
Closing Date by wire transfer of immediately available funds according
to the instructions of the Underwriters.
(7) The fees, if any, payable by the Company pursuant to Section
6(a)(iv) shall reduce the amount, if any, payable on the Second
Closing Date by the Underwriters to the Company pursuant to Section
3(d) of this Agreement for the purchase of the Optional Shares being
purchased by the Underwriters pursuant to Section 2(b) of this
Agreement.
(c) EXPENSES. The Company agrees, whether or not the transactions
contemplated under this Agreement are consummated, to pay all fees, costs, and
expenses incurred by the Company in connection with or incident to the issuance,
purchase, sale and delivery of the Shares including, without limitation (i) the
expenses and fees incident to the preparation, printing and filing of the
Registration Statement and all amendments and all exhibits thereto with the
Commission; (ii) fees and expenses of the Company's counsel and accountants;
(iii) costs of printing and preparing appropriate filing documents and as many
copies of the appropriate selling documents as the Underwriters may deem
necessary, and any subsequent distribution thereof, and related expenses,
including all amendments and supplements to such documents; (iv) the preparation
and publication of tombstone advertising if mutually agreed to by the Company
and the Underwriters; (v) direct expenses incurred in connection with so-called
"road show" activities; (vi) all expenses and disbursements associated with the
due diligence inquiries of the Company's counsel; (vii) charges of any escrow
agent, information agent, solicitation firm, or other professionals assisting
the Company in connection with the Rights Offering; (viii) all fees and expenses
of the transfer agent and registrar of the Common Stock; (ix) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Shares to the Underwriters; (x) all due diligence fees and expenses of
the Underwriters and all fees and expenses of the Underwriters' counsel, up to
an aggregate of $75,000; (xi) all filing fees, attorneys' fees and expenses
incurred by the Company or the Underwriters in connection with qualifying or
registering (or obtaining exemptions from the qualification or registration of)
all or any part of the Shares for offer and sale under the Blue Sky laws
(whether by the Company upon the exercise of Rights issued in the Rights
Offering or by the Underwriters); (xii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Shares; (xiii) the fees and expenses associated
with listing or quoting the Shares on a securities exchange and the Nasdaq
SmallCap Market; and (xiv) all other fees, costs and expenses referred to in
Item 25 of Part II of the Registration Statement.
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(d) FEE OF QUALIFIED INDEPENDENT UNDERWRITER. In addition to the
other fees payable pursuant to this Section 6, the Company shall pay to Burnham
Securities Inc. a fee of $10,000 in consideration for the agreements of
Burnham Securities Inc. contained in Section 10 of this Agreement, payable on
the First Closing Date.
(e) OTHER COSTS AND EXPENSES. Except as provided in this Section
6 and in Section 8 of this Agreement, the Underwriters will pay all of their own
costs and expenses, including stock transfer taxes levied upon resale of any of
the Underwritten Shares, and any advertising expenses connected with any offers
it may make.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters
under this Agreement will be subject to the accuracy in all material respects of
the representations and warranties of the Company set forth in this Agreement as
of the date hereof and, with respect to the Unsubscribed Shares, as of the First
Closing Date as though then made, and, with respect to the Optional Shares, as
of the Second Closing Date as though then made, to the timely performance by the
Company of its covenants and obligations hereunder in all material respects and
to the following additional conditions:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM NASD. Prior to the First Closing Date, the Company shall have
filed the Prospectus with the Commission (including the information required by
Rule 430A under the Act) in the manner and within the time period required by
Rule 424(b) under the Act; or the Company shall have filed a post-effective
amendment to the Registration Statement containing the information required by
such Rule 430A, and such post-effective amendment shall have become effective.
No stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment to the Registration Statement shall have been issued
and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or the Underwriters, contemplated or threatened by the
Commission, and any request for additional information made by the Commission
(to be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the reasonable satisfaction of counsel for the
Underwriters. The NASD shall have raised no obligation to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) BLUE SKY COMPLIANCE. The shares of Common Stock to be
acquired pursuant to the exercise of Rights (including the Oversubscription
Shares, if and to the extent issued) shall have been qualified or registered for
sale under (or the Company shall have obtained exemptions from the application
of) the Blue Sky or securities laws of the jurisdictions set forth on SCHEDULE
B, and the Underwritten Shares shall have been qualified or registered for sale
under (or the Company shall have obtained exemptions from the application of)
the Blue Sky or securities laws of the jurisdictions set forth on SCHEDULE C.
(c) AMENDMENTS TO THE REGISTRATION STATEMENT AND THE PROSPECTUS.
No amendments to the Registration Statement or the Prospectus to which the
Underwriters or the Underwriters' counsel shall have reasonably objected shall
have been filed, and any such amendments as said counsel shall have reasonably
requested shall have been filed.
(d) ADEQUACY OF DISCLOSURE; NO MATERIAL ADVERSE CHANGE. The
Underwriters shall not have discovered and disclosed in writing to the Company
prior to the First Closing Date and, with respect to the Optional Shares, the
Second Closing Date, that the Registration Statement or the Prospectus, or any
amendment or supplement to the Registration Statement or the Prospectus,
contains an untrue statement of fact which, in the opinion of counsel for the
Underwriters, is material or omits to state a fact which, in the opinion of such
counsel, is required to be stated in the Registration Statement or the
Prospectus or is necessary to make the statements in the Registration Statement
or the Prospectus not misleading. Prior to the First Closing Date and, with
respect to the Optional Shares, prior to the Second Closing Date, in the
judgment of the Underwriters there shall not have occurred any material adverse
change, or any development that could reasonably be expected to result in a
material adverse change,
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in the Company's business, operations, financial condition, income or business
prospects, whether or not arising from transactions in the ordinary course of
business.
(e) ACCOUNTANTS' COMFORT LETTERS. On the date of execution of
this Agreement and on the each of the First Closing Date and the Second Closing
Date, the Underwriters shall have received from KPMG LLP a letter addressed to
the Underwriters dated the date of this Agreement or the First Closing Date or
the Second Closing Date, as the case may be, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Act and (i) in the letter dated the date of this Agreement, stating their
conclusions and findings with respect to the audited financial statements and
certain other financial, accounting and statistical information and other
matters contained in the Registration Statement as have been approved by the
Underwriters prior to the execution of this Agreement and (ii) in the letters
dated the First Closing Date and the Second Closing Date, reaffirming the
statements made by them in their letter dated the date of this Agreement. The
specified date referred to in the letter dated the date of this Agreement for
the carrying out of procedures shall be no more than five days prior to the date
of this Agreement. The specified date referred to in the letters dated the First
Closing Date and the Second Closing Date for the carrying out of procedures
shall be no more than five days prior to such Closing Date.
The Underwriters shall have received an additional two conformed copies
of each such accountants' letter.
(f) OPINION OF COUNSEL FOR THE COMPANY. On each of the First
Closing Date and the Second Closing Date the Underwriters shall have received
from Brown, Rudnick, Freed & Gesmer, counsel for the Company, a written opinion
dated as of such Closing Date to the effect that:
(i) To the best of such counsel's knowledge, there are
no contracts or other documents required to be described in the
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required.
(ii) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
Delaware with full power and authority to own, lease, and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus and to enter into and perform its
obligations under this Agreement. The Company is duly qualified to
conduct business as a foreign corporation and is in good standing in the
State of Connecticut.
(iii) The authorized, issued, and outstanding capital
stock of the Company is as set forth in the Registration Statement and
the Prospectus under the caption "Capitalization." The Common Stock
(including the Shares) conforms to the description thereof contained in
the Registration Statement and the Prospectus. All of the issued and
outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and have
been issued in compliance with federal securities laws. All of the
Rights have been duly authorized and, when issued and distributed as
described in the Registration Statement and the Prospectus, will be
legally issued and valid and binding obligations of the Company having
the rights described in the Registration Statement and the Prospectus.
None of the outstanding shares of Common Stock were issued in violation
of any statutory preemptive rights or any preemptive rights under the
Company's certificate of incorporation or bylaws or, to such counsel's
knowledge, rights of first refusal or other similar rights to subscribe
for or purchase securities of the Company. None of the
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Rights when issued will have been issued in violation of any statutory
preemptive rights or any preemptive rights under the Company's
certificate of incorporation or bylaws, or, to such counsel's knowledge,
rights of first refusal or other similar rights. There are no authorized
or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock
of the Company known to such counsel other than those described in the
Registration Statement and the Prospectus. The description of the
Company's equity incentive plan and other stock plans or arrangements,
and the options or other rights granted thereunder, set forth in the
Registration Statement and the Prospectus fairly presents the
information required to be shown with respect to such plans,
arrangements, options and rights. The shares of Common Stock acquired
pursuant to the exercise of Rights have been duly authorized for
issuance and sale to the holders of the Rights and, when any such shares
are issued and delivered by the Company pursuant to the exercise of
Rights, such shares will be duly and validly issued and fully paid and
nonassessable. The Underwritten Shares have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and,
when any Underwritten Shares are issued and delivered by the Company
pursuant to this Agreement, such shares will be duly and validly issued
and fully paid and nonassessable.
(iv) To the best of such counsel's knowledge, except as
described in the Registration Statement and the Prospectus, the Company
has no subsidiaries and has no ownership or proprietary interest in any
other business, corporation, firm, partnership, joint venture,
association or other entity and is not party to any agreement or
understanding, written or oral, regarding the acquisition of, or of an
interest in, any business, corporation, firm, partnership, joint
venture, association or other entity.
(v) To the best of such counsel's knowledge, the
Company has not received any notice of any proceeding relating to the
revocation or modification of, or non-compliance with, any certificate,
authorization or permit issued by any federal, state, local or foreign
regulatory agency or body relating to the conduct of the Company's
business.
(vi) No consent, approval, authorization, or order of,
or registration or filing with, any court or any governmental or
regulatory agency or body having jurisdiction over the Company or over
any of its properties or operations is required for the consummation by
the Company of the transactions contemplated by this Agreement, except
such as may be required under the Act, the Exchange Act, the Blue Sky or
securities laws of any jurisdiction, the NASD, the Nasdaq SmallCap
Market and the Boston Stock Exchange.
(vii) This Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms.
(viii) The Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby (i) have been duly authorized by
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all necessary corporate action and will not result in any violation of
the provisions of the Company's certificate of incorporation or bylaws,
(ii) will not conflict with or constitute a breach of, or Default under,
or result in the creation or imposition of any security interest,
mortgage, lien, charge, encumbrance, restriction, claim or other defect
upon any property or assets of the Company pursuant to, or require the
consent of any other party to, any Existing Instrument known to such
counsel, except for such conflicts, breaches, Defaults, security
interests, mortgages, liens, charges, encumbrances, restrictions, claims
or other defects as would not, individually or in the aggregate, have a
material adverse effect on the Company's business, operations, financial
condition, income or business prospects, and except for such consents as
have been obtained and (iii) will not result in any violation of any
law, order, rule, regulation, writ, injunction, or decree known to such
counsel of any government, governmental instrumentality, or court,
domestic or foreign (other than state securities or Blue Sky laws or
applicable anti-fraud provisions of federal securities laws, as to which
we express no opinion except as otherwise set forth herein), except for
such violations as would not, individually or in the aggregate, have a
material adverse effect on the Company's business, operations, financial
condition, income or business prospects.
(ix) Except as may otherwise be stated in the
Registration Statement and the Prospectus, to the best of such counsel's
knowledge no action, suit, or proceeding at law or in equity is pending
or threatened against the Company or any officer or director of the
Company or affecting the Company's properties or assets in, before, or
by any court, governmental commission, board, or other administrative
agency, in which an unfavorable decision, ruling or finding could
reasonably be expected, individually or in the aggregate, to affect
materially and adversely the consummation of the transactions
contemplated by this Agreement and the Registration Statement and the
Prospectus or the business, operations, financial condition, income,
properties, management or business prospects of the Company.
(x) Other than as disclosed in the Registration
Statement and the Prospectus, to the best of such counsel's knowledge
there are no contracts, agreements or understandings between the Company
and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Act.
(xi) The Registration Statement and Prospectus
associated with the Rights Offering complied as to form in all material
respects with applicable Federal securities laws, and the Rights
Offering has closed.
In addition, such counsel shall also state that such counsel has
participated in conferences with representatives of the Underwriters, officers
and representatives of the Company and representatives of the independent public
accountants of the Company, at which conferences the contents of the
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Registration Statement and the Prospectus and related matters were discussed and
that, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (except as specified
above), on the basis of the foregoing, no facts have come to the attention of
such counsel which lead such counsel to believe that the Registration Statement
at the time it became effective or at the First Closing Date or the Second
Closing Date contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus at the First Closing
Date or the Second Closing Date included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, that such counsel need not express any
comment with respect to the financial statements, supporting schedules or other
financial and statistical data contained in the Registration Statement or the
Prospectus.
The Underwriters shall have received an additional two conformed copies
of such counsel's opinion.
(g) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the
First Closing Date and the Second Closing Date the Underwriters shall have
received from Fulbright & Jaworski L.L.P., counsel for the Underwriters, an
opinion, in form and substance satisfactory to the Underwriters, dated as of
such Closing Date, with respect to such matters as are customarily contained in
such opinions, and the Company shall have furnished to the Underwriters' counsel
such documents, certificates, and opinions as they may reasonably have requested
for the purpose of enabling them to pass upon such matters. The Underwriters
shall have received an additional two conformed copies of such counsel's
opinion.
(h) OFFICERS' CERTIFICATE. On each of the First Closing Date and
the Second Closing Date the Underwriters shall have received a certificate,
dated as of such Closing Date, of the President and the Chief Financial Officer
of the Company to the effect that:
(1) The representations and warranties of the Company contained
in Section 1 of this Agreement are true and correct with the same force
and effect as though expressly made on and as of such Closing Date and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied under this Agreement
on or prior to such Closing Date;
(2) No stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment to the
Registration Statement has been issued, and, to the best of the
knowledge of the respective signers, no proceeding for that purpose has
been instituted or is contemplated or threatened;
(3) Each signer of the certificate has carefully examined the
Registration Statement and the Prospectus, and, to his or her best
knowledge, neither the Registration Statement nor the Prospectus
includes any untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein not misleading,
and since the effective date of the Registration Statement there
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has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth;
(4) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and, except as
set forth or contemplated in the Prospectus: (a) the Company has not
incurred any obligations or any direct or contingent material
liabilities or commitments, except in the ordinary course of business,
(b) the Company has not entered into any material transaction not in the
ordinary course of business, (c) the Company has not paid or declared
any dividends or other distributions on its capital stock, and (d) there
has not been any change in the capital stock of the Company, any
increase in the long-term indebtedness of the Company, any increase in
the short-term indebtedness of the Company except in the ordinary course
of business, or any material adverse change in the business, prospects,
financial position, net assets, or results of operations, present or
prospective, of the Company;
(5) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the conduct
of the business and operations of the Company have not been materially
interfered with by strike, fire, flood, hurricane, accident, or other
calamity (whether or not insured) or by any court or governmental
action, order, or decree, and the properties of the Company have not
sustained any material loss or damage (whether or not insured) as a
result of any such occurrence; and
(6) For the period from and after the date of this Agreement and
prior to such Closing Date, there has not occurred any material adverse
change, or development that could reasonably be expected to result in a
material adverse change, in the Company's business, operations,
financial condition, income or business prospects, whether or not
arising from transactions in the ordinary course of business.
(i) LITIGATION AND OTHER PROCEEDINGS. On the First Closing Date
and, with respect to the Optional Shares, the Second Closing Date, the Company
shall not be a party to or involved in any arbitration, litigation, or
governmental proceeding which is then pending, or to the knowledge of the
Company threatened, of a character which could reasonably be expected to affect
the Company adversely or which would be required to be disclosed in the
Registration Statement, other than that which is disclosed in the Prospectus.
(j) LOSSES. Prior to the First Closing Date and, with respect to
the Optional Shares, the Second Closing Date, the Company shall not have
sustained any loss or interference with its business on account of fire, flood,
accident, or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order, or degree which, in the
judgment of the Underwriters, materially and adversely affects the business of
the Company.
(k) TENDER AND DELIVERY OF UNDERWRITTEN SHARES. All of the
Underwritten Shares being purchased by the Underwriters shall be tendered for
delivery in accordance with the terms and provisions of this Agreement.
(l) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY.
On the date hereof, the Company shall have furnished to the Underwriters an
agreement in the form of EXHIBIT A hereto from each director, officer and each
beneficial owner of 5% or more of the Common Stock as of the Record Date
(determined according to Rule 13d-3 under the Exchange Act, except that a
180-day period shall be used rather than the 60-day period set forth therein),
and such agreement shall be in full force and effect on the First Closing Date
and, with respect to the Optional Shares, the Second Closing Date.
(m) ADDITIONAL DOCUMENTS. The Company shall have furnished to
the Underwriters such other certificates, documents, and opinions as the
Underwriters may have reasonably requested (including certificates of officers
of the Company) as to the accuracy in all material respects, at and as of the
First Closing Date and, with respect
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to the Optional Shares, the Second Closing Date, of the representations and
warranties of the Company in this Agreement, the performance by the Company of
its obligations under this Agreement, and other conditions concurrent and
precedent to the obligations of the Underwriters under this Agreement.
(n) SECRETARY'S CERTIFICATE. On each of the First Closing Date
and the Second Closing Date, the Underwriters shall have received a written
certificate executed by the Secretary of the Company dated as of such date, in
customary form and having customary contents.
If any condition specified in this Section 7 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Underwriters by notice to the Company at any time on or prior to the First
Closing Date or, with respect to the Optional Shares, prior to the Second
Closing Date, which termination shall be without liability on the part of any
party to any other party, except that Section 6(b) and Section 8 shall at all
times be effective and shall survive such termination.
The opinions, letters and certificates mentioned in this section or
elsewhere in this Agreement will be deemed to be in compliance with the
provisions of this Agreement only if they are in all material respects
satisfactory to the Underwriters and counsel for the Underwriters.
Any certificate signed by an officer of the Company and delivered to the
Underwriters or counsel for the Underwriters will be deemed a representation and
warranty by the Company to the Underwriters as to the statements made in the
certificate.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act against any loss, claim,
damage, liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based (i) upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
amendment thereto, including any information deemed to be a part thereof
pursuant to Rule 430A under the Act, or any application or other instrument
filed in any jurisdiction in order to qualify or register the Shares for offer
and sale under (or obtain exemptions from the application of) the Blue Sky or
securities laws of such jurisdiction ("BLUE SKY APPLICATION"), or the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading; or (ii) upon any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Prospectus (or any amendment or supplement thereto)
or any Blue Sky Application, or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; or (iii) in whole
or in part upon any inaccuracy in the representations and warranties of the
Company contained herein; (iv) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law; or (v) with respect
to any loss, claim, damage, liability or expense incurred by Burnham Securities
Inc., in whole or in part its responsibilities as a qualified independent
underwriter in accordance with Rule 2720 of the Conduct Rules of the NASD with
respect to the Rights Offering and the offering of Shares by the Underwriters;
and to reimburse each Underwriter and each such controlling person for any and
all expenses (including the reasonable fees and disbursements of counsel chosen
by Burnham Securities Inc.) as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; PROVIDED, HOWEVER, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Underwriters expressly for use in the Registration Statement, any
Preliminary Prospectus or the
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Prospectus (or any amendment or supplement thereto); and PROVIDED, FURTHER, that
with respect to any Preliminary Prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely delivered
to the Underwriter pursuant to Section 5 of this Agreement and a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 8(a) shall be in addition to any
liabilities that the Company may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Act or Section 20 of the Exchange Act,
against any loss, claim, damage, liability or expense, as incurred, to which the
Company, or any such director, officer, or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Preliminary Prospectus or the Prospectus (or any
amendment or supplement thereto), or arises out of or is based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus or the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to the Company by the Underwriters expressly for use therein; and to
reimburse the Company, or any such director, officer, or controlling person for
any and all expenses (including the reasonable fees and expenses of counsel
chosen by the Company) as such expenses are reasonably incurred by the Company
or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. The Company hereby acknowledges that the
only information that the Underwriters have furnished to the Company expressly
for use in the Registration Statement, any Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) are the statements set forth
in the table after the first paragraph and in the fourth, seventh and eighth
paragraphs under the caption "The Standby Underwriting" in the Prospectus; and
the Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a result of such failure. In case any such action is brought
against any indemnified party and such indemnified party seeks or intends to
seek indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that a conflict may
arise between the positions of the indemnifying party and the indemnified party
in conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified
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party or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of such indemnifying party's election so to assume the defense
of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (Burnham Securities in the case of Section 8(b) and Section 8(e))
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
(d) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 8(c) hereof, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement or, if such indemnifying party in
good faith disputes the amount of such fees and expenses due to the indemnified
party and such indemnifying party shall have failed to provide the indemnified
party with reasonable security for payment of such disputed amounts. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement, compromise or consent to the entry of judgment in
any pending or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity was or could have
been sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such action,
suit or proceeding.
(e) CONTRIBUTION. If the indemnification provided for in
Sections 8(a) through 8(d) is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party, as incurred, as a result of any losses, claims, damages,
liabilities or expenses referred to therein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Underwriters, on the other hand, from the offering of the Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, on the one hand, and the Underwriters,
on the other hand, in connection with the statements or omissions or
inaccuracies in the representations and warranties herein which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Underwriters, on the other hand, in connection with the
offering of the Shares pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
Shares pursuant to this Agreement (before deducting expenses) received by the
Company and the total underwriting discount and fees received by the
Underwriters, in each case as set forth on the front cover page of the
Prospectus bear to the aggregate Price to Public of the Shares as set forth on
such cover. The relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact or any such
inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
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The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 8(e); PROVIDED, HOWEVER, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(e) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 8(e).
Notwithstanding the provisions of this Section 8(e), no Underwriter
shall be required to contribute any amount in excess of the underwriting fees
and commissions received by such Underwriter in connection with the Shares
underwritten by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8(e) are several, and not joint, in proportion to their respective
underwriting commitments as set forth opposite their names in SCHEDULE A. For
purposes of this Section 8(e), each officer and employee of an Underwriter and
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement and each person, if any,
who controls the Company with the meaning of the Act and the Exchange Act shall
have the same rights to contribution as the Company.
9. SURVIVAL OF AGREEMENTS, ETC. The respective indemnities, agreements,
representations, warranties, and other statements of the Company, of its
officers and of the Underwriters, as set forth in this Agreement, or made by
them pursuant to this Agreement, will remain in full force and effect,
regardless of any investigation (or any statement as to the results of any such
investigation) made by or on behalf of the Company (or any of its officers or
directors) or any Underwriter, or any controlling person of any of them, and
will survive delivery of and payment for the Shares sold hereunder and any
termination of this Agreement.
10. QUALIFIED INDEPENDENT UNDERWRITER. Burnham Securities Inc. hereby confirms
its agreement to act in connection with the Rights Offering and the offering of
Shares by the Underwriters as a qualified independent underwriter within the
meaning of Rule 2720 of the Conduct Rules of the NASD and represents that
Burnham Securities Inc. satisfies or will satisfy at the times designated in
Rule 2720(b)(15) the requirements set forth therein. Burnham Securities Inc.
agrees to undertake the legal responsibilities and liabilities of an underwriter
under the Act, specifically those under Section 11 of the Act. Burnham
Securities Inc. hereby consents to be named in the Registration Statement and
the Prospectus as having acted as qualified independent underwriter.
11. TERMINATION. Prior to the First Closing Date this Agreement may be
terminated by the Underwriters by notice given to the Company at any time (i) if
any calamitous domestic or international event or act or occurrence has
disrupted the general securities market in the United States; (ii) if trading in
the Common Stock (on a when-issued basis) shall have been suspended by the
Commission, the Nasdaq SmallCap Market or the Boston Stock Exchange; (iii) if
trading on the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market, the Nasdaq SmallCap Market, the Boston Stock Exchange or in the
over-the-counter market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the over-the-counter market by the NASD or by order
of the Commission or any other government authority having jurisdiction; (iv) if
the United States shall have become involved in a war or major hostilities
which, in the Underwriters' opinion, affects the general securities market in
the United States; (v) if a banking moratorium has been declared by any New
York, Connecticut or federal authority; (vi) if the Company shall have sustained
a loss material to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act, whether or not such loss
shall have been insured, or from any labor dispute or any legal or governmental
proceeding;
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(vii) if, in the reasonable judgment of the Underwriters, there shall have been
such material adverse change, or any development involving a prospective
material adverse change in the financial condition, net worth or results of
operations of the Company since December 31, 1998 or in the business prospects
or conditions of the Company since the date of the Prospectus, or that
materially and adversely impacts this Agreement; (viii) if the Dow Jones
Industrial Average shall have fallen by 12.5% or more from its closing price on
the day immediately preceding the First Closing Date; (ix) if there shall be
such material adverse market conditions (whether occurring suddenly or gradually
between the date hereof and the First Closing Date) affecting the markets
generally as in the Underwriters' reasonable judgment would make it inadvisable
to proceed with the offering, sale or delivery of the Shares; (x) if the Rights
shall not have been mailed to the stockholders of the Company prior to 5:00 p.m.
New York time on February ___, 1999 [5 DAYS AFTER DATE OF THIS AGREEMENT],
provided that the Underwriters may not terminate this Agreement pursuant to this
subsection (x) unless they shall have provided notice to the Company of such
termination prior to the Company having mailed the Rights to the stockholders of
record of the Company; (xi) if the Rights Offering shall not have closed by
April 30, 1999; or (xiii) if the Company shall have amended in any material
respect the terms of the Rights Offering from the terms described in the
Prospectus without the express written consent of the Underwriters. Except as
set forth in Section 6(c) of this Agreement, any termination pursuant to this
Section 11 shall be without liability on the part of the Company to any
Underwriter, and any Underwriter to the Company, provided that the provisions of
Section 8 shall at all times be effective and shall survive such termination.
12. NOTICES. Any notice under this Agreement to the respective persons indicated
will be sufficient if given or confirmed in writing or by telegraph addressed as
respectively indicated or to such other address as shall be indicated by a
notice given to each of the following persons:
(i) To the Underwriters addressed to:
Burnham Securities Inc.
1325 Avenue of the Americas
17th Floor
New York, NY 10019
Attention: Richard Lewisohn, III
With a copy to:
Loeb Partners Corporation
61 Broadway
New York, NY 10006
Attention: Warren D. Bagatelle
and
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
Attention: Merrill M. Kraines, Esq.
(ii) To the Company addressed to:
Evercel, Inc.
3 Great Pasture Road
Danbury, CT 06813
Attention: Jerry D. Leitman, President
With a copy to:
27
<PAGE>
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attention: Philip J. Flink, Esq.
13. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon
the Underwriters, the Company, and their successors and assigns. Nothing
expressed in this Agreement is intended, or will be construed, to give any
person other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy, or claim under this Agreement, this Agreement and all
conditions and provisions in this Agreement being intended to be and being for
the sole and exclusive benefit of the persons mentioned in the preceding
sentence. Notwithstanding the preceding sentence, the representations,
warranties, indemnities and contribution obligations of the Company included in
this Agreement will also be for the benefit of any person who controls any
Underwriters within the meaning of Section 15 of the Act and the indemnities and
contribution obligations of the Underwriters will also be for the benefit of
each officer of the Company who signs the Registration Statement, each director
of the Company and any person who controls the Company within the meaning of
Section 15 of the Act. No purchaser of any Shares from any Underwriters will be
deemed a successor because of such purchase.
14. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any section,
paragraph or provision of this Agreement shall not affect the validity or
enforceability of any other section, paragraph or provision hereof. If any
section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable. 1.
15. APPLICABLE LAW; VENUE. This Agreement will be construed in accordance with
the internal laws of the State of New York, without regard to conflicts of law
principles. The Company hereby irrevocably consents to the jurisdiction of the
courts of the State of New York and the United States District Court for the
Southern District of New York, as well as to the jurisdiction of all courts from
which an appeal may be taken from such courts, for the purpose of any suit,
action or other proceeding arising out of any of its obligations arising
hereunder or with respect to the transactions contemplated hereby, and expressly
consents to service of process by registered mail and waives any and all
objections it may have as to venue in any of such courts.
16. GENERAL PROVISIONS. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in two or more
counterparts, each one of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
may not be amended or modified unless in writing by all of the parties hereto,
and no condition herein (express or implied) may be waived unless waived in
writing by each party whom the condition is meant to benefit. The section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification and contribution provisions of Section 8, and is fully informed
regarding said provisions. Each of the parties hereto further acknowledges that
the provisions of Sections 8 hereto fairly allocate the risks in light of the
ability of the parties to
28
<PAGE>
investigate the Company, its affairs and its business in order to assure that
adequate disclosure has been made in the Registration Statement, any Preliminary
Prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Act and the Exchange Act.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE>
If this Agreement correctly sets forth our understanding, please
indicate your acceptance in the space provided below for that purpose.
Respectfully,
EVERCEL, INC.
By:
---------------------------
Name:
Title:
Accepted as of the day and
year first above written:
BURNHAM SECURITIES INC.
For itself and on behalf of
Loeb Partners Corporation
By
--------------------------------
Name:
Title:
30
<PAGE>
EVERCEL
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITERS %
- ------------ ---
<S> <C>
Loeb Partners Corporation...............................................................50
Burnham Securities Inc..................................................................50
</TABLE>
<PAGE>
SCHEDULE B
<PAGE>
SCHEDULE C
<PAGE>
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
<PAGE>
February , 1999
Burnham Securities Inc.
Loeb Partners Corporation
c/o Burnham Securities Inc.
1325 Avenue of the Americas
17th Floor
New York, NY 10019
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Standby Underwriting Agreement (the "Standby Agreement") among Evercel, Inc., a
Delaware corporation (the "COMPANY"), and you (the "UNDERWRITERS"), relating to
the grant by the Company to holders of its Common Stock, $.01 par value per
share (the "COMMON STOCK"), transferable subscription rights (the "Rights") to
subscribe for and purchase additional shares of Common Stock. The Rights will
expire on March ___, 1999 (the "Expiration Date").
The undersigned recognizes that the Standby Agreement will be of benefit
to the undersigned and will benefit the Company by, among other things,
assisting the Company in raising additional capital for its operations. The
undersigned acknowledges the Underwriters are relying on the representations and
agreements of the undersigned contained in this letter in entering into the
Standby Agreement with the Company.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Burnham Securities
Inc. (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock, or securities exchangeable or exercisable for
or convertible into shares of Common Stock currently or hereafter owned either
of record or beneficially (as defined in Rule 13d-3 under Securities Exchange
Act of 1934, as amended) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing, for a period commencing on
the date hereof and continuing through the close of trading on the date 180 days
after the Expiration Date. The undersigned also agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent and registrar
against the
<PAGE>
Burnham Securities Inc.
Loeb Partners Corporation
Page 2
transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned. If for any reason the Standby Agreement (i) shall not have been
entered into prior to March 31, 1999 or (ii) shall be terminated prior to the
First Closing Date (as defined in the Standby Agreement), the agreement set
forth above shall be terminated.
Printed Name of Holder:
---------------------------------
By:
------------------------------
Signature
Printed Name of Person Signing
(If different from Holder):
---------------------------------
(AND INDICATE CAPACITY OF PERSON SIGNING IF SIGNING AS CUSTODIAN, TRUSTEE, OR ON
BEHALF OF AN ENTITY)
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EVERCEL, INC.
Evercel, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, does hereby certify for
the purposes of amending and restating its Certificate of Incorporation (i) that
the original Certificate of Incorporation was filed with the Secretary of the
State of Delaware on the 22nd day of June, 1998, and amended on the 29th day of
September, 1998, (ii) the original name of the corporation ("Corporation") was
BST Systems Acquisition Corp.; the Corporation's name was amended to be
"Evercel, Inc." on September 29, 1998, (iii) the Certificate of Incorporation of
the Corporation is hereby amended by striking out Articles "Third" through
"Tenth", "Twelfth" and "Thirteenth" thereof and by substituting in lieu thereof
the new Articles "Third" through "Tenth" which Articles are set forth in the
Amended and Restated Certificate of Incorporation hereinafter provided for, (iv)
that the amendments and restatement of this Amended and Restated Certificate of
Incorporation herein certified have been duly adopted by the Board of Directors
and the Sole Shareholder by written consent in accordance with the provisions of
Sections 141, 228, 242 and 245 of the General Corporation Law of the State of
Delaware, and (v) the provisions of the Certificate of Incorporation of the
Corporation as hereby amended, are hereby restated and integrated into a single
instrument which is hereinafter set forth, and which is entitled "Amended and
Restated Certificate of Incorporation of Evercel, Inc." without any further
amendments other than the amendments herein certified and without any
discrepancy between the provisions of the Certificate of Incorporation as
originally filed and amended and the provisions of the said single instrument
hereinafter set forth.
NOW, THEREFORE, the Certificate of Incorporation of the Corporation, as
amended and restated herein, shall at the effective time of this Amended and
Restated Certificate of Incorporation read as follows:
FIRST: The name of the Corporation (hereinafter called the
"Corporation") is Evercel, Inc.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
The Corporation Trust Company.
THIRD: The nature of the business and the purposes to be conducted and
promoted by the Corporation shall be any lawful business, to promote any lawful
purpose, and to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
<PAGE>
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is as follows:
10,000,000 shares of Common Stock, $.01 par value (the "Common Stock");
and
1,000,000 shares of Preferred Stock, $.01 par value (the "Preferred
Stock")
The classes of capital stock of the Corporation shall have the
preferences, voting powers and relative participating, optional or other special
rights, and qualifications, limitations or restrictions as set forth in this
Article Fourth.
PART A - COMMON STOCK
SECTION 1. VOTING RIGHTS AND POWERS.
(a) Except as otherwise required by law, with respect to all matters
upon which stockholders are entitled to vote or give consent, the holders of the
outstanding shares of the Common Stock shall be entitled to cast thereon one (1)
vote in person or by proxy for each share of the Common Stock standing in his or
her name. No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken by stockholders
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
(b) This Section 1 of Part A of Article Fourth shall not be amended,
altered or repealed except by the affirmative vote of eighty percent (80%) of
the votes entitled to be cast by the stockholders.
SECTION 2. DIVIDENDS, ETC. Subject to the rights of any one or more
series of Preferred Stock, if any, the holders of Common Stock shall be entitled
to receive such dividends as from time to time may be declared by the Board of
Directors out of any funds of the Corporation legally available for the payment
of such dividends and shall share equally, share for share, in all such
dividends and distributions.
SECTION 3. LIQUIDATION. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, and after payment shall
have been made to the holders of Preferred Stock, if any, of the full amount to
which they are entitled, the holders of Common Stock shall be entitled to share
equally, share for share, in all remaining assets of the Corporation available
for distribution to its stockholders.
SECTION 4. RESTRICTION ON TRANSFER.
(a) The shares of the Corporation distributed by Energy Research
Corporation, a New York corporation, to its stockholders, in connection with the
"Distribution" as described in the Registration Statement on Form SB-2
originally filed by the Corporation with the Securities and Exchange Commission
on September 30, 1998 as amended (the "Registration Statement") in connection
with the offering of transferable subscription rights to subscribe for and
purchase additional shares of Corporation Common Stock (the "Rights Offering")
or any right or interest
-2-
<PAGE>
therein shall not be sold, assigned, transferred, pledged, hypothecated or
otherwise disposed of, prior to the date on which the Rights Agent for the
Rights Offering, delivers to the Company final notice of the number of shares
of Corporation Common Stock subscribed for in the Rights Offering (the
"Closing Date") (the "Restriction on Transfer").
(b) The Restriction on Transfer contained in Section 4(a) shall
immediately terminate and be of no further force or effect as to any of the
shares of Common Stock of the Corporation upon the Closing Date and shall not
be applicable to the shares of the Company acquired by stockholders of the
Corporation pursuant to the Rights Offering or to the shares of the
Corporation which are acquired by the Underwriters in connection with the
Rights Offering pursuant to (i) any Standby Underwriting Agreement entered
into in connection therewith or (ii) the Overallotment Option, as defined in
the Registration Statement which may be granted to the Underwriters in
connection with the Rights Offering.
PART B - PREFERRED STOCK
SECTION 1. GENERAL. The Preferred Stock may consist of one or more
series. The Board of Directors may, from time to time, establish and designate
the different series and the variations in the relative rights and preferences
as between the different series provided in Section 2 hereof, but in all other
respects all shares of the Preferred Stock shall be identical. In the event that
at any time the Board of Directors shall have established and designated one or
more series of Preferred Stock consisting of a number of shares less than all of
the authorized number of shares of Preferred Stock, the remaining authorized
shares of Preferred Stock shall be deemed to be shares of an undesignated series
of Preferred Stock until designated by the Board of Directors as being a part of
a series previously established or a new series then being established by the
Board of Directors.
SECTION 2. ESTABLISHMENT OF A SERIES. Subject to the provisions of this
Article Fourth, the Board of Directors is authorized to establish one or more
series of Preferred Stock and, to the extent now or hereafter permitted by the
laws of the State of Delaware, to file with the State of Delaware a Certificate
of Designations in which the Board of Directors may fix and determine the
preferences, voting powers, designations and relative participating, optional or
other special rights and qualifications, limitations or restrictions of each
series including, but not limited to:
(a) the number of shares to constitute such series and the distinctive
designation of such series;
(b) the dividend rate on the shares of such series and preferences, if
any, and the special and relative rights of such shares of such series as to
dividend;
(c) whether or not the shares of such series shall be redeemable, and,
if redeemable, the price, terms and manner of redemption;
(d) the preferences, if any, and the special and relative rights of
the shares of such series upon liquidation of the Corporation;
(e) whether or not the shares of such series shall be subject to the
operation of a sinking or purchase fund and, if so, the terms and provisions of
such fund;
-3-
<PAGE>
(f) whether or not the shares of such series shall be convertible into
shares of any other class or of any other series of the same or any other class
of stock of the Corporation and, if so, the conversion price or ratio and other
conversion rights;
(g) the conditions under which the shares of such series shall have
separate voting rights or no voting rights; and
(h) such other designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
of such series to the full extent now and hereafter permitted by the laws of the
State of Delaware.
Notwithstanding the fixing of the number of shares constituting a
particular series, the Board of Directors may at any time authorize the issuance
of additional shares of the same series.
SECTION 3. DIVIDENDS. Holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, but only out of funds
legally available for the payment of dividends, cash dividends at the rates
fixed by the Board of Directors for the respective series, payable on such dates
in each year as the Board of Directors shall fix for the respective series as
provided in Section 2 (hereinafter referred to as "dividend dates"). Until all
accrued dividends on each series of Preferred Stock shall have been paid through
the last preceding dividend date of each such series, no dividend or
distribution shall be made to holders of Common Stock other than a dividend
payable in Common Stock of the Corporation. Dividends on shares of any
cumulative series of Preferred Stock shall accumulate from and after the day on
which such shares are issued, but arrearages in the payment thereof shall not
bear interest. Nothing hereincontained shall be deemed to limit the right of the
Corporation to purchase or otherwise acquire at any time any shares of its
capital stock.
For purposes of this Article Fourth, the amount of dividends "accrued"
on any shares of any cumulative series of Preferred Stock as at any dividend
date shall be deemed to be the amount of any unpaid dividends accumulated
thereon to and including such dividend date, whether or not earned or declared.
The amount of dividends "accrued" on any noncumulative series of Preferred Stock
shall mean only those dividends declared by the Board of Directors, unless
otherwise specified for such series by the Board of Directors pursuant to
Section 2.
SECTION 4. LIQUIDATION. Upon the voluntary or involuntary liquidation
of the Corporation, before any payment or distribution of the assets of the
Corporation shall be made to or set apart for Common Stock or any other class of
stock, the holders of Preferred Stock shall be entitled to payment of the amount
of the preference payable upon such liquidation of the Corporation fixed by the
Board of Directors for the respective series as provided in Section 2. If, upon
any such liquidation, the assets of the Corporation shall be insufficient to pay
in full to the holders of the Preferred Stock the preferential amount aforesaid,
then such assets, or the proceeds thereof, shall be distributed among the
holders of each series of Preferred Stock ratably in accordance with the sums
which would be payable on such distribution if all sums payable were discharged
in full. The voluntary sale, conveyance, exchange or transfer of all or
substantially all of the property and assets of the Corporation, the merger or
consolidation of the Corporation into
-4-
<PAGE>
or with any other corporation, or the merger of any other corporation into it,
shall not be deemed to be a liquidation of the Corporation for the purpose of
this Section 4.
SECTION 5. RETIREMENT. Any shares of Preferred Stock which shall at any
time have been redeemed, or which shall at any time have been surrendered for
conversion or exchange or for cancellation pursuant to any sinking or purchase
fund provisions with respect to any series of Preferred Stock, shall be retired
and shall thereafter have the status of authorized and unissued shares of
Preferred Stock undesignated as to series.
SECTION 6. VOTING RIGHTS. The Common Stock shall have exclusive voting
power except as required by law and except to the extent the Board of Directors
shall, at the time any series of Preferred Stock is established, determine that
the shares of such series shall vote (a) together as a single class with shares
of Common Stock and/or with shares of Preferred Stock (or one or more other
series thereof) on all or certain matters presented to the stockholders and/or
upon the occurrence of any specified event or condition, and/or (b) exclusively
on certain matters, or, upon the occurrence of any specified event or condition,
on all or certain matters. The Board of Directors, in establishing a series of
Preferred Stock and fixing the voting rights thereof, may determine that the
voting power of each share of such series may be greater or less than the voting
power of each share of the Common Stock or of other series of Preferred Stock
notwithstanding that the shares of such series of Preferred Stock may vote as a
single class with the shares of other series of Preferred Stock and/or with the
shares of Common Stock.
FIFTH: The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one third of the number of directors constituting the entire Board
of Directors. At the annual meeting of the stockholders held in 1999, Class I
directors shall be elected for a one year term, Class II directors shall be
elected for a two year term, and Class III directors shall be elected for a
three year term, and in each case until their successors are duly elected and
qualified. At each annual meeting thereafter, successors to the class of
directors whose term expires at that meeting shall be elected for a term
expiring at the third annual meeting following their election and until there
successors shall be elected and qualified, subject to prior death, resignation,
retirement or removal. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, but in no event will a
decrease in the number of directors shorten the term of any incumbent director.
Any director elected to fill a vacancy resulting from an increase in any class
or from the removal from office, death, disability, resignation or
disqualification of a director or other cause shall hold office for the
remaining term of the class to which such director is elected. No decrease in
the size of the Board of Directors shall have the effect of removing or
shortening the term of any incumbent director.
SIXTH: The Corporation shall have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or
-5-
<PAGE>
stockholder thereof or on the application of any receiver or receivers appointed
for this Corporation under the provisions of Section 29l of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
1. The business and affairs of the Corporation will be managed by and
under the direction of the Board of Directors.
2. The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-Laws. No
election of Directors need be by written ballot.
3. The Board of Directors of the Corporation may adopt, amend or
repeal the By-Laws of the Corporation at any time after the original adoption of
the By-Laws according to Section 109 of the General Corporation Law of the State
of Delaware.
NINTH: (a) The Corporation may, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(b) No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
-6-
<PAGE>
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this paragraph (b) of
this Article Ninth shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
TENTH: The Board of Directors of the Corporation, when evaluating any
offer of another person ("Offering Person") to (a) purchase or exchange any
securities or property for any outstanding equity securities of the Corporation,
(b) merge or consolidate the Corporation with another corporation, or (c)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, shall in connection with the exercise of its judgment
in determining what is in the best interests of the Corporation and its
stockholders, give due consideration not only to the price or other
consideration being offered, but also to all other relevant factors, including
without limitation the interests of the Corporation's employees, suppliers,
creditors and customers, the economy of the state, region and nation, community
and societal considerations, the business and financial condition and earnings
prospects of the Offering Person, including without limitation, debt service and
other existing or likely financial obligations of the Offering Person, and the
possible effect of such conditions upon the Corporation, and the other elements
of the communities in which the Corporation operates or is located, and the
long-term and short-term interests of the Corporation and its stockholders,
including the possibility that these interests may be better served by a
continued independence of the Corporation. Notwithstanding anything contained in
the Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least two-thirds of the combined voting power of all voting stock,
voting together as a single class, shall be required to amend or repeal this
Article Tenth, or to adopt any provision inconsistent herewith.
ELEVENTH: From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article Eleventh.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned Chairman, Acting President and
Chief Executive Officer of Evercel, Inc. have signed this Amended and Restated
Certificate of Incorporation this ______ day of __________, 1999.
-------------------------------------------
Jerry D. Leitman
Title: Chairman, Acting President and Chief
Executive Officer
Attest:
- ------------------------------
By: Joseph Mahler
Title: Secretary
-8-
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
EVERCEL, INC.
A DELAWARE CORPORATION
Adopted: ______________, 1999
------------------------
Secretary
<PAGE>
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
PAGE
TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
SECTION 1.1. ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.3. NOTICE OF MEETING. . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.4. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.5. VOTING AND PROXIES . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.6. ACTION AT MEETING. . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.7. VOTING OF SHARES OF CERTAIN HOLDERS. . . . . . . . . . . . . . . 2
SECTION 1.8. STOCKHOLDER LISTS. . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.9 MEETING PROTOCOL. . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.1. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.2. NUMBER OF DIRECTORS; QUALIFICATIONS. . . . . . . . . . . . . . . 4
SECTION 2.3. NOMINATION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.4. ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.5. VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.6. CHANGE IN SIZE OF THE BOARD. . . . . . . . . . . . . . . . . . . 5
SECTION 2.7. TENURE AND RESIGNATION . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.8. REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.9. MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.10. NOTICE OF MEETING . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.11. AGENDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.12. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.13. ACTION AT MEETING . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.14. ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.15. COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.1. ENUMERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.2. ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.3. QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.4. TENURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.5. REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.6. RESIGNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.7. VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.8. CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.9. PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.10. VICE-PRESIDENT(S) . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.11. TREASURER AND ASSISTANT TREASURERS. . . . . . . . . . . . . . . 8
SECTION 3.12. SECRETARY AND ASSISTANT SECRETARIES . . . . . . . . . . . . . . 8
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SECTION 3.13. OTHER POWERS AND DUTIES . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.1. STOCK CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.2. TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.3. RECORD HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.4. RECORD DATE. . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.5. TRANSFER AGENT AND REGISTRAR FOR SHARES OF CORPORATION . . . . 10
SECTION 4.6. LOSS OF CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.7. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . 11
SECTION 4.8. MULTIPLE CLASSES OF STOCK. . . . . . . . . . . . . . . . . . . 11
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.1. DECLARATION OF DIVIDENDS . . . . . . . . . . . . . . . . . . . 11
SECTION 5.2. RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 7.1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 7.2. RIGHT TO INDEMNIFICATION IN GENERAL. . . . . . . . . . . . . . 14
SECTION 7.3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION. . . . . . . . . . . . . . 14
SECTION 7.4. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. . . . . . . 15
SECTION 7.5. INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL . . . . . . . . . . . . . . . . . 15
SECTION 7.6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. . . . . . . . . . . 15
SECTION 7.7. ADVANCEMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . 16
SECTION 7.8. NOTIFICATION AND DEFENSE OF CLAIM. . . . . . . . . . . . . . . 16
SECTION 7.9. PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7.10. ACTION BY THE CORPORATION . . . . . . . . . . . . . . . . . . 18
SECTION 7.11. NON-EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.12. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.13. NO DUPLICATIVE PAYMENT. . . . . . . . . . . . . . . . . . . . 18
SECTION 7.14. EXPENSES OF ADJUDICATION. . . . . . . . . . . . . . . . . . . 18
SECTION 7.15. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.1. CERTIFICATE OF INCORPORATION . . . . . . . . . . . . . . . . . 19
SECTION 8.2. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.3. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.4. EXECUTION OF INSTRUMENTS . . . . . . . . . . . . . . . . . . . 19
SECTION 8.5. VOTING OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.6. EVIDENCE OF AUTHORITY. . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.7. CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 8.8. CHARITABLE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . 20
ARTICLE IX.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1. AMENDMENT BY STOCKHOLDERS. . . . . . . . . . . . . . . . . . . 20
SECTION 9.2. AMENDMENT BY BOARD OF DIRECTORS. . . . . . . . . . . . . . . . 20
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AMENDED AND RESTATED
BY-LAWS
OF
EVERCEL, INC.
(A Delaware Corporation)
ARTICLE I.
STOCKHOLDERS
SECTION 1.1. ANNUAL MEETING. The annual meeting of the stockholders of
the corporation shall be held on such date as shall be fixed by the Board of
Directors, at such time and place within or without the State of Delaware as may
be designated in the notice of meeting. If the day fixed for the annual meeting
shall fall on a legal holiday, the meeting shall be held on the next succeeding
day not a legal holiday. If the annual meeting is omitted on the day herein
provided, a special meeting may be held in place thereof, and any business
transacted at such special meeting in lieu of annual meeting shall have the same
effect as if transacted or held at the annual meeting.
SECTION 1.2. SPECIAL MEETINGS. Special meetings of the stockholders may
be called at any time by the board of directors. Special meetings of the
stockholders shall be held at such time, date and place within or outside of the
State of Delaware as may be designated in the notice of such meeting.
SECTION 1.3. NOTICE OF MEETING. A written notice stating the place, date,
and hour of each meeting of the stockholders, and, in the case of a special
meeting, the purposes for which the meeting is called, shall be given to each
stockholder entitled to vote at such meeting, and to each stockholder who, under
the Certificate of Incorporation or these By-laws, is entitled to such notice,
by delivering such notice to such person or leaving it at their residence or
usual place of business, or by mailing it, postage prepaid, and addressed to
such stockholder at his address as it appears upon the books of the corporation,
at least ten (10) days and not more than sixty (60) before the meeting. Such
notice shall be given by the secretary, an assistant secretary, or any other
officer or person designated either by the secretary or by the person or persons
calling the meeting.
The requirement of notice to any stockholder may be waived (i) by a written
waiver of notice, executed before or after the meeting by the stockholder or his
attorney thereunto duly authorized, and filed with the records of the meeting,
(ii) if communication with such stockholder is unlawful, (iii) by attendance at
the meeting without protesting prior thereto or at its commencement the lack of
notice, or (iv) as otherwise excepted by law. A waiver of notice of any regular
or special meeting of the stockholders need not specify the purposes of the
meeting.
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If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken, except that if the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 1.4. QUORUM. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote at a meeting shall constitute a quorum.
Any meeting may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present.
SECTION 1.5. VOTING AND PROXIES. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the corporation, unless otherwise provided by law or by the Certificate
of Incorporation. Stockholders may vote either in person or by written proxy,
but no proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. Proxies shall be filed with the
secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
A proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of the proxy the
corporation receives a specific written notice to the contrary from any one of
them.
SECTION 1.6. ACTION AT MEETING. When a quorum is present at any meeting,
a plurality of the votes properly cast for election to any office shall elect to
such office, and a majority of the votes properly cast upon any question other
than election to an office shall decide such question, except where a larger
vote is required by law, the Certificate of Incorporation or these by-laws. No
ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
SECTION 1.7. VOTING OF SHARES OF CERTAIN HOLDERS. Shares of stock of the
corporation standing in the name of another corporation, domestic or foreign,
may be voted by such officer, agent, or proxy as the by-laws of such corporation
may prescribe, or, in the absence of such provision, as the board of directors
of such corporation may determine.
Shares of stock of the corporation standing in the name of a deceased
person, a minor ward or an incompetent person, may be voted by his
administrator, executor, court-appointed guardian or conservator without a
transfer of such shares into the name of such administrator, executor, court
appointed guardian or conservator. Shares of capital stock of the corporation
standing in the name of a trustee or fiduciary may be voted by such trustee or
fiduciary.
Shares of stock of the corporation standing in the name of a receiver may
be voted by such receiver, and shares held by or under the control of a receiver
may be voted by such receiver
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without the transfer thereof into his name if authority so to do be contained in
an appropriate order of the court by which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer by the pledgor on the books of the corporation he
expressly empowered the pledgee to vote thereon, in which case only the pledgee
or its proxy shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by the corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares.
SECTION 1.8. STOCKHOLDER LISTS. The secretary (or the corporation's
transfer agent or other person authorized by these By-laws or by law) shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 1.9 MEETING PROTOCOL. The board of directors and the chairman of
a meeting may adopt rules for the conduct of stockholder meetings and specify
the types of rules that may be adopted, including but not limited to, the
establishment of an agenda, rules relating to presence at the meeting of persons
other than stockholders, restrictions on entry at the meeting after commencement
thereof and the imposition of time limitations for questions by participants at
the meeting.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.1. POWERS. Except as reserved to the stockholders by law, by
the Certificate of Incorporation or by these By-laws, the business of the
corporation shall be managed by and under the direction of the board of
directors, who shall have and may exercise all of the powers of the corporation.
In particular, and without limiting the foregoing, the board of directors shall
have the power to issue or reserve for issuance from time to time the whole or
any part of the capital stock of the corporation which may be authorized from
time to time to such person, for such consideration and upon such terms and
conditions as they shall determine, including the granting of options, warrants
or conversion or other rights to stock.
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SECTION 2.2. NUMBER OF DIRECTORS; QUALIFICATIONS. The board of directors
shall consist of such number of directors, not less than three (3) nor more than
sixteen (16), as shall be fixed initially by the incorporator(s) and thereafter
from time to time by vote of a majority of the board of directors. No director
need be a stockholder.
SECTION 2.3. NOMINATION OF DIRECTORS.
(a) Nominations for the election of directors at an annual meeting of the
stockholders, or special meeting in lieu of the annual meeting, may be made by
the board of directors or by any stockholder entitled to vote for the election
of directors. Stockholders entitled to vote in such election may nominate one
or more persons for election as directors only if written notice of such
stockholder's intent to make such nomination or nominations has been given
either by personal delivery, overnight (receipted) courier or by United States
mail, postage prepaid, to the secretary of the corporation not less than fifty
(50) nor more than seventy-five (75) days prior to the anniversary date of the
immediately preceding annual meeting or special meeting in lieu thereof
provided, however, that in the event that less than sixty-five (65) days' notice
of the date of the meeting is given or made to stockholders, notice by the
stockholder, to be timely, must be received not later than the fifteenth (15th)
day following the day on which such notice of the date of the annual meeting was
mailed.
(b) Each notice under subsection (a) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominee,
(iii) the class and such number of shares of stock of the corporation which are
beneficially owned by each such nominee, and (iv) such other information
relating to the nominee proposed by a stockholder as would be required to be
included in a proxy statement filed pursuant to the rules of the Securities and
Exchange Commission.
(c) The chairman of the meeting of stockholders shall determine whether or
not a nomination was made in accordance with the procedures of this Section 2.3,
and if he shall determine that it was not, he shall so declare to the meeting
and the defective nomination shall be disregarded.
SECTION 2.4. ELECTION OF DIRECTORS. The initial board of directors shall
be designated in the certificate of incorporation, or if not so designated,
elected by the incorporator(s) at the first meeting thereof. Thereafter,
directors shall be elected by the stockholders at their annual meeting or at any
special meeting, the notice of which specifies the election of directors as an
item of business for such meeting, subject to the provisions of the Certificate
of Incorporation and these By-laws.
SECTION 2.5. VACANCIES. In the case of a vacancy in the board of directors
from death, resignation, disqualification or other cause, the election of a
director to fill such vacancy shall be by vote of a majority of the directors
then in office, whether or not constituting a quorum, or by the sole remaining
director. In the case of a vacancy in the board of directors resulting from
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enlargement of the board, the election of a director to fill such vacancy shall
be by vote of a majority of the directors then in office, provided that a quorum
is present. The director thus elected shall hold office for a term until the
election of his successor in the manner provided in the Certificate of
Incorporation.
SECTION 2.6. CHANGE IN SIZE OF THE BOARD. The number of the board of
directors may be changed by vote of a majority of the directors then in office.
SECTION 2.7. TENURE AND RESIGNATION. The directors shall be elected and
serve in the manner provided in the Certificate of Incorporation. Any director
may resign by delivering or mailing postage prepaid a written resignation to the
corporation at its principal office or to the president, secretary or assistant
secretary, if any. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
SECTION 2.8. REMOVAL. A director, whether elected by the stockholders or
directors, may be removed from office only for cause at an annual or special
meeting of stockholders by vote of a majority of the stockholders entitled to
vote in the election of such directors, or for cause by a vote of a majority of
the directors then in office; provided, however, that a director may be removed
for cause only after reasonable notice and opportunity to be heard before the
body proposing to remove him.
SECTION 2.9. MEETINGS. Regular meetings of the board of directors may be
held without call or notice at such times and such places within or without the
State of Delaware as the board may, from time to time, determine, provided that
notice of the first regular meeting following any such determination shall be
given to directors absent from such determination. A regular meeting of the
board of directors shall be held without notice immediately after, and at the
same place as, the annual meeting of the stockholders or the special meeting of
the stockholders held in place of such annual meeting, unless a quorum of the
directors is not then present. Special meetings of the board of directors may
be held at any time and at any place designated in the call of the meeting when
called by the chairman of the board, president, or a majority of the directors.
Members of the board of directors or any committee elected thereby may
participate in a meeting of such board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
SECTION 2.10. NOTICE OF MEETING. It shall be sufficient notice to a
director to send notice by mail at least seventy-two (72) hours before the
meeting addressed to such person at his usual or last known business or
residence address or to give notice to such person in person or by telephone at
least twenty-four (24) hours before the meeting. Notice shall be given by the
secretary, or in his absence or unavailability, may be given by an assistant
secretary, if any, or by the officer or directors calling the meeting. The
requirement of notice to any director may be waived by a written waiver of
notice, executed by such person before or after the meeting or meetings, and
filed with the records of the meeting, or by attendance at the meeting without
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protesting prior thereto or at its commencement the lack of notice. A notice or
waiver of notice of a directors' meeting need not specify the purposes of the
meeting.
SECTION 2.11. AGENDA. Any lawful business may be transacted at a meeting
of the board of directors, notwithstanding the fact that the nature of the
business may not have been specified in the notice or waiver of notice of the
meeting.
SECTION 2.12. QUORUM. At any meeting of the board of directors, a
majority of the directors then in office shall constitute a quorum for the
transaction of business. Any meeting may be adjourned by a majority of the
votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
SECTION 2.13. ACTION AT MEETING. Any motion adopted by vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board of directors, except where a different vote is
required by law, by the Certificate of Incorporation or by these By-laws. The
assent in writing of any director to any vote or action of the directors taken
at any meeting, whether or not a quorum was present and whether or not the
director had or waived notice of the meeting, shall have the same effect as if
the director so assenting was present at such meeting and voted in favor of such
vote or action.
SECTION 2.14. ACTION WITHOUT MEETING. Any action by the directors may be
taken without a meeting if all of the directors consent to the action in writing
and the consents are filed with the records of the directors' meetings. Such
consent shall be treated for all purposes as a vote of the directors at a
meeting.
SECTION 2.15. COMMITTEES. There shall be two (2) standing committees of
the board of directors, as follows:
(a) AUDIT COMMITTEE. The Audit Committee shall, among other things, (i)
select the firm of independent accountants that will audit the corporation; (ii)
discuss the scope and the results of the audit with the accountants; and (iii)
review the corporation's financial accounting and reporting principles.
(b) COMPENSATION COMMITTEE. The Compensation Committee shall (i) review,
approve and recommend to the board of directors the terms and conditions of
incentive bonus plans applicable to corporate officers and key management
personnel; (ii) review and approve the annual salary of the chief executive
officer; and (iii) administer the Corporation's 1998 Equity Incentive Plan.
In addition, the board of directors may, by the affirmative vote of a
majority of the directors then in office, appoint an executive committee or
other committees consisting of one or more directors and may by vote delegate to
any such committee some or all of their powers except those which by law, the
Certificate of Incorporation or these By-laws they may not delegate. In the
absence or disqualification of a member of a committee, the members of the
committee present and not disqualified, whether or not they constitute a quorum,
may by
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unanimous vote appoint another member of the board of directors to act at the
meeting in place of the absence or disqualified member. Unless the board of
directors shall otherwise provide, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the board of directors
or such rules, its meetings shall be called, notice given or waived, its
business conducted or its action taken as nearly as may be in the same manner as
is provided in these By-laws with respect to meetings or for the conduct of
business or the taking of actions by the board of directors. The board of
directors shall have power at any time to fill vacancies in, change the
membership of, or discharge any such committee at any time. The board of
directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
ARTICLE III.
OFFICERS
SECTION 3.1. ENUMERATION. The officers shall consist of a president, a
treasurer, a secretary and such other officers and agents (including a chairman
of the board, one or more vice-presidents, assistant treasurers and assistant
secretaries), as the board of directors may, in their discretion, determine.
SECTION 3.2. ELECTION. The president, treasurer and secretary shall be
elected annually by the directors at their first meeting following the annual
meeting of the stockholders or any special meeting held in lieu of the annual
meeting. Other officers may be chosen by the directors at such meeting or at
any other meeting.
SECTION 3.3. QUALIFICATION. An officer may, but need not, be a director
or stockholder. Any two or more offices may be held by the same person. Any
officer may be required by the directors to give bond for the faithful
performance of his duties to the corporation in such amount and with such
sureties as the directors may determine. The premiums for such bonds may be
paid by the corporation.
SECTION 3.4. TENURE. Except as otherwise provided by the Certificate of
Incorporation or these By-laws, the term of office of each officer shall be for
one year or until his successor is elected and qualified or until his earlier
resignation or removal.
SECTION 3.5. REMOVAL. Any officer may be removed from office, with or
without cause, by the affirmative vote of a majority of the directors then in
office; provided, however, that an officer may be removed for cause only after
reasonable notice and opportunity to be heard by the board of directors prior to
action thereon.
SECTION 3.6. RESIGNATION. Any officer may resign by delivering or mailing
postage prepaid a written resignation to the corporation at its principal office
or to the president, secretary, or assistant secretary, if any, and such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some event.
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SECTION 3.7. VACANCIES. A vacancy in any office arising from any cause
may be filled for the unexpired portion of the term by the board of directors.
SECTION 3.8. CHAIRMAN OF THE BOARD. The board of directors may appoint a
chairman of the board and may designate the chairman of the board as chief
executive officer. If the board of directors appoints a chairman of the board,
he shall perform such duties and possess such powers as are assigned to him by
the board of directors.
SECTION 3.9. PRESIDENT. The president shall be the chief executive
officer of the corporation unless a chairman of the board is so designated.
Unless a chairman of the board is so designated or except as otherwise voted by
the board of directors, the president shall preside at all meetings of the
stockholders and of the board of directors at which present. The president
shall have such duties and powers as are commonly incident to the office and
such duties and powers as the board of directors shall from time to time
designate.
SECTION 3.10. VICE-PRESIDENT(S). The vice-president(s), if any, shall
have such powers and perform such duties as the board of directors may from time
to time determine.
SECTION 3.11. TREASURER AND ASSISTANT TREASURERS. The treasurer or if the
board of directors so determines, the vice-president, finance or the chief
financial officer, subject to the direction and under the supervision and
control of the board of directors, shall have general charge of the financial
affairs of the corporation. The treasurer shall have custody of all funds,
securities and valuable papers of the corporation, except as the board of
directors may otherwise provide. The treasurer shall keep or cause to be kept
full and accurate records of account which shall be the property of the
corporation, and which shall be always open to the inspection of each elected
officer and director of the corporation. The treasurer shall deposit or cause
to be deposited all funds of the corporation in such depository or depositories
as may be authorized by the board of directors. The treasurer shall have the
power to endorse for deposit or collection all notes, checks, drafts, and other
negotiable instruments payable to the corporation. The treasurer shall perform
such other duties as are incidental to the office, and such other duties as may
be assigned by the board of directors. All of the duties of the treasurer may
be performed by the vice-president, finance and/or the chief financial officer,
in the discretion of the board of directors.
Assistant treasurers, if any, shall have such powers and perform such
duties as the board of directors may from time to time determine.
SECTION 3.12. SECRETARY AND ASSISTANT SECRETARIES. The secretary shall
record, or cause to be recorded, all proceedings of the meetings of the
stockholders and directors (including committees thereof) in the book of records
of this corporation. The record books shall be open at reasonable times to the
inspection of any stockholder, director, or officer. The secretary shall notify
the stockholders and directors, when required by law or by these By-laws, of
their respective meetings, and shall perform such other duties as the directors
and stockholders may from time to time prescribe. The secretary shall have the
custody and charge of the corporate
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seal, and shall affix the seal of the corporation to all instruments requiring
such seal, and shall certify under the corporate seal the proceedings of the
directors and of the stockholders, when required. In the absence of the
secretary at any such meeting, a temporary secretary shall be chosen who shall
record the proceedings of the meeting in the aforesaid books.
Assistant secretaries, if any, shall have such powers and perform such
duties as the board of directors may from time to time designate.
SECTION 3.13. OTHER POWERS AND DUTIES. Subject to these By-laws and to
such limitations as the board of directors may from time to time prescribe, the
officers of the corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the board of directors.
ARTICLE IV.
CAPITAL STOCK
SECTION 4.1. STOCK CERTIFICATES. Each stockholder shall, to the extent
required by applicable state law, be entitled to a certificate representing the
number of shares of the capital stock of the corporation owned by such person in
such form as shall, in conformity to law, be prescribed from time to time by the
board of directors. Each certificate shall be signed by the chairman or
president or vice-president and treasurer or assistant treasurer or such other
officers designated by the board of directors from time to time as permitted by
law, shall bear the seal of the corporation, and shall express on its face its
number, date of issue, class, the number of shares for which, and the name of
the person to whom, it is issued. The corporate seal and any or all of the
signatures of corporation officers may be facsimile if the stock certificate is
manually counter-signed by an authorized person on behalf of a transfer agent or
registrar other than the corporation or its employee.
If an officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed on, a certificate shall have ceased to be
such before the certificate is issued, it may be issued by the corporation with
the same effect as if he were such officer, transfer agent or registrar at the
time of its issue.
SECTION 4.2. TRANSFER OF SHARES. Subject to applicable restrictions on
transfer contained in the Certificate of Incorporation of the corporation, if
any, title to a certificate of stock and to the shares represented thereby shall
be transferred only on the books of the corporation by delivery to the
corporation or its transfer agent of the certificate properly endorsed, or by
delivery of the certificate accompanied by a written assignment of the same, or
a properly executed written power of attorney to sell, assign or transfer the
same or the shares represented thereby. Upon surrender of a certificate for the
shares being transferred, a new certificate or certificates shall be issued
according to the interests of the parties. Subject to applicable restrictions
on transfer contained in the Certificate of Incorporation of the corporation, if
any, title to any uncertificated shares shall be transferred only on the books
of the corporation by delivery to the corporation or its transfer agent of a
written assignment of the same or a properly executed
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written power of attorney to sell, assign and transfer such uncertificated
shares, as in such forms as are satisfactory to the corporation or its transfer
agent.
SECTION 4.3. RECORD HOLDERS. Except as otherwise may be required by law,
by the Certificate of Incorporation or by these By-laws, the corporation shall
be entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
SECTION 4.4. RECORD DATE. In order that the corporation may determine the
stockholders entitled to receive notice of or to vote at any meeting of
stockholders or any adjournments thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty days prior to any
such action. In such case only stockholders of record on such record date shall
be so entitled notwithstanding any transfer of stock on the books of the
corporation after the record date.
If no record date is fixed: (i) the record date for determining
stockholders entitled to receive notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (ii) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is necessary, shall be the day on which the first written consent is
expressed; and (iii) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
SECTION 4.5. TRANSFER AGENT AND REGISTRAR FOR SHARES OF CORPORATION. The
board of directors may appoint a transfer agent and a registrar of the
certificates of stock of the corporation. Any transfer agent so appointed shall
maintain, among other records, a stockholders' ledger, setting forth the names
and addresses of the holders of all issued shares of stock of the corporation,
the number of shares held by each, the certificate numbers representing such
shares, and the date of issue of such shares. Any registrar so appointed shall
maintain, among other records, a share register, setting forth the total number
of shares of each class of shares which the corporation is authorized to issue
and the total number of shares actually issued. The stockholders' ledger and
the share register are hereby identified as the stock transfer books of the
corporation; but as between the stockholders' ledger and the share register, the
names and addresses of stockholders, as they appear on the stockholders' ledger
maintained by the transfer agent shall be the official list of stockholders of
record of the corporation. The name and address of each stockholder of record,
as they appear upon the stockholders' ledger, shall be conclusive
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evidence of who are the stockholders entitled to receive notice of the meetings
of stockholders, to vote at such meetings, to examine a complete list of the
stockholders entitled to vote at meetings, and to own, enjoy and exercise any
other property or rights deriving from such shares against the corporation.
Stockholders, but not the corporation, its directors, officers, agents or
attorneys, shall be responsible for notifying the transfer agent, in writing, of
any changes in their names or addresses from time to time, and failure to do so
will relieve the corporation, its other stockholders, directors, officers,
agents and attorneys, and its transfer agent and registrar, of liability for
failure to direct notices or other documents, or pay over or transfer dividends
or other property or rights, to a name or address other than the name and
address appearing in the stockholders' ledger maintained by the transfer agent.
SECTION 4.6. LOSS OF CERTIFICATES. In case of the loss, destruction or
mutilation of a certificate of stock, a replacement certificate may be issued in
place thereof upon such terms as the board of directors may prescribe,
including, in the discretion of the board of directors, a requirement of bond
and indemnity to the corporation.
SECTION 4.7. RESTRICTIONS ON TRANSFER. Every certificate, if any, for
shares of stock which are subject to any restriction on transfer, whether
pursuant to the Certificate of Incorporation, the By-laws or any agreement to
which the corporation is a party, shall have the fact of the restriction noted
conspicuously on the certificate and shall also set forth on the face or back
either the full text of the restriction or a statement that the corporation will
furnish a copy to the holder of such certificate upon written request and
without charge.
SECTION 4.8. MULTIPLE CLASSES OF STOCK. The amount and classes of the
capital stock and the par value, if any, of the shares, shall be as fixed in the
Certificate of Incorporation. At all times when there are two or more classes
of stock, the several classes of stock shall conform to the description and the
terms and have the respective preferences, voting powers, restrictions and
qualifications set forth in the Certificate of Incorporation and these By-laws.
Every certificate issued when the corporation is authorized to issue more than
one class or series of stock shall set forth on its face or back either (i) the
full text of the preferences, voting powers, qualifications and special and
relative rights of the shares of each class and series authorized to be issued,
or (ii) a statement of the existence of such preferences, powers, qualifications
and rights, and a statement that the corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge.
ARTICLE V.
DIVIDENDS
SECTION 5.1. DECLARATION OF DIVIDENDS. Except as otherwise required by
law or by the Certificate of Incorporation, the board of directors may, in its
discretion, declare what, if any, dividends shall be paid from the surplus or
from the net profits of the corporation for the current or preceding fiscal
year, or as otherwise permitted by law. Dividends may be paid in cash, in
property, in shares of the corporation's stock, or in any combination thereof.
Dividends shall be payable upon such dates as the board of directors may
designate.
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SECTION 5.2. RESERVES. Before the payment of any dividend and before
making any distribution of profits, the board of directors, from time to time
and in its absolute discretion, shall have power to set aside out of the surplus
or net profits of the corporation such sum or sums as the board of directors
deems proper and sufficient as a reserve fund to meet contingencies or for such
other purpose as the board of directors shall deem to be in the best interests
of the corporation, and the board of directors may modify or abolish any such
reserve.
ARTICLE VI.
POWERS OF OFFICERS TO CONTRACT
WITH THE CORPORATION
Any and all of the directors and officers of the corporation,
notwithstanding their official relations to it, may enter into and perform any
contract or agreement of any nature between the corporation and themselves, or
any and all of the individuals from time to time constituting the board of
directors of the corporation, or any firm or corporation in which any such
director may be interested, directly or indirectly, whether such individual,
firm or corporation thus contracting with the corporation shall thereby derive
personal or corporate profits or benefits or otherwise; provided, that (i) the
material facts of such interest are disclosed or are known to the board of
directors or committee thereof which authorizes such contract or agreement; (ii)
if the material facts as to such person's relationship or interest are disclosed
or are known to the stockholders entitled to vote thereon, and the contract is
specifically approved in good faith by a vote of the stockholders; or (iii) the
contract or agreement is fair as to the corporation as of the time it is
authorized, approved or ratified by the board of directors, a committee thereof,
or the stockholders. Any director of the corporation who is interested in any
transaction as aforesaid may nevertheless be counted in determining the
existence of a quorum at any meeting of the board of directors which shall
authorize or ratify any such transaction. This Article shall not be construed
to invalidate any contract or other transaction which would otherwise be valid
under the common or statutory law applicable thereto.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1. DEFINITIONS. For purposes of this Article VII the following
terms shall have the meanings indicated:
"Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent, trustee or fiduciary of the corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the express
written request of the corporation.
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"Court" means the Court of Chancery of the State of Delaware, the court in
which the Proceeding in respect of which indemnification is sought by a Covered
Person shall have been brought or is pending, or another court having subject
matter jurisdiction and personal jurisdiction over the parties.
"Covered Person" means a person who is a present or former director or
Officer of the corporation and shall include such person's legal
representatives, heirs, executors and administrators.
"Disinterested" describes any individual, whether or not that individual is
a director, Officer, employee or agent of the corporation, who is not and was
not and is not threatened to be made a party to the Proceeding in respect of
which indemnification, advancement of Expenses or other action is sought by a
Covered Person.
"Expenses" shall include, without limitation, all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in a Proceeding.
"Good Faith" shall mean a Covered Person having acted in good faith and in
a manner such Covered Person reasonably believed to be in or not opposed to the
best interests of the corporation or, in the case of an employee benefit plan,
the best interests of the participants or beneficiaries of said plan, as the
case may be, and, with respect to any Proceeding which is criminal in nature,
having had no reasonable cause to believe such Covered Person's conduct was
unlawful.
"Improper Personal Benefit" shall include, but not be limited to, the
personal gain in fact by reason of a person's Corporate Status of a financial
profit, monies or other advantage not also accruing to the benefit of the
corporation or to the stockholders generally and which is unrelated to his usual
compensation including, but not limited to, (i) in exchange for the exercise of
influence over the corporation's affairs, (ii) as a result of the diversion of
corporate opportunity, or (iii) pursuant to the use or communication of
confidential or inside information for the purpose of generating a profit from
trading in the corporation's securities. Notwithstanding the foregoing,
"Improper Personal Benefit" shall not include any benefit, directly or
indirectly, related to actions taken in order to evaluate, discourage, resist,
prevent or negotiate any transaction with or proposal from any person or entity
seeking control of, or a controlling interest in, the corporation.
"Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and may include law firms or members
thereof that are regularly retained by the corporation but not by any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing
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and applicable to such counsel, would have a conflict of interest in
representing either the corporation or Covered Person in an action to determine
the Covered Person's rights under this Article.
"Officer" means the president, vice presidents, treasurer, assistant
treasurer(s), secretary, assistant secretary and such other executive officers
as are appointed by the board of directors of the corporation and explicitly
entitled to indemnification hereunder.
"Proceeding" includes any actual, threatened or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation (including
any internal corporate investigation), administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, other than
one initiated by the Covered Person, but including one initiated by a Covered
Person for the purpose of enforcing such Covered Person's rights under this
Article to the extent provided in Section 7.14 of this Article. "Proceeding"
shall not include any counterclaim brought by any Covered Person other than one
arising out of the same transaction or occurrence that is the subject matter of
the underlying claim.
SECTION 7.2. RIGHT TO INDEMNIFICATION IN GENERAL.
(a) COVERED PERSONS. The corporation may indemnify, and may advance
Expenses, to each Covered Person who is, was or is threatened to be made a party
or otherwise involved in any Proceeding, as provided in this Article and to the
fullest extent permitted by applicable law in effect on the date hereof and to
such greater extent as applicable law may hereafter from time to time permit.
The indemnification provisions in this Article shall be deemed to be a
contract between the corporation and each Covered Person who serves in any
Corporate Status at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect, and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any Proceeding
previously or thereafter brought or threatened based in whole or in part upon
any such state of facts. Such a contract right may not be modified
retroactively without the consent of such Covered Person.
(b) EMPLOYEES AND AGENTS. The corporation may, to the extent authorized
from time to time by the board of directors, grant indemnification and the
advancement of Expenses to any employee or agent of the corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of Expenses of Covered Persons.
SECTION 7.3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION. Each Covered Person may be entitled to the rights of
indemnification provided in this Section 7.3 if, by reason of such Covered
Person's Corporate Status, such Covered Person is, was or is threatened to be
made, a party to or is otherwise involved in any Proceeding, other than a
Proceeding by or in the right of the corporation. Each Covered Person may be
indemnified against Expenses, judgments, penalties, fines and amounts paid in
settlements, actually and
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reasonably incurred by such Covered Person or on such Covered Person's behalf in
connection with such Proceeding or any claim, issue or matter therein, if such
Covered Person acted in Good Faith and such Covered Person has not been adjudged
during the course of such proceeding to have derived an Improper Personal
Benefit from the transaction or occurrence forming the basis of such Proceeding.
SECTION 7.4. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Each
Covered Person may be entitled to the rights of indemnification provided in this
Section 7.4 if, by reason of such Covered Person's Corporate Status, such
Covered Person is, or is threatened to be made, a party to or is otherwise
involved in any Proceeding brought by or in the right of the corporation to
procure a judgment in its favor. Such Covered Person may be indemnified against
Expenses, judgments, penalties, and amounts paid in settlement, actually and
reasonably incurred by such Covered Person or on such Covered Person's behalf in
connection with such Proceeding if such Covered Person acted in Good Faith and
such Covered Person has not been adjudged during the course of such proceeding
to have derived an Improper Personal Benefit from the transaction or occurrence
forming the basis of such Proceeding. Notwithstanding the foregoing, no such
indemnification shall be made in respect of any claim, issue or matter in such
Proceeding as to which such Covered Person shall have been adjudged to be liable
to the corporation if applicable law prohibits such indemnification; provided,
however, that, if applicable law so permits, indemnification shall nevertheless
be made by the corporation in such event if and only to the extent that the
Court which is considering the matter shall so determine.
SECTION 7.5. INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any provision of this Article to the contrary, to
the extent that a Covered Person is, by reason of such Covered Person's
Corporate Status, a party to or is otherwise involved in and is successful, on
the merits or otherwise, in any Proceeding, such Covered Person shall be
indemnified to the maximum extent permitted by law, against all Expenses,
judgments, penalties, fines, and amounts paid in settlement, actually and
reasonably incurred by such Covered Person or on such Covered Person's behalf in
connection therewith. If such Covered Person is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the corporation
shall indemnify such Covered Person to the maximum extent permitted by law,
against all Expenses, judgments, penalties, fines, and amounts paid in
settlement, actually and reasonably incurred by such Covered Person or on such
Covered Person's behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 7.5 and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
SECTION 7.6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any provision of this Article to the contrary, to the extent that a Covered
Person is, by reason of such Covered Person's Corporate Status, a witness in any
Proceeding, such Covered Person shall be indemnified against all Expenses
actually and reasonably incurred by such Covered Person or on such Covered
Person's behalf in connection therewith.
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SECTION 7.7. ADVANCEMENT OF EXPENSES. Notwithstanding any provision of
this Article to the contrary, the corporation may advance all reasonable
Expenses which, by reason of a Covered Person's Corporate Status, were incurred
by or on behalf of such Covered Person in connection with any Proceeding, within
thirty (30) days after the receipt by the corporation of a statement or
statements from such Covered Person requesting such advance or advances, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by the Covered Person
and shall include or be preceded or accompanied by an undertaking by or on
behalf of the Covered Person to repay any Expenses if such Covered Person shall
be adjudged to be not entitled to be indemnified against such Expenses. Any
advance and undertaking to repay pursuant to this Section 7.7 may be unsecured
interest-free, as the corporation sees fit. Advancement of Expenses pursuant to
this Section 7.7 shall not require approval of the board of directors or the
stockholders of the corporation, or of any other person or body. The secretary
of the corporation shall promptly advise the Board in writing of the request for
advancement of Expenses, of the amount and other details of the request and of
the undertaking to make repayment provided pursuant to this Section 7.7.
SECTION 7.8. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
a Covered Person of notice of the commencement of any Proceeding, such Covered
Person shall, if a claim is to be made against the corporation under this
Article, notify the corporation of the commencement of the Proceeding. The
failure to notify the corporation will not relieve the corporation from any
liability which it may have to such Covered Person otherwise than under this
Article. With respect to any such Proceedings to which such Covered Person
notifies the corporation:
(a) The corporation will be entitled to participate in the defense at its
own expense.
(b) Except as otherwise provided below in this subparagraph (b), the
corporation (jointly with any other indemnifying party similarly notified) will
be entitled to assume the defense with counsel reasonably satisfactory to the
Covered Person. After notice from the corporation to the Covered Person of its
election to assume the defense of a suit, the corporation will not be liable to
the Covered Person under this Article for any legal or other expenses
subsequently incurred by the Covered Person in connection with the defense of
the Proceeding other than reasonable costs of investigation or as otherwise
provided below in this subparagraph (b). The Covered Person shall have the
right to employ his own counsel in such Proceeding but the fees and expenses of
such counsel incurred after notice from the corporation of its assumption of the
defense shall be at the expense of the Covered Person except as provided in this
paragraph. The fees and expenses of counsel shall be at the expense of the
corporation if (i) the employment of counsel by the Covered Person has been
authorized by the corporation, (ii) the Covered Person shall have concluded
reasonably that there may be a conflict of interest between the corporation and
the Covered Person in the conduct of the defense of such action and such
conclusion is confirmed in writing by the corporation's outside counsel
regularly employed by it in connection with corporate matters, or (iii) the
corporation shall not in fact have employed counsel to assume the defense of
such Proceeding. The corporation shall be entitled to participate in, but shall
not be entitled to assume the defense of any Proceeding brought by or in the
right of the corporation
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or as to which the Covered Person shall have made the conclusion provided for in
(ii) above and such conclusion shall have been so confirmed by the corporation's
said outside counsel.
(c) Notwithstanding any provision of this Article to the contrary, the
corporation shall not be obligated to indemnify the Covered Person under this
Article for any amounts paid in settlement of any Proceeding effected without
its written consent. The corporation shall not settle any Proceeding or claim
in any manner which would impose any penalty, limitation or disqualification of
the Covered Person for any purpose without such Covered Person's written
consent. Neither the corporation nor the Covered Person will unreasonably
withhold their consent to any proposed settlement.
(d) If it is determined that the Covered Person is entitled to
indemnification other than as afforded under subparagraph (b) above, payment to
the Covered Person of the additional amounts for which he is to be indemnified
shall be made within ten (10) days after such determination.
SECTION 7.9. PROCEDURES.
(a) METHOD OF DETERMINATION. A determination (as provided for by this
Article or if required by applicable law in the specific case) with respect to a
Covered Person's entitlement to indemnification shall be made either (a) by the
board of directors by a majority vote of a quorum consisting of Disinterested
directors, or (b) in the event that a quorum of the board of directors
consisting of Disinterested directors is not obtainable or, even if obtainable,
such quorum of Disinterested directors so directs, by Independent Counsel in a
written determination to the board of directors, a copy of which shall be
delivered to the Covered Person seeking indemnification, or (c) by the vote of
the holders of a majority of the corporation's capital stock outstanding at the
time entitled to vote thereon.
(b) INITIATING REQUEST. A Covered Person who seeks indemnification under
this Article shall submit a Request for Indemnification, including such
documentation and information as is reasonably available to such Covered Person
and is reasonably necessary to determine whether and to what extent such Covered
Person is entitled to indemnification.
(c) PRESUMPTIONS. In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall not presume that the Covered Person is or is not entitled to
indemnification under this Article.
(d) BURDEN OF PROOF. Each Covered Person shall bear the burden of going
forward and demonstrating sufficient facts to support his claim for entitlement
to indemnification under this Article. That burden shall be deemed satisfied by
the submission of an initial Request for Indemnification pursuant to Section
7.9(b) above.
(e) EFFECT OF OTHER PROCEEDINGS. The termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of guilty or of NOLO CONTENDERE or its equivalent,
shall not (except as otherwise expressly provided in this
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Article) of itself adversely affect the right of a Covered Person to
indemnification or create a presumption that a Covered Person did not act in
Good Faith.
(f) ACTIONS OF OTHERS. The knowledge, actions, or failure to act, of any
director, officer, employee, agent, trustee or fiduciary of the enterprise whose
daily activities the Covered Person was actually responsible for may be imputed
to a Covered Person for purposes of determining the right to indemnification
under this Article.
SECTION 7.10. ACTION BY THE CORPORATION. Any action, payment, advance
determination other than a determination made pursuant to Section 7.9(a) above,
authorization, requirement, grant of indemnification or other action taken by
the corporation pursuant to this Article shall be effected exclusively through
any Disinterested person so authorized by the board of directors of the
corporation, including the president or any vice president of the corporation.
SECTION 7.11. NON-EXCLUSIVITY. The rights of indemnification and to
receive advancement of Expenses as provided by this Article shall not be deemed
exclusive of any other rights to which a Covered Person may at any time be
entitled under applicable law, the Certificate of Incorporation, these By-Laws,
any agreement, a vote of stockholders or a resolution of the board of directors,
or otherwise. No amendment, alteration, rescission or replacement of this
Article or any provision hereof shall be effective as to an Covered Person with
respect to any action taken or omitted by such Covered Person in such Covered
Person's Corporate Status or with respect to any state of facts then or
previously existing or any Proceeding previously or thereafter brought or
threatened based in whole or to the extent based in part upon any such state of
facts existing prior to such amendment, alteration, rescission or replacement.
SECTION 7.12. INSURANCE. The corporation may maintain, at its expense, an
insurance policy or policies to protect itself and any Covered Person, officer,
employee or agent of the corporation or another enterprise against liability
arising out of this Article or otherwise, whether or not the corporation would
have the power to indemnify any such person against such liability under the
Delaware General Corporation Law.
SECTION 7.13. NO DUPLICATIVE PAYMENT. The corporation shall not be liable
under this Article to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that a Covered Person has otherwise actually
received such payment under any insurance policy, contract, agreement or
otherwise.
SECTION 7.14. EXPENSES OF ADJUDICATION. In the event that any Covered
Person seeks a judicial adjudication, or an award in arbitration, to enforce
such Covered Person's rights under, or to recover damages for breach of, this
Article, the Covered Person shall be entitled to recover from the corporation,
and shall be indemnified by the corporation against, any and all expenses (of
the types described in the definition of Expenses in Section 7.1 of this
Article) actually and reasonably incurred by such Covered Person in seeking such
adjudication or arbitration, but only if such Covered Person prevails therein.
If it shall be determined in such adjudication or arbitration that the Covered
Person is entitled to receive part but not all of the indemnification of
-18-
<PAGE>
expenses sought, the expenses incurred by such Covered Person in connection with
such adjudication or arbitration shall be appropriately prorated.
SECTION 7.15. SEVERABILITY. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Article (including without limitation, each portion of any Section of
this Article containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Article
(including, without limitation, each portion of any Section of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
SECTION 8.1. CERTIFICATE OF INCORPORATION. All references in these
By-laws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as amended and in effect from
time to time.
SECTION 8.2. FISCAL YEAR. Except as from time to time otherwise provided
by the board of directors, the fiscal year of the corporation shall end on
October 31 of each year.
SECTION 8.3. CORPORATE SEAL. The board of directors shall have the power
to adopt and alter the seal of the corporation.
SECTION 8.4. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes, and other obligations authorized to be executed by an
officer of the corporation on its behalf shall be signed by the president or the
treasurer except as the board of directors may generally or in particular cases
otherwise determine.
SECTION 8.5. VOTING OF SECURITIES. Unless the board of directors
otherwise provides, the president or the treasurer may waive notice of and act
on behalf of this corporation, or appoint another person or persons to act as
proxy or attorney in fact for this corporation with or without discretionary
power and/or power of substitution, at any meeting of stockholders or
shareholders of any other corporation or organization, any of whose securities
are held by this corporation.
SECTION 8.6. EVIDENCE OF AUTHORITY. A certificate by the secretary or any
assistant secretary as to any action taken by the stockholders, directors or any
officer or representative of the corporation shall, as to all persons who rely
thereon in good faith, be conclusive evidence of
-19-
<PAGE>
such action. The exercise of any power which by law, by the Certificate of
Incorporation, or by these By-laws, or under any vote of the stockholders or the
board of directors, may be exercised by an officer of the corporation only in
the event of absence of another officer or any other contingency shall bind the
corporation in favor of anyone relying thereon in good faith, whether or not
such absence or contingency existed.
SECTION 8.7. CORPORATE RECORDS. The original, or attested copies, of the
Certificate of Incorporation, By-laws, records of all meetings of the
incorporators and stockholders, and the stock transfer books (which shall
contain the names of all stockholders and the record address and the amount of
stock held by each) shall be kept in Delaware at the principal office of the
corporation, or at an office of the corporation, or at an office of its transfer
agent or of the secretary or of the assistant secretary, if any. Said copies
and records need not all be kept in the same office. They shall be available at
all reasonable times to inspection of any stockholder for any purpose but not to
secure a list of stockholders for the purpose of selling said list or copies
thereof or for using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
SECTION 8.8. CHARITABLE CONTRIBUTIONS. The board of directors from time
to time may authorize contributions to be made by the corporation in such
amounts as it may determine to be reasonable to corporations, trusts, funds or
foundations organized and operated exclusively for charitable, scientific or
educational purposes, no part of the net earning of which inures to the private
benefit of any stockholder or individual.
ARTICLE IX.
AMENDMENTS
SECTION 9.1. AMENDMENT BY STOCKHOLDERS. Prior to the issuance of stock,
these By-laws may be amended, altered or repealed by the incorporator(s) by
majority vote. After stock has been issued, these By-laws may be amended
altered or repealed by the stockholders at any annual or special meeting by vote
or a majority of all shares outstanding and entitled to vote, except that where
the effect of the amendment would be to reduce any voting requirement otherwise
required by law, the Certificate of Incorporation or these By-laws, such
amendment shall require the vote that would have been required by such other
provision. Notice and a copy of any proposal to amend these By-laws must be
included in the notice of meeting of stockholders at which action is taken upon
such amendment.
SECTION 9.2. AMENDMENT BY BOARD OF DIRECTORS. These By-laws may be
amended or altered by the board of directors at a meeting duly called for the
purpose by majority vote of the directors then in office, except that directors
shall not amend the By-laws in a manner which:
(a) changes the stockholder voting requirements for any action;
(b) alters or abolishes any preferential right or right of redemption
applicable to a class or series of stock with shares already outstanding;
-20-
<PAGE>
(c) alters the provisions of Article IX hereof; or
(d) permits the board of directors to take any action which under law, the
Certificate of Incorporation, or these By-laws is required to be taken by the
stockholders.
Any amendment of these By-laws by the board of directors may be altered or
repealed by the stockholders at any annual or special meeting of stockholders.
-21-
<PAGE>
Exhibit 4.1
EVERCEL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
E
COMMON STOCK
CUSIP 299759 10 0
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF ($.01) EACH OF THE
COMMON STOCK OF
EVERCEL, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of this Amended and Restated Certificate of Incorporation and of
any amendments thereto (copies of which are on file at the Transfer Agent), to
all of which the holder, by acceptance hereof, assents. This certificate is not
valid unless countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
TREASURER
CHAIRMAN
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, N.J.)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
EVERCEL, INC.
The corporation is authorized to issue more than one class or series of stock.
The corporation will furnish without charge to each stockholder upon written
request the full text of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof authorized to be issued by the corporation as set forth in the
<PAGE>
Amended and Restated Certificate of Incorporation of the corporation and
amendments thereto filed with the Secretary of State of the State of Delaware.
Such request should be made to the office of the Transfer Agent. The following
abbreviations, when used in the inscription on the face of this certificate,
shall be construed as though they were written out in full according to
applicable laws or regulations:
TEN COM -
TEN ENT -
JT TEN -
as tenants in common
as tenants by the entireties
as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-D Custodian
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15. KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST,
STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY
AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
Exhibit 4.2
EVERCEL, INC.
ER
R I G H T S
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY'S
PROSPECTUS DATED , 1999 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM CONTINENTAL
STOCK TRANSFER & TRUST COMPANY, THE SUBSCRIPTION AGENT. SUBSCRIPTION CERTIFICATE
REPRESENTING RIGHTS TO PURCHASE SHARES OF COMMON STOCK $.01 PAR VALUE OF
EVERCEL, INC. ("COMMON STOCK"). VOID IF NOT EXERCISED BEFORE 5:00 P.M.
EASTERN TIME ON MARCH , 1999.
THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE AND MAY BE
COMBINED OR DIVIDED (BUT ONLY INTO CERTIFICATES EVIDENCING A
WHOLE NUMBER OF RIGHTS) AT THE OFFICE OF THE SUBSCRIPTION AGENT
SUBSCRIPTION PRICE U.S. $6.00 PER SHARE
CUSIP 299759 11 8
REGISTERED OWNER:
The registered owner whose named is inscribed hereon, or assigns, is entitled to
subscribe for shares of Common Stock upon the terms and subject to the
conditions set forth in the prospectus and instructions relating hereto. The
Rights represented by this Subscription Certificate may be exercised by duly
completing Form 1, and may be transferred, assigned, exercised or sold through a
bank or broker by completing Form 2. Special delivery instructions may be
specified by completing Form 3. THE RIGHTS EVIDENCED BY THIS SUBSCRIPTION
CERTIFICATE MAY NOT BE EXERCISED, TRANSFERRED, ASSIGNED OR SOLD UNLESS THE
REVERSE SIDE HEREOF IS SIGNED, WITH A SIGNATURE GUARANTEED, IF APPLICABLE, AND
THE APPROPRIATE FORM IS COMPLETED. ANY SIGNATURE GUARANTEE MUST BE IN ACCORDANCE
WITH THE MEDALLION SIGNATURE GUARANTEE PROGRAM.
Date:
Treasurer
Chairman
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, N.J.)
RIGHTS AGENT
BY
AUTHORIZED OFFICER
EVERCEL, INC.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS
THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW SUBSCRIPTION
CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED
THEREBY.
FORM 1 - EXERCISE AND Subscription: The undersigned hereby irrevocably exercises
one or more Rights to subscribe for shares of Common Stock as indicated below,
on the terms and subject to the conditions specified in the Prospectus, receipt
of which is hereby acknowledged.
<PAGE>
(a) Number of shares subscribed for pursuant to the Basic Subscription Privilege
(one Right needed to subscribe for each full share):
(b) Number of shares subscribed for pursuant to the Oversubscription
Privilege(1):
(c) Total Subscription Price (total number of shares subscribed for pursuant to
both the Basic Subscription Privilege and the Oversubscription
Privilege N times the Subscription Price of $6.00): $
(2)
METHOD OF PAYMENT (CHECK ONE)
/ / 1. CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO CONTINENTAL STOCK TRANSFER &
TRUST COMPANY.
/ / 2. WIRE TRANSFER DIRECTED TO CONTINENTAL STOCK TRANSFER & TRUST COMPANY AT
ITS ACCOUNT MAINTAINED AT CHASE MANHATTAN BANK, 52 BROADWAY, NEW YORK, NEW YORK
10004. ACCOUNT NO. 777-580209: ABA NO. 021000 021.
/ / 3. CHECK HERE IF PAYMENT OF THE SUBSCRIPTION PRICE WITH RESPECT TO THE
EXERCISE OF THE OVERSUBSCRIPTION PRIVILEGE IS BEING MADE PURSUANT TO GUARANTEED
PAYMENT PROCEDURES(3) (INCLUDING A NOTICE OF GUARANTEED PAYMENT DELIVERED TO THE
SUBSCRIPTION AGENT PRIOR TO THE EXPIRATION DATE) AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Payment
Name of Institution which Guaranteed Payment
/ / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE EXPIRATION DATE AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which Guaranteed Delivery
(d) If the number of Rights being exercised pursuant to the Basic
Subscription Privilege is less than all of the Rights represented by this
Subscription Certificate:
(CHECK ONLY ONE)
/ / DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS
TO WHICH I AM ENTITLED.
/ / DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS IN
ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (which include any required signature
guarantees).
FORM 2 - TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF YOUR RIGHTS
OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value received,
Rights represented by this Subscription Certificate are hereby assigned to
(please print name and address and Social Security No. or Taxpayer ID No. of
transferee in full):
Name
Address
Social Security No. or Taxpayer ID No.
PROVIDE GUARANTEE OF SIGNATURE(S) BELOW IF
TRANSFEREE IS NOT A
BANK OR BROKER
FORM 3 - DELIVERY INSTRUCTIONS: Name and/or address for mailing any stock or new
Subscription Certificate or cash payment if other than shown on the reverse
hereof:
<PAGE>
Name
Address
(Including Zip Code)
PROVIDE GUARANTEE
OF SIGNATURE(S)
BELOW
IMPORTANT
RIGHTS HOLDERS SIGN HERE
AND, IF RIGHTS ARE BEING SOLD OR
EXERCISED, COMPLETE SUBSTITUTE
FORM W-9
(Signature(s) of Holder(s))
Dated: , 1999 (Must be signed by the registered
holder(s) exactly as name(s) appear(s) on this Subscription Certificate. If
signature is by trustee(s), executor(s), administrator(s), guardian(s),
attorney(s)-in-fact, agent(s), officer(s) of a corporation or another acting in
a fiduciary capacity, please provide the following information. See
Instructions.)
Name(s)
(Please Print)
Capacity
Address
(Including Zip Code)
Area Code and Telephone Number
(Home)
(Business )
Tax Identification or Social Security No.
(Complete Substitute Form W-9)
GUARANTEE OF SIGNATURE(S)
Note: See paragraph 5(c) of Instructions
Authorized Signature
Name
(1) The Oversubscription Privilege can be exercised by a holder of Rights only
if the Rights held by such holder are exercised to the fullest extent possible.
(2) Other than amount to be paid pursuant to the Guaranteed Payment Procedures,
if the amount enclosed or transmitted is not sufficient to pay the Subscription
<PAGE>
Price for all shares that are stated to be subscribed for, or if the number of
shares being subscribed for is not specified, the number of shares subscribed
for will be assumed to be the maximum number that could be subscribed for upon
payment of such amount. If the number of shares to be subscribed for pursuant to
the Oversubscription Privilege is not specified and the amount enclosed or
transmitted exceeds the Subscription Price for all shares that the undersigned
has the right to purchase pursuant to the Basic Subscription Privilege (the
"Subscription Excess"), the person subscribing pursuant hereto shall be deemed
to have exercised the Oversubscription Privilege to purchase, to the extent
available, that number of whole shares of Evercel Common Stock equal to the
quotient obtained by dividing the Subscription Excess by $6.00. The amount
remaining after such division shall be returned to the subscriber without
interest or deduction.
(3) If a Rights holder wishes to delay payment of the Subscription Price with
respect to such holder's exercise of the Oversubscription Privilege, the
Oversubscription Privilege may nevertheless be exercised if all of the
following conditions (the "Guaranteed Payment Procedures") are met:
(i) the Rights Agent receives, on or prior to the Expiration Date
either (a) a Notice of Guaranteed Delivery by facsimile or otherwise,
substantially in the form provided herewith, from a member firm of a registered
national securities exchange or a member of NASD or from an Eligible
Institution (as defined in the Prospectus), stating the information required
thereon, as described above; or (b) the properly completed and executed
Subscription Certificate;
(ii) such holder has caused payment in full of the Subscription
Price for each Underlying Share subscribed for pursuant to the Basic
Subscription Privilege to be received (in the manner set forth above)
by the Subscription Agent on or prior to the Expiration Date;
(iii) the Subscription Agent receives, on or prior to the Expiration
Date a Notice of Guaranteed Payment by facsimile or otherwise, substantially
in the form provided herewith, from a member firm of a registered national
securities exchange or a NASD member firm or from an Eligible Institution,
stating the information required thereon, and guaranteeing delivery of
payment in full of the Subscription Price (in immediately available funds)
for each share of Common Stock being subscribed for pursuant to the
Oversubscription Privilege by 5:00 p.m., Eastern time, on March , 1999; and
(iv) payment in full of the Subscription Price for each share of Common
Stock being subscribed for pursuant to the Oversubscription Privilege has been
received (in immediately available funds) by the Subscription Agent by
5:00 p.m., Eastern time, on March , 1999.
<PAGE>
Exhibit 4.3
RIGHTS AGENT AGREEMENT
Between
EVERCEL, INC.
a Delaware corporation
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Dated February , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - RIGHTS AGENT................................................2
1.1. Appointment as Rights Agent.....................................2
1.2. Form of Subscription Certificates...............................2
1.3. Issuance of Subscription Certificates...........................2
1.4. Exercise of Rights..............................................2
1.5. Oversubscription Procedures.....................................5
1.6. Rules Applicable to Exercise....................................6
1.7 Transfer of Rights...............................................7
1.8. Mutilated or Missing Subscription Certificates..................7
1.9. Information Provided to the Company.............................8
ARTICLE II - ESCROW.....................................................8
2.1. Appointment as Escrow Agent.....................................8
2.2. Establishment of Escrow Account.................................9
2.3. Escrow Period...................................................9
2.4. Collection Procedure............................................9
ARTICLE III- MISCELLANEOUS..............................................9
3.1. Definitions.....................................................9
3.2 Duties of Continental..........................................10
3.3 Merger or Consolidation or Change of Name of Continental.......12
3.4. Identity of Transfer Agent.....................................12
3.5. Compensation for Services......................................12
3.6. Notices........................................................12
3.7. Supplements and Amendments.....................................13
3.8. Governing Law..................................................13
3.9. Benefits of this Agreement.....................................13
3.10. Successors....................................................13
SIGNATURE...........................................................14
</TABLE>
<PAGE>
RIGHTS AGENT AGREEMENT
RIGHTS AGENT AGREEMENT ("Agreement") dated as of February , 1999, by
and between EVERCEL, INC., a Delaware corporation (the "Company"), and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York corporation (referred to
herein, variously, as "Continental," or the "Rights Agent," as the circumstances
require). (Certain capitalized terms used herein are defined in Section 3.1.)
W I T N E S S E T H:
WHEREAS, the Company intends to issue approximately 1,389,000 rights
(the "Rights") to its shareholders of record (the "Shareholders") on the record
date fixed by the Board of Directors, notice of which shall be given to the
Rights Agent (the "Record Date"), entitling them to purchase one (1) share of
its Common Stock, par value $.01 per share (the "Common Stock"), for each share
of Common Stock held of record on the Record Date (the "Rights Offering"); and
WHEREAS, Shareholders will also be given the opportunity to purchase
excess shares of Common Stock not purchased through the exercise of the Rights
(the "Oversubscription Privilege"); and
WHEREAS, the Company may issue an additional approximately 208,350
shares of Common Stock to cover exercises of excess Oversubscription Privileges,
if any (the "Oversubscription Option"); and
WHEREAS, Burnham Securities Inc. and Loeb Partners Corporation (the
"Underwriters") have the option (the "Overallotment Option") to purchase up to
an additional approximately 208,350 shares of Common Stock, reduced by the
number of shares, if any, sold by the Company to holders of Rights under the
Oversubscription Option; and
WHEREAS, the Company has filed a Registration Statement on Form SB-2
(No. 333-64931) with the Securities and Exchange Commission (the "Rights
Offering Registration Statement") which is expected to be declared effective
within the next two days, registering the Rights and the shares of Common
Stock (the "Shares") being offered in the Rights Offering and under the
Oversubscription Option, as well as certain shares issuable pursuant to the
exercise of certain outstanding stock options or rights to acquire common
stock (collectively the "Offerings"); and
WHEREAS, the processing associated with the Offerings will involve
substantial administrative matters; and
WHEREAS, the Company desires that Continental act on behalf of the
Company, and Continental is willing to so act, in various capacities herein
described in connection with the Offerings;
NOW THEREFORE, for good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1
<PAGE>
ARTICLE I - RIGHTS AGENT
1.1. APPOINTMENT AS RIGHTS AGENT . The Company hereby appoints
Continental to act as its agent in connection with the Offerings, and
Continental hereby accepts such appointment.
1.2. FORM OF SUBSCRIPTION CERTIFICATES . The Subscription Certificates
shall be substantially in the form annexed hereto as EXHIBIT A (the provisions
of which are hereby incorporated herein). The Subscription Certificates shall be
dated the date of issuance thereof (whether upon initial issuance, permitted
transfer, or in lieu of mutilated, lost, stolen or destroyed Subscription
Certificates).
1.3. ISSUANCE OF SUBSCRIPTION CERTIFICATES .
(a) Upon written order of or on behalf of the Company, the
Rights Agent shall mail or deliver Subscription Certificates, Prospectuses,
Instructions and return envelopes to holders of Common Stock on the Record
Date and additional forwarding information to street name nominees. During
the Rights Exercise Period, the Rights Agent shall (i) issue Subscription
Certificates in whole number denominations to the person entitled thereto in
connection with any partial exercise or transfer permitted under this
Agreement to the extent there is sufficient time to do so prior to the
Expiration Date, and (ii) deliver a Prospectus to each person who is a
transferee of Rights in accordance with Section 1.7 (which Prospectus shall
accompany the transferee's Subscription Certificate). The Company shall at
all times supply the Rights Agent with a sufficient number of Subscription
Certificates and Prospectuses for the purposes contemplated by this Agreement.
(b) The Rights Agent shall keep records, including a register of
the registered holders, reflecting the ownership of all Subscription
Certificates and any permitted transfer thereof. Except as provided in this
Agreement, no Subscription Certificates shall be issued during the Rights
Exercise Period except (i) Subscription Certificates initially issued hereunder,
(ii) Subscription Certificates issued upon the exercise of any Rights to
evidence unexercised Rights held by the exercising registered holder, and (iii)
Subscription Certificates issued upon any permitted transfer of Rights, or in
lieu of mutilated, lost, stolen or destroyed Subscription Certificates. No
Subscription Certificates shall be issued prior to or after the Rights Exercise
Period.
(c) All Subscription Certificates surrendered to the Rights Agent
shall be promptly canceled by the Rights Agent and thereafter retained by it for
six months, and then shall be delivered to the Company.
1.4. EXERCISE OF RIGHTS .
(a) Rights represented by Subscription Certificates may be
exercised at any time during the Rights Exercise Period by delivery to the
Rights Agent of the properly completed and executed Subscription Certificate
evidencing such Rights with any required signatures guaranteed, together with
payment in full of the Subscription Price for each Underlying Share subscribed
for pursuant to the Basic Subscription Privilege, and, except as described
below in
2
<PAGE>
accordance with the Guaranteed Payment Procedures, the Oversubscription
Privilege upon the terms and conditions set forth herein, in the Prospectus, and
in the Subscription Certificates. Payment must be made by wire transfer, or by
check, bank draft or money order payable to the order of "Continental Stock
Transfer & Trust Company," in an amount of lawful money of the United States of
America equal to the Subscription Price times the number of Shares subscribed,
including subscriptions under both the Basic Subscription Privilege and the
Oversubscription Privilege. The Company shall pay all federal and state transfer
taxes required to be paid on the issuance or exercise of Rights.
(b) A Subscription Certificate shall be deemed to have been
properly exercised if all of the following conditions (the "Guaranteed Delivery
Procedures") are met:
(i) such holder has caused payment in full of the Subscription
Price for each Underlying Share being subscribed for pursuant to the Basic
Subscription privilege to be received (in the manner set forth above) by the
Rights Agent on or prior to the Expiration Date;
(ii) the Rights Agent receives, on or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided and distributed with the Subscription Certificates, from a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. (the "NASD"), or from a
commercial bank or trust company having an office or correspondent in the United
States (each, an "Eligible Institution"), stating the name of the exercising
Rights holder, the number of Rights represented by the Subscription Certificate
or Subscription Certificates held by such exercising Rights holder, the number
of Underlying Shares being subscribed for pursuant to the Basic Subscription
Privilege and the number of Underlying Shares, if any, being subscribed for
pursuant to the Oversubscription Privilege, and guaranteeing the delivery to the
Rights Agent of any Subscription Certificate evidencing such Rights within five
Nasdaq trading days following the Expiration Date; and
(iii) the properly completed Subscription Certificate evidencing
the Rights being exercised, with any required signatures guaranteed, is received
by the Rights Agent within five Nasdaq trading days following the Expiration
Date. The Notice of Guaranteed Delivery may be delivered to the Rights Agent in
the same manner as Subscription Certificates, or may be transmitted to the
Rights Agent by telegram or facsimile transmission. The Rights Agent shall make
additional copies of the form of Notice of Guaranteed Delivery available to the
holders upon request.
(c) If a Rights holder wishes to delay payment of the
Subscription Price with respect to such holder's exercise of the
Oversubscription Privilege, the Oversubscription Privilege may nevertheless be
exercised if all of the following conditions (the "Guaranteed Payment
Procedures") are met:
(i) the Rights Agent receives, on or prior to the Expiration Date
either (a) a Notice of Guaranteed Delivery by facsimile or otherwise,
substantially in the form provided and distributed with the Subscription
Certificates, from a member firm of a registered national
3
<PAGE>
securities exchange or a member of NASD or from an Eligible Institution, stating
the information required thereon, as described above; or (b) the properly
completed and executed Subscription Certificate;
(ii) such holder has caused payment in full of the Subscription
Price for each Underlying Share subscribed for pursuant to the Basic
Subscription Privilege to be received (in the manner set forth above) by the
Rights Agent on or prior to the Expiration Date;
(iii) the Rights Agent receives, on or prior to the Expiration
Date a Notice of Guaranteed Delivery by facsimile or otherwise, substantially in
the form provided and distributed with the Subscription Certificates, from a
member firm of a registered national securities exchange or a NASD member firm
or from an Eligible Institution, stating the name of the exercising Rights
holder, the number of Rights represented by the Subscription Certificate or
Subscription Certificates held by such exercising Rights holder, the number of
Underlying Shares being subscribed for pursuant to the Basic Subscription
Privilege and the number of Underlying Shares being subscribed for pursuant to
the Oversubscription Privilege, and guaranteeing delivery of payment in full of
the Subscription Price (in immediately available funds) for each Underlying
Share being subscribed for pursuant to the Oversubscription Privilege by 5:00
p.m., Eastern time, on March ___, 1999; and
(iv) payment in full of the Subscription Price for each Underlying
Share being subscribed for pursuant to the Oversubscription Privilege has been
received (in immediately available funds) by the Rights Agent by 5:00 p.m.,
Eastern time, on March ___, 1999. The Notice of Guaranteed Payment may be
delivered to the Rights Agent in the same manner as Subscription Certificates,
or may be transmitted to the Rights Agent by telegram or facsimile transmission.
The Rights Agent shall make additional copies of the form of Notice of
Guaranteed Payment available to the holders upon request.
(d) Not less than two business days prior to March ___, 1999,
the Rights Agent will provide notice to a Rights holder who exercises the
Oversubscription Privilege pursuant to the Guaranteed Payment Procedures and
the member firm, commercial bank or trust company that guarantees payment for
such Rights holder under the Notice of Guaranteed Payment, which notice shall
state the number of shares subscribed for under the Oversubscription
Privilege which are available for such Rights holder to purchase and the
aggregate Subscription Price to be paid by such Rights holder for such Shares.
(e) The Rights Agent will issue to any holder of Rights who
purchases less than all of the shares of Company Common Stock represented by his
Subscription Certificate a new Subscription Certificate representing the balance
of the unsubscribed Rights, to the extent reasonably practicable prior to the
Expiration Date.
(f) The Rights Agent will date and time stamp, upon receipt, all
documents received by it as Rights Agent. The Rights Agent shall examine the
Subscription Certificates and other documents delivered or mailed to the Rights
Agent by or for shareholders of the Company to ascertain whether (i) the
Subscription Certificates are properly completed and duly executed in accordance
with the instructions set forth herein, (ii) the proper payment accompanies the
Subscription Certificates, and (iii) any other necessary documents are properly
completed and duly executed. The Rights Agent need not pass on the legal
sufficiency of any signature or verify any signature guarantee. The Rights Agent
is authorized, upon consultation with the Company or one or more of its
representatives, to request from any person exercising Rights such additional
undertakings as the Rights Agent may deem appropriate. The Rights Agent is not
authorized to accept any alternative, conditional or contingent purchase, or any
purchase of fractional shares of Common Stock.
4
<PAGE>
(g) Once a registered holder of Rights has delivered or mailed a
completed Subscription Certificate, the exercise of the Rights represented
thereby is not revocable by the holder for any reason.
(h) The Rights Agent, in its capacity as the Company's
transfer agent, shall direct the Company's transfer agent to issue
certificates for the Shares purchased in the Offerings not later than nine
Business Days after the Expiration Date, provided that the Rights Agent shall
have previously received good funds in the amount of the Subscription Price
therefor. No Rights holder, as such, shall be a shareholder with respect to
such Shares and no such Shares shall be deemed to be outstanding until such
Shares are issued in accordance herewith.
1.5. OVERSUBSCRIPTION PROCEDURES
(a) If less than all Shares are subscribed for through (i)
exercise of the Basic Subscription Privilege, those unsubscribed Shares (the
"Excess Shares") may be purchased by holders of record of Common Stock on the
Record Date who exercise the Oversubscription Privilege. Only a holder who has
exercised his or her Basic Subscription Privilege in full shall be eligible to
exercise Oversubscription Privileges.
(b) Oversubscription Privileges may be exercised during the
Rights Exercise Period and full payment made as provided in Section 1.4.
(c) If the aggregate number of Shares subscribed for through the
exercise of Oversubscription Privileges is more than the number of Excess Shares
available for purchase, the Excess Shares will be apportioned among the holders
who exercised the Oversubscription Privileges through repeated application of
the proration procedure described in the next paragraph.
(d) The Number of Available Shares shall be apportioned among all
those holders who have not yet been apportioned (through previous applications
of this procedure) the full number of Shares subscribed for by them in their
respective exercises of Oversubscription Privileges. Each time the procedure is
applied, the "Number of Available Shares" shall mean the number of Shares not
apportioned by prior applications of the procedures described therein.
Apportionment to each such holder them shall be based on the ratio of (i) the
number of Shares purchased through the Basic Subscription Privilege by that
holder, divided by (ii) the number of Shares purchased through the Basic
Subscription Privilege by all such holders; PROVIDED HOWEVER, that if the number
of Shares so apportioned to any holder exceeds the number of Shares subscribed
for by that holder's exercise of Oversubscription Privileges, then the excess
shall not be apportioned, and that holder shall thereafter not be apportioned
any additional Shares should there be further applications of this procedure.
This procedure shall be repeated until either (i) the Number of Available Shares
is zero, or (ii) a sufficient number of Shares has been apportioned to all
holders to satisfy all of their exercised Oversubscription Privileges, whichever
occurs first.
5
<PAGE>
1.6. RULES APPLICABLE TO EXERCISE
(a) The Rights Agent, in its capacity as the Company's
transfer agent, shall to issue certificates for the Shares purchased in the
Offerings in accordance with Section 1.4(g), provided that the Rights Agent
shall have previously received good funds in the amount of the Subscription
Price therefor. No Rights holder, as such, shall be a shareholder with
respect to such Shares and no such Shares shall be deemed to be outstanding
until such Shares are issued in accordance herewith.
(b) The Company shall not issue any fractional Rights nor any
fractional Shares upon exercise of a Subscription Certificate. In the event that
payment is submitted in an amount less than the Subscription Price for the
Rights intended to be exercised, only the number of whole Shares for which
payment was received will be issued. If a holder of Rights exercises for fewer
than all of the Shares to which his Subscription Certificate applies, the Rights
Agent shall issue a new Subscription Certificate representing the balance of the
unsubscribed Rights, to the extent that there is sufficient time to do so prior
to the expiration of the Rights Exercise Period.
(c) The Company shall pay all federal and state transfer taxes
required to be paid on the issuance or exercise of Rights.
(d) The Rights Agent shall promptly notify the Company of any
irregularities in any documents related to exercise of Rights received by the
Rights Agent. All questions as to the validity, form, eligibility (including
times of receipt and matters pertaining to the beneficial ownership) and the
acceptance of subscriptions and payment of the Subscription Price will be
determined by the Company, which determinations will be final and binding. No
alternative, conditional or contingent exercises of Rights will be accepted.
The Company reserves the absolute right to reject any or all exercises of
Rights not properly submitted or the acceptance of which would, in the
opinion of the Company's counsel, be unlawful. The Company also reserves the
right to waive any irregularities or conditions, and the Company's
interpretations of the terms and conditions of the Offerings shall be final
and binding. Any irregularities in connection with exercises of Rights must
be cured within such time as the Company shall determine, unless waived.
Rights will not be deemed to have been exercised until such irregularities
have been cured or waived. Subscription Certificates received by the Rights
Agent that are not properly submitted and as to which the irregularities have
not been cured or waived shall be returned by the Rights Agent to the
appropriate holder of the Rights, to the extent there is sufficient time to
do so prior to the expiration of the Rights Exercise Period, and funds
submitted with such Subscription Certificates shall be returned without
interest by the Rights Agent to such holder.
(e) The Rights Agent will follow and act upon any amendments,
modifications or supplements to these instructions, and upon any further
information in connection with the terms of the Offerings, any of which may be
given to the Rights Agent by the Company or by its legal counsel, including
instructions with respect to (i) any extension or other modifications of the
Offerings and (ii) the amount or manner of payment for any Shares purchased.
6
<PAGE>
1.7. TRANSFER OF RIGHTS.
(a) The Rights evidenced by a single Subscription Certificate may
be transferred in whole by endorsing the Subscription Certificate for transfer
in accordance with the accompanying instructions. A portion of the Rights
evidenced by a single Subscription Certificate (but not fractional Rights) may
be transferred by delivering to the Rights Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee. However, notwithstanding the foregoing,
the Rights Agent will reissue Subscription Certificates for the transferred
Rights to the transferee, and will reissue Subscription Certificates for the
balance, if any, to the holder of the Rights, to the extent it is reasonably
practicable to do so before the Expiration Date. To transfer Rights to any
person other than a bank or broker, signatures on the Subscription Certificate
must be guaranteed by an Eligible Institution.
None of the Company, ERC, nor the Rights Agent will have any liability
to a transferee or transferor of Rights if Subscription Certificates are not
received in time for exercise or sale prior to the Expiration Date.
Except for the fees charged by the Rights Agent (which will be paid by
the Company), all commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the purchase, sale
or exercise of Rights will be for the account of the transferor of the Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Rights Agent.
(b) Rights may also be transferred by operation of law in the
event of the death or dissolution of the person who is the holder on the Record
Date. In that event, rights may be transferred by delivering to the Rights Agent
a Subscription Certificate with proper evidence of transfer by operation of law
executed by the appropriate legal representative, with instructions to reissue
the Rights in the name of the transferee. The Subscription Certificate must be
received by the Rights Agent by the close of business on the second Business Day
prior to the expiration of the applicable Rights Exercise Period for a
Subscription Certificate to be reissued upon such transfer.
(c) The Company and the Rights Agent may deem and treat the
registered holder of any Subscription Certificate as the absolute owner thereof
and of each Right represented thereby (notwithstanding any notation of ownership
or writing thereon made by anyone other than the Company or the Rights Agent)
for all purposes and shall not be affected by any notice to the contrary.
1.8. MUTILATED OR MISSING SUBSCRIPTION CERTIFICATES . In case any of
the Subscription Certificates shall be mutilated, lost, stolen or destroyed, the
Company may, in its discretion, issue, and the Rights Agent shall countersign
and deliver in exchange and substitution for and
7
<PAGE>
upon cancellation of the mutilated Subscription Certificate, or in lieu of and
in substitution for the Subscription Certificate lost, stolen or destroyed, a
new Subscription Certificate of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company and
the Rights Agent of such loss, theft or destruction and, in case of a lost,
stolen or destroyed Subscription Certificate, indemnity, if requested, also
satisfactory to them. Applicants for such substitute Subscription Certificates
shall also comply with such other reasonable regulations and pay such reasonable
charges as the Company or the Rights Agent may prescribe.
1.9. INFORMATION PROVIDED TO THE COMPANY AND THE UNDERWRITERS
(a) The Rights Agent shall notify both the Company and its
designated representative, Joseph G. Mahler, daily in writing during the
period commencing with the mailing of Subscription Certificates and ending on
the Expiration Date (and in the case of guaranteed deliveries pursuant to
Section 1.4(b), the period ending five Nasdaq trading days after the
Expiration Date and in the case of guaranteed deliveries pursuant to the
Guaranteed Payment Procedures described at Section 1.4(c), on March ___,
1999), of (i) the number of rights exercised on such day, (ii) the number of
Underlying Shares subscribed for pursuant to the Basic Subscription Privilege
and the number of such rights for which payment has been received, (iii) the
number of Underlying Shares subscribed for pursuant to the Oversubscription
Privilege and the number of such Rights for which payment has been received,
(iv) the number of Rights subject to guaranteed delivery pursuant to Section
1.4(b) on such day, (v) the number of Underlying Shares subscribed for
pursuant to the Oversubscription Privilege and the number of such Rights for
which payment is pursuant to the Guaranteed Payment Procedures described at
Section 1.4(c), (vi) the number of Rights for which defective exercises have
been received on such day and (vii) cumulative totals derived from the
information set forth in clauses (i) through (vi) above. At or before 5:00
p.m., Eastern time, on each of the first and sixth Nasdaq trading days
following the Expiration Date, the Rights Agent shall certify in writing to
the Company and the Underwriters the cumulative totals through the Expiration
Date derived from the information set forth in clauses (i) through (vi)
above. At or before 5:00 p.m., Eastern time, on March __, 1999 (no later than
5:00 p.m. on the Business Day after the date on which funds paid pursuant to
the Guaranteed Payment Procedures are due), the Rights Agent shall certify in
writing to the Company and the Underwriters the number of shares of Common
Stock required to be purchased by the Underwriters (i.e. the number of shares
of Common Stock remaining unsubscribed in the Rights Offering). The Rights
Agent shall also maintain and update a listing of holders who have fully or
partially exercised their Rights, holders who have transferred their Rights
and their transferees and holders who have not exercised their Rights. The
Rights Agent shall provide the Company or its designated representative with
the information compiled pursuant to this Section 1.8(a) as any of them shall
request.
(b) In addition, the Rights Agent will also provide, and will
cooperate in making available to the Company and the Underwriters, upon oral
request made from time to time, such other information as the Company may
reasonably request.
ARTICLE II - ESCROW
2.1. APPOINTMENT AS ESCROW AGENT. The Company hereby appoints
Continental to act as Escrow Agent for the Company in accordance with the
provisions hereof, and Continental accepts such appointment.
8
<PAGE>
2.2. ESTABLISHMENT OF ESCROW ACCOUNT. On or prior to the Initial
Issuance Date, the Company shall establish a non-interest-bearing escrow
account with Continental, as Escrow Agent, which escrow account shall be
entitled "Evercel, Inc. Rights Offering Escrow Account" (the "Escrow
Account"). Subscribers in the Offerings shall be directed to make checks for
subscriptions payable to the order of the Rights Agent.
2.3. ESCROW PERIOD. The period during which funds shall remain in
escrow (the "Escrow Period") with respect to the Rights Exercise Period shall
begin on the Initial Issuance Date and shall terminate upon the earlier to
occur of the following dates:
(a) the date (which shall not be later than 9 Business Days
after the Expiration Date) on which the Rights Agent, in its capacity as
transfer agent for the Company, issues the certificates for Shares purchased
under Article I hereof and releases the purchase price for such certificates
to the Company ("Closing Date").
During the Escrow Period, the Company shall not be entitled to any
funds received into escrow, and no amounts deposited in the Escrow Account
shall become the property of the Company or any other entity, or be subject
to the debts of the Company or any other entity.
2.4. COLLECTION PROCEDURE . If the Rights Agent rejects any Rights
exercise (including any Oversubscription) for which the Escrow Agent has
already collected funds, the Escrow Agent shall promptly issue a refund check
to the rejected subscriber. If the Rights Agent rejects any Rights exercise
for which the Escrow Agent has not yet collected funds but has submitted the
subscriber's check for collection, the Escrow Agent shall promptly issue a
check in the amount of the subscriber's check to the rejected subscriber
after the Escrow Agent has cleared such funds. If the Escrow Agent has not
yet submitted a rejected subscriber's check for collection, the Escrow Agent
shall promptly remit the subscriber's check directly to the subscriber.
ARTICLE III - MISCELLANEOUS
3.1. DEFINITIONS. (a) As used herein, the following terms shall have
the following meanings, unless the context shall otherwise
require:
"Basic Subscription Privilege" means the entitlement of a Rights
holder to purchase for the Subscription Price one share of Common
Stock for each Right held.
"Business Day" means a day upon which commercial banks in New York
City are open for business.
"Common Stock" means the Company's Common Stock, $.01 par value
per share.
"Closing Date" has the meaning specified in Section 2.3.
"Expiration Date" means March __, 1999, unless extended by the
Company subject to the consent of the Underwriters.
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"Excess Shares" has the meaning specified in Section 1.5(a).
"Initial Issuance Date" means the date of initial issuance of the
Rights Certificates following the effective date of the Registration Statement.
"Overallotment Option" means the Underwriter's option to purchase up to
an additional approximately 208,350 shares of the Company Common Stock, reduced
by the number of shares, if any, sold by the Company to holders of Rights under
the Oversubscription Option.
"Oversubscription Option" means the Company's option to sell up to an
additional approximately 208,350 shares of Company Common Stock solely to cover
exercises of excess Oversubscription Privileges, if any.
"Oversubscription Privileges" means the right to elect to purchase
additional Shares beyond the number represented by the Subscription Certificate
from among all of the Excess Shares, as provided in Section 1.5.
"Prospectus" means the prospectus contained in the Registration
Statement at the time it is declared effective by the Securities and Exchange
Commission, as it may thereafter be amended or supplemented from time to time.
"Rights" means the rights to purchase Shares.
"Rights Exercise Period" means the period commencing on the Initial
Issuance Date and ending at 5:00 p.m. Eastern Standard Time on the Expiration
Date.
"Shares" means the approximately 1,597,350 Shares of Common Stock
purchasable in the Rights Offering and under the Oversubscription Option.
"Subscription Certificate" means a certificate evidencing Rights.
"Subscription Price" means $6.00 per share.
(b) Any capitalized term used in this Agreement and not defined
herein shall have the meaning specified in the Prospectus.
3.2. DUTIES OF CONTINENTAL . Continental, as Rights Agent, undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Rights, by their
acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in
the Rights shall be taken as statements of the Company, and Continental assumes
no responsibility for the correctness of any of the same except such as describe
Continental or action taken or to be taken by it. Continental assumes no
responsibility with respect to the distribution of the Rights except as herein
expressly provided.
10
<PAGE>
(b) Continental shall not be responsible for any failure of the
Company to comply with any of the covenants in this Agreement or in the Rights
to be complied with by the Company.
(c) Continental may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility to the Company or to any holder of any Right in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with the reasonable opinion or advice of such counsel.
(d) Continental shall incur no liability or responsibility to the
Company or to any holder of any Right for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate or other instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(e) The Company agrees to reimburse Continental for all expenses,
taxes and governmental charges and other charges incurred by Continental in the
execution of this Agreement and to indemnify Continental and save it harmless
against any and all liabilities, including judgments, costs and reasonable
counsel fees, for anything done or omitted by Continental in the execution of
this Agreement except as a result of Continental's negligence, willful
misconduct or bad faith.
(f) Continental, in its capacity as Rights Agent, shall be under
no obligation to institute any action, suit or legal proceeding or to take any
other action likely to involve expenses unless the Company or one or more
registered holders of Rights shall furnish it with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of Continental to take such action as it may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Rights may be enforced by
Continental without the possession of any of the Rights or the production
thereof at any trial or other proceeding. Any such action, suit or proceeding
instituted by Continental in its capacity as Rights Agent, and any recovery of
judgment thereon, shall be for the ratable benefit of the registered holders of
the Rights, as their respective rights and interests may appear.
(g) Continental and any stockholder, director, officer, partner
or employee of Continental may buy, sell or deal in any securities of the
Company or become pecuniarily interested in any transaction in which the Company
may be interested, or contract with or lend money to or otherwise act as fully
and freely as though it were not the Rights Agent under this Agreement. Nothing
herein shall preclude Continental from acting in any other capacity for the
Company or for any othe legal entity.
(h) Continental shall act hereunder solely as agent and its
duties shall be determined solely by the provisions hereof.
(i) Continental may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and it shall not be answerable or accountable
for any such attorneys or agents or for any loss to
11
<PAGE>
the Company resulting from such neglect or misconduct, provided reasonable care
had been exercised in the selection and continued retention thereof.
(j) Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its President or a Vice President or its Secretary or an
Assistant Secretary or its Treasurer or an Assistant Treasurer (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to Continental by a copy
thereof certified by the Secretary or Assistant Secretary of the Company.
3.3. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF CONTINENTAL .
(a) Any corporation or company which may succeed to the corporate
trust business of Continental by any merger or consolidation or otherwise shall
be the successor to it as Rights Agent hereunder without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of this Agreement. In case at the time such
successor shall succeed to the agency created by this Agreement, any of the
Rights shall have been countersigned but not delivered, any such successor to
Continental may adopt the countersignature of the original Rights Agent and
deliver such Rights so countersigned.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights so countersigned. In all such cases such Rights shall have
the full force provided in the Rights.
3.4. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of any
transfer agent for the Common Stock, the Company will file with the Rights Agent
a statement setting forth the name and address of such transfer agent, unless it
is the Rights Agent who serves as the transfer agent.
3.5. COMPENSATION FOR SERVICES. The Company agrees to pay Continental
for its services hereunder and reimburse it for its reasonable expenses
hereunder, all in accordance with the fee agreements attached as EXHIBIT B
hereto and made a part hereof by this reference.
3.6. NOTICES. Any notice pursuant to this Agreement to be given by
Continental, or by the registered holder of any Right to the Company, shall be
sufficiently given if sent by first-class mail, postage prepaid, as follows:
Evercel, Inc.
3 Great Pasture Road
Danbury, CT 06813
Attn: Jerry Leitman, Chairman
12
<PAGE>
and a copy thereof to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attn: Philip J. Flink, Esq.
Any notice pursuant to this Agreement to be given by the Company or by
the registered holder of any Right or Warrant to the Rights Agent or Warrant
Agent shall be sufficiently given if sent by first-class mail, postage prepaid,
as follows:
Continental Stock Transfer & Trust Company
2 Broadway, 19th floor
New York, NY 10004
Attn: Compliance Department
or, in each case, to such other address as is specified in writing by one party
to the other.
3.7. SUPPLEMENTS AND AMENDMENTS. The Company and Continental may from
time to time supplement or amend this Agreement in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and Continental may deem necessary or desirable and which shall not be
inconsistent wit the provisions of the Rights and which shall not adversely
affect the interest of the holders of Rights.
3.8. GOVERNING LAW. This Agreement shall be deemed to be a contract
made under the laws of the State of New York and shall be construed in
accordance with the laws of New York applicable to agreements to be performed
wholly within New York.
3.9. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Rights any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent, and the registered
holders of the Rights.
3.10. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or Continental shall bind and inure to the
benefit of their respective successors and assigns hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
EVERCEL, INC.
By:
----------------------------------
Name:
Title:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Rights Agent
By:
----------------------------------
Name:
Title:
7
<PAGE>
EXHIBITS
EXHIBIT A - FORM OF SUBSCRIPTION CERTIFICATE
(SEE ATTACHED)
1
<PAGE>
EXHIBIT B - FEE AGREEMENT
The fee for acting as Rights Agent shall be $ .
-----------
2
<PAGE>
Exhibit 4.4
INSTRUCTIONS AS TO USE OF EVERCEL, INC.
SUBSCRIPTION CERTIFICATES
--------------------
CONSULT THE SUBSCRIPTION AGENT, YOUR BANK OR BROKER
AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by Evercel, Inc., a Delaware corporation (the "Company"), to the
holders of its Common Stock, par value $.01 per share (the "Common Stock" or
"Company Common Stock"), as described in the Company's Prospectus dated
February ___, 1999 (the "Prospectus"). Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Prospectus. Each
holder of record of Company Common Stock at the close of business on February
___, 1999 (the "Record Date") is receiving one transferable subscription
right to subscribe for and purchase additional shares of Company Common Stock
(a "Right") for each share of Common Stock held by them on the Record Date. A
sufficient number of shares of Company Common Stock (the "Underlying Shares")
have been reserved for issuance upon exercise of the Rights. The distribution
of the Rights by the Company and the sale of shares of Company Common Stock
upon the exercise of Rights are referred to herein as the "Rights Offering".
Each Right is exercisable, upon payment of $6.00 (the "Subscription Price"),
to purchase one share of Company Common Stock (the "Basic Subscription
Privilege"). In addition, subject to the allocation described below, each
Right also carries the right to subscribe at the Subscription Price for an
unlimited number of additional Underlying Shares of Company Common Stock (the
"Oversubscription Privilege"). Underlying Shares will be available for
purchase pursuant to the Oversubscription Privilege only to the extent that
all the Underlying Shares are not subscribed for through the exercise of the
Basic Subscription Privilege by the Expiration Date (as defined below). If
the Underlying Shares so available, plus any shares which the Company elects
to sell pursuant to the Oversubscription Option (defined below)
(collectively, "Excess Shares") are not sufficient to satisfy all
subscriptions pursuant to the Oversubscription Privilege, the Excess Shares
will be allocated pro rata (subject to the elimination of fractional shares)
among the holders of Rights who exercise the Oversubscription Privilege in
proportion, not to the number of shares requested pursuant to the
Oversubscription Privilege, but to the number of shares of Company Common
Stock they have purchased pursuant to the Basic Subscription Privilege;
provided, however, that if such pro rata allocation results in any holder
being allocated a greater number of Excess Shares than such holder subscribed
for pursuant to the exercise of such holder's Oversubscription Privilege,
then such holder will be allocated only such number of Excess Shares as such
holder subscribed for and the remaining Excess Shares will be allocated among
all other holders exercising Oversubscription Privileges. The Company may,
but is not required to, issue an additional 208,350 shares of Common Stock to
cover exercises of Excess Oversubscription Privileges, if any (the
"Oversubscription Option"). See "The Rights Offering" in the Prospectus.
<PAGE>
No fractional Rights or cash in lieu thereof will be issued or paid by
the Company.
The Rights will expire at 5:00 p.m., Eastern time, on March ___, 1999,
unless extended by the Company, subject to the consent of the Underwriters (as
extended, the "Expiration Date"). The Company will in no event extend the
Expiration Date beyond March 31, 1999.
The number of Rights to which you are entitled is printed on the face
of your subscription certificate. You should indicate your wishes with regard to
the exercise or sale of your Rights by completing the appropriate form or forms
on your subscription certificate and returning the certificate to the
Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATE MUST BE RECEIVED BY THE SUBSCRIPTION
AGENT, OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION
CERTIFICATE MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE FOR
EACH UNDERLYING SHARE SUBSCRIBED FOR PURSUANT TO THE BASIC SUBSCRIPTION
PRIVILEGE AND, EXCEPT AS DESCRIBED BELOW IN ACCORDANCE WITH THE GUARANTEED
PAYMENT PROCEDURES, THE OVERSUBSCRIPTION PRIVILEGE, INCLUDING FINAL CLEARANCE OF
ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, ON OR BEFORE 5:00 P.M.,
EASTERN TIME, ON THE EXPIRATION DATE. YOU MAY NOT REVOKE ANY EXERCISE OF A
RIGHT.
None of the Company, Energy Research Corporation ("ERC"), nor the
Rights Agent will have any liability to you as a Rights holder if your
Subscription Certificate (together with all required payments and documents)
is not received in time for exercise or sale prior to the Expiration Date.
1. SUBSCRIPTION PRIVILEGE.
To exercise Rights, complete Form 1 of the subscription certificate and
send your properly completed and executed subscription certificate, together
with payment in full of the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription Privilege and, except as
described below in accordance with the Guaranteed Payment Procedures, the
Oversubscription Privilege, to the Subscription Agent. Payment of the
Subscription Price must be made in U.S. dollars for the full number of
Underlying Shares being subscribed for (a) by check or bank draft drawn upon a
U.S. bank or postal, telegraphic or express money order payable to Continental
Stock Transfer & Trust Company as Subscription Agent, or (b) by wire transfer of
same day funds to the account maintained by the Subscription Agent for such
purpose at Chase Manhattan Bank, 52 Broadway, New York, New York 10004, Account
No. 777-580209, ABA No. 021000021. Any wire transfer of funds should clearly
indicate the identity of the subscriber who is paying the Subscription Price by
the wire transfer. The Subscription Price will be deemed to have been received
by the Subscription Agent only upon (i) the clearance of any uncertified check,
(ii) the receipt by the Subscription Agent of any certified check or bank draft
drawn upon a U.S. bank or any postal, telegraphic or express money order or
(iii) the receipt of good funds in the Subscription Agent's account designated
above. If paying by uncertified personal check, please note that the funds paid
thereby may take up to five
2
<PAGE>
business days to clear. Accordingly, holders of Rights who wish to pay the
Subscription Price by means of uncertified personal check are urged to make
payment sufficiently in advance of the Expiration Date to ensure that such
payment is received and clears by such date and are urged to consider payment by
means of certified or cashier's check, money order or wire transfer of funds.
You may also transfer your subscription certificate to your bank or broker in
accordance with the procedures specified in Section 3(a) below, by making
arrangements with such bank or broker for the delivery of funds on your behalf
and requesting such bank or broker to exercise the subscription certificate on
your behalf.
Alternatively, if you wish to exercise Rights, but time will not permit
you to cause the subscription(s) evidencing your Rights to reach the
Subscription Agent on or prior to the Expiration Date, you may cause a
written guarantee substantially in the form of Exhibit A to these
instructions (the "Notice of Guaranteed Delivery") from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. ("NASD"), or from a commercial bank
or trust company having an office or correspondent in the United States (each
of the foregoing being an "Eligible Institution"), to be received by the
Subscription Agent at or prior to the Expiration Date together with payment
in full of the applicable Subscription Price. Such Notice of Guaranteed
Delivery must state your name, the number of Rights represented by your
subscription certificate and the number of Rights being exercised pursuant to
the Basic Subscription Privilege and the number of Underlying Shares, if any,
being subscribed for pursuant to the Oversubscription Privilege, and will
guarantee the delivery to the Subscription Agent of your properly completed
and executed subscription certificates within five trading days following the
Expiration Date. If this procedure is followed, your subscription
certificates must be received by the Subscription Agent within five Nasdaq
trading days of the Expiration Date. Additional copies of the Notice of
Guaranteed Delivery may be obtained upon request from the Subscription Agent
at the address, or by calling the telephone number, indicated below.
If a Rights holder wishes to delay payment of the Subscription Price
with respect to such holder's exercise of the Oversubscription Privilege, the
Oversubscription Privilege may nevertheless be exercised if the four
following conditions (the "Guaranteed Payment Procedures") are met:
(i) the Subscription Agent receives, on or prior to the Expiration Date
(a) a Notice of Guaranteed Delivery by facsimile or otherwise, substantially in
the form of Exhibit A to these instructions, from a member firm of a registered
national securities exchange or a NASD member firm or from an Eligible
Institution, stating the information required thereon; or (b) the properly
completed and executed subscription certificate; and
(ii) the Subscription Agent receives on or prior to the Expiration Date
payment in full of the Subscription Price for each Underlying Share subscribed
for pursuant to the Basic Subscription Privilege; and
(iii) the Subscription Agent receives, on or prior to the Expiration
Date, a Notice of Guaranteed Payment by facsimile or otherwise, substantially in
the form of Exhibit B to these instructions, from a member firm of a registered
national securities exchange or a NASD member firm or from an Eligible
Institution, stating the information required thereon and guaranteeing delivery
of payment in full of the Subscription Price (in immediately available funds)
for each share of Common Stock being subscribed for pursuant to the
Oversubscription Privilege by 5:00 p.m., Eastern time, on March ___, 1999; and
3
<PAGE>
(iv) payment in full of the Subscription Price for each share of Common
Stock being subscribed for pursuant to the Oversubscription Privilege has been
received (in immediately available funds) by the Subscription Agent by 5:00
p.m., Eastern time, on March ___, 1999. Additional copies of the Notice of
Guaranteed Payment may be obtained upon request from the Subscription Agent at
the address, or by calling the telephone number, indicated below.
Not less than two business days prior to March ___, 1999, the
Subscription Agent will provide notice to a Rights holder who exercises the
Oversubscription Privilege pursuant to the Guaranteed Payment Procedures and
the member firm, commercial bank or trust company that guarantees payment for
such Rights holder under the Notice of Guaranteed Payment, which notice shall
state the number of shares subscribed for under the Oversubscription
Privilege which are available for such Rights holder to purchase and the
aggregate Subscription Price to be paid by such Rights holder for such shares.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and the
number of Excess Shares that are being subscribed for pursuant to the
Oversubscription Privilege, by each beneficial owner of Rights on whose behalf
such nominee holder is acting. If more Underlying Shares are subscribed for
pursuant to the Oversubscription Privilege than are available for sale,
Underlying Shares will be allocated, as described above, among persons
exercising the Oversubscription Privilege in proportion to such persons'
exercise of Rights pursuant to the Basic Subscription Privilege.
The address, telephone and telecopier numbers of the Subscription Agent
are as follows:
IF BY MAIL, BY HAND OR BY OVERNIGHT COURIER:
Continental Stock Transfer &
Trust Company
Reorganization Department
Two Broadway, 19th floor
New York, New York 10004
Telephone: (212) 509-4000 ext. 535
Facsimile: (212) 509-5150
4
<PAGE>
If you exercise less than all of the Rights evidenced by your
subscription certificate by so indicating in Form 1 of your subscription
certificate, the Subscription Agent will issue to you a new subscription
certificate evidencing the unexercised Rights. However, if you choose to have a
new subscription certificate sent to you, you may not receive such new
subscription certificate in sufficient time to permit you to sell or exercise
the Rights evidenced thereby. Other than the amount to be paid pursuant to
Guaranteed Payment Procedures, if you have not indicated the number of Rights
being exercised, or if you have not forwarded full payment of the Subscription
Price for the number of Rights that you have indicated are being exercised, you
will be deemed to have exercised the Basic Subscription Privilege with respect
to the maximum number of whole Rights which may be exercised for the
Subscription Price payment delivered by you and to the extent that the
Subscription Price payment delivered by you exceeds the product of the
Subscription Price multiplied by the number of Rights evidenced by the
subscription certificates delivered by you (such excess being the "Subscription
Excess"), you will be deemed to have exercised your Oversubscription Privilege
to purchase, to the extent available, that number of whole shares of Company
Common Stock equal to the quotient obtained by dividing the Subscription Excess
by the Subscription Price. The amount remaining after such division will be
returned to the subscriber.
2. DELIVERY OF STOCK CERTIFICATES, ETC.
It is anticipated that the closing of the sale of shares issuable
upon exercise of the Rights (the "Closing") will occur on or about the eighth
business day following the Expiration Date. The date upon which the Closing
occurs is referred to herein as the "Closing Date." After the Closing occurs,
the following deliveries and payments will be made to the address shown on
the face of your subscription certificate unless you provide instructions to
the contrary on Form 3 of your subscription certificate.
(A) BASIC SUBSCRIPTION PRIVILEGE AND OVERSUBSCRIPTION PRIVILEGE. As
soon as practicable after the Closing Date, the Subscription Agent will mail to
each exercising Rights holder certificates representing shares of Company Common
Stock purchased pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege.
(B) CASH PAYMENTS. As soon as practicable after the Closing Date, the
Subscription Agent will mail to each Rights holder who exercises the
Oversubscription Privilege any excess funds received in payment of the
Subscription Price for Underlying Shares that are subscribed for by such Rights
holder but not allocated to such Rights holder pursuant to the Oversubscription
Privilege.
3. SELL OR TRANSFER RIGHTS.
(A) SALE OF RIGHTS THROUGH A BANK OR BROKER. To sell all Rights
evidenced by a subscription certificate through your bank or broker, so indicate
on Form 2 and deliver your properly completed and executed subscription
certificate to your bank or broker. Your subscription certificate should be
delivered to your bank or broker in ample time for it to be exercised. If Form 2
is completed without designating a transferee, the Subscription Agent may
thereafter treat the bearer of the subscription certificate as the absolute
owner of all of the Rights
5
<PAGE>
evidenced by such subscription certificate for all purposes, and the
Subscription Agent shall not be affected by any notice to the contrary. Because
your bank or broker cannot issue subscription certificates, if you wish to sell
less than all of the Rights evidenced by the subscription certificate, either
you or your bank or broker must instruct the Subscription Agent as to the action
to be taken with respect to the Rights not sold, or you or your bank or broker
must first have your subscription certificate divided into subscription
certificates of appropriate denominations by following the instructions in
paragraph 4 of these instructions. The subscription certificates evidencing the
number of Rights you intend to sell can then be transferred by your bank or
broker in accordance with the instructions in this paragraph 3(a).
(B) TRANSFER OF RIGHTS TO A DESIGNATED TRANSFEREE. To transfer all of
your Rights to a transferee other than a bank or broker, you must complete Form
2 in its entirety, execute the subscription certificate and have your signature
guaranteed by an Eligible Institution. A subscription certificate that has been
properly transferred in its entirety may be exercised by a new holder without
having a new subscription certificate issued. Because only the Subscription
Agent can issue subscription certificates, if you wish to transfer less than all
of the Rights evidenced by your subscription certificate to a designated
transferee, you must instruct the Subscription Agent as to the action to be
taken with respect to the Rights not sold or transferred, or you must divide
your subscription certificate into subscription certificates of appropriate
smaller denominations by following the instructions in paragraph 4 below. The
subscription certificate evidencing the number of Rights you intend to transfer
can then be transferred by following the instructions in this paragraph 3(b).
None of the Company, ERC, nor the Subscription Agent will have any liability to
a transferee or transferor of Rights if Subscription Certificates (together with
all required payments and documents) are not received in time for exercise or
sale prior to the Expiration Date.
4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS.
To have a Subscription Certificate divided into smaller denominations,
send your subscription certificate, together with complete instructions
(including specification of the denominations into which you wish your Rights to
be divided) signed by you, to the Subscription Agent, allowing a sufficient
amount of time for new subscription certificates to be issued and returned so
that they can be used prior to the Expiration Date. Alternatively, you may ask a
bank or broker to effect such actions on your behalf. Your signature must be
guaranteed by an Eligible Institution if any of the new subscription
certificates are to be issued in a name other than that in which the old
subscription certificate was issued. Subscription certificates may not be
divided into fractional Rights, and any instruction to do so will be rejected.
As a result of delays in the mail, the time of the transmittal, the necessary
processing time and other factors, you or your transferee may not receive such
new subscription certificates in time to enable the Rights holder to complete a
sale or exercise by the Expiration Date. Neither the Company nor the
Subscription Agent will be liable to either a transferor or transferee for any
such delays.
5. EXECUTION.
6
<PAGE>
(A) EXECUTION BY REGISTERED HOLDER. The signature on the subscription
certificate must correspond with the name of the registered holder exactly as it
appears on the face of the subscription certificate without any alteration or
change whatsoever. Persons who sign the subscription certificate in a
representative or other fiduciary capacity must indicate their capacity when
signing and, unless waived by the Subscription Agent in its sole and absolute
discretion, must present to the Subscription Agent satisfactory evidence of
their authority to so act.
(B) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the
subscription certificate is executed by a person other than the holder named on
the face of the subscription certificate, proper evidence of authority of the
person executing the subscription certificate must accompany the same unless,
for good cause, the Subscription Agent dispenses with proof of authority.
(C) SIGNATURE GUARANTEES. Your signature must be guaranteed by an
Eligible Institution if you wish to transfer your Rights, as specified in 3(b)
above, to a transferee other than a bank or broker, or if you specify special
payment or delivery instructions pursuant to Form 3.
6. METHOD OF DELIVERY.
The method of delivery of subscription certificates and payment of the
Subscription Price for each Underlying Share subscribed for pursuant to the
Basic Subscription Privilege and the Oversubscription Privilege, to the
Subscription Agent will be at the election and risk of the Rights holder, but,
if sent by mail, it is recommended that they be sent by registered mail,
properly insured, with return receipt requested, and that a sufficient number of
days be allowed to ensure delivery to the Subscription Agent, and the clearance
of any checks sent in payment of the Subscription Price prior to 5:00 p.m.,
Eastern time, on the Expiration Date.
7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE
DEPOSITORY TRUST COMPANY.
In the case of holders of Rights that are held of record through The
Depository Trust Company ("DTC"), exercises of the Basic Subscription Privilege
(but not the Oversubscription Privilege) may be effected by instructing DTC to
transfer Rights (such Rights being "DTC Exercised Rights") from the DTC account
of such holder to the DTC account of the Subscription Agent, together with
payment of the Subscription Price for each Underlying Share subscribed for
pursuant to the Basic Subscription Privilege. The Oversubscription Privilege in
respect of DTC Exercised Rights may not be exercised through DTC. The holder of
a DTC Exercised Right may exercise the Oversubscription Privilege in respect of
such DTC Exercised Right by properly executing and delivering to the
Subscription Agent at or prior to 5:00 p.m., Eastern time, on the Expiration
Date, a DTC Participant Oversubscription Exercise Form, in the form available
from the Subscription Agent, together with payment of the appropriate
Subscription Price for the number of Underlying Shares for which the
Oversubscription Privilege is to be exercised.
If a Notice of Guaranteed Delivery relates to Rights with respect to
which exercise of the Basic Subscription Privilege will be made through DTC and
such Notice of Guaranteed Delivery also relates to the exercise of the
Oversubscription Privilege, a DTC Participant Oversubscription
7
<PAGE>
Exercise Form must also be received by the Subscription Agent in respect of such
exercise of the Oversubscription Privilege on or prior to the Expiration Date.
8. SUBSTITUTE FORM W-9.
Each Rights holder who elects to exercise Rights should provide the
Subscription Agent with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, which is included as Exhibit C hereto. Additional copies
of Substitute Form W-9 may be obtained upon request from the Subscription
Agent at the address or by calling the telephone number indicated above.
Failure to provide the information on the form may subject such holder to a
$50 penalty and to 31% federal income tax withholding with respect to
dividends, if any, that may be paid by the Company, in the future on shares
of Common Stock purchased upon the exercise of Rights (for those holders
exercising Rights).
8
<PAGE>
EXHIBIT A
TO INSTRUCTIONS
NOTICE OF GUARANTEED DELIVERY FOR SHARES
OF COMMON STOCK OF
EVERCEL, INC. SUBSCRIBED FOR UNDER
THE BASIC SUBSCRIPTION PRIVILEGE
AND THE OVERSUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Rights Offering -- Exercise
of Rights," this form or one substantially equivalent hereto may be used as a
means of effecting subscription and payment for all shares of Evercel Inc.'s
Common Stock. Such form may be delivered by hand or sent by telex, facsimile
transmission, overnight courier or mail to the Subscription Agent.
The Subscription Agent is:
Continental Stock Transfer & Trust Company
BY MAIL, BY HAND OR BY OVERNIGHT COURIER:
Continental Stock Transfer & Trust
Company
Reorganization Department
Two Broadway, 19th floor
New York, New York 10004
Facsimile Transmission:
1-212-509-5150
Confirm by telephone to:
1-212-509-4000 Ext. 535
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
Prior to 5:00 p.m., Eastern time, on the Expiration Date, the member
firm of a registered national securities exchange or member of the National
Association of Securities Dealers, Inc., or commercial bank or trust company
which completes this form must communicate the guarantee,
A-1
<PAGE>
the name of the exercising Rights holder, the number of Rights represented by
the Subscription Certificate(s) held by such exercising holder and the number of
shares subscribed for (under both the Basic Subscription Privilege and the
Oversubscription Privilege) to the Subscription Agent and must deliver this
Notice of Guaranteed Delivery, together with payment in full pursuant to the
Basic Subscription Privilege and, except as described below in accordance with
the Guaranteed Payment Procedures, the Oversubscription Privilege, guaranteeing
delivery of a properly completed and signed copy of the Subscription Certificate
to the Subscription Agent. Failure to do so will result in a forfeiture of the
Rights.
A-2
<PAGE>
GUARANTEE OF DELIVERY
The undersigned, a member firm of a registered national securities exchange
or member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States, guarantees delivery to the Subscription Agent by the close of
business on the fifth Nasdaq trading day following the Expiration Date, of a
properly completed and duly executed Subscription Certificate and evidencing
the Rights being exercised as indicated herein.
Name of exercising Rights holder:
---------------------------
Number of Rights represented by the subscription certificate(s) to be
delivered:
----------------
Method of delivery (circle one) A. Through DTC
B. Direct to Subscription Agent
/ / Check this box if payment of the Subscription Price with respect to the
holder's exercise of the Oversubscription Privilege is pursuant to the
Guaranteed Payment Procedures and complete Notice of Guaranteed Payment
form (Exhibit B to these instructions).
- ---------------------------------------- --------------------------------------
Number of Shares Subscribed for Pursuant Number of Shares Subscribed for
to Basic Subscription Privilege Pursuant to Oversubscription Privilege
- ---------------------------------------- --------------------------------------
Name of Firm Authorized Signature
- ---------------------------------------- --------------------------------------
Address Title
- ---------------------------------------- --------------------------------------
Zip Code Name (Please Type or Print)
- ---------------------------------------- --------------------------------------
Contact Name Phone Number
The institution which completes this form must communicate the
guarantee to the Subscription Agent and must deliver the Subscription
Certificate(s) to the Subscription Agent within the time period shown herein.
Failure to do so could result in a financial loss to such institution.
A-3
<PAGE>
EXHIBIT B
TO INSTRUCTIONS
NOTICE OF GUARANTEED PAYMENT FOR SHARES
OF COMMON STOCK OF
EVERCEL, INC. SUBSCRIBED FOR PURSUANT TO THE OVERSUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Rights Offering -- Exercise
of Rights," this form or one substantially equivalent hereto may be used as a
means of effecting payment for shares of Evercel Inc.'s Common Stock pursuant to
the Guaranteed Payment Procedures exercised under the Oversubscription
Privilege. Such form may be delivered by hand or sent by telex, facsimile
transmission, overnight courier or mail to the Subscription Agent. Such form
will only be accepted by the Subscription Agent if the Subscription Agent
receives, on or prior to the Expiration Date,
(a) payment in full of the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription Privilege; and
(b)(i) a Notice of Guaranteed Delivery by facsimile or otherwise,
substantially in the form of Exhibit A to these instructions, from a member firm
of a registered national securities exchange or a NASD member firm or from an
Eligible Institution stating the information required thereon, or (ii) the
properly completed and executed subscription certificate; and
(c) payment in full of the Subscription Price for each share of Common
Stock being subscribed for pursuant to the Oversubscription Privilege has been
received (in immediately available funds) by the Subscription Agent by 5:00
p.m., Eastern time, on March ___, 1999.
The Subscription Agent is:
Continental Stock Transfer & Trust Company
BY MAIL, BY HAND OR BY OVERNIGHT COURIER:
Continental Stock Transfer & Trust
Company
Reorganization Department
Two Broadway, 19th floor
New York, New York 10004
Facsimile Transmission:
1-212-509-5150
Confirm by telephone to:
1-212-509-4000 Ext. 535
B-1
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
Prior to 5:00 p.m., Eastern time, on the Expiration Date, the member
firm of a registered national securities exchange or member of the National
Association of Securities Dealers, Inc., or commercial bank or trust company
which completes this form must communicate the guarantee, the name of the
exercising Rights holder, the number of Rights represented by the
Subscription Certificate(s) held by such exercising holder and the number of
shares subscribed for under the Oversubscription Privilege to the
Subscription Agent and must deliver this Notice of Guaranteed Payment
guaranteeing payment for the number of shares available and subscribed for
under the Oversubscription Privilege by March ___, 1999 to the Subscription
Agent. The Subscription Agent will provide notice by facsimile transmission
to the Rights holder and the undersigned member firm, commercial bank or
trust company of the number of shares subscribed for under the
Oversubscription Privilege and available for such Rights holder to purchase
not less than two business days prior to March ___, 1999. Failure by the
member firm, commercial bank or trust company to complete this form and
communicate the guarantee to the Subscription Agent prior to 5:00 p.m.
Eastern time, on the Expiration Date will result in a forfeiture of the
Rights.
B-2
<PAGE>
GUARANTEE OF PAYMENT PURSUANT TO
THE GUARANTEED PAYMENT PROCEDURES
The undersigned, a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States, guarantees
delivery to the Subscription Agent by 5:00 p.m., Eastern time on March ___, 1999
of payment in immediately available funds of the Subscription Price with respect
to the holder's exercise of the Oversubscription Privilege pursuant to the
Guaranteed Payment Procedures.
- ---------------------------------- ------------------------------------------
Name of Exercising Rights Holder Number of Shares Subscribed for
Pursuant to the Basic Subscription
Privilege
- ---------------------------------- -------------------------------------------
Number of Rights represented Number of Shares Subscribed for Pursuant to
by the Subscription Certificate(s) Oversubscription Privilege
to be delivered
- ---------------------------------- -------------------------------------------
Name of Firm Authorized Signature
- ---------------------------------- -------------------------------------------
Address Title
- ---------------------------------- -------------------------------------------
Zip Code Name (Please Type or Print)
- ---------------------------------- -------------------------------------------
Contact Name Phone Number of Firm
- ---------------------------------- -------------------------------------------
Facsimile Number of Firm Facsimile Number of Rights Holder
The institution which completes this form must communicate the
guarantee to the Subscription Agent and must deliver payment in immediately
available funds to the Subscription Agent within the time period shown herein.
Failure to do so could result in a financial loss to such institution.
B-3
<PAGE>
EXHIBIT C
TO INSTRUCTIONS
IMPORTANT TAX INFORMATION
Under the federal income tax law, dividend payments that may be made by
the Company on shares of Evercel Common Stock issued upon the exercise of Rights
may be subject to backup withholding. Generally, such payments will be subject
to backup withholding unless (a) the holder is exempt from backup withholding or
(b) the holder furnishes the payer with his correct tax identification number
and certifies that the number provided is correct and the holder further
certifies that such holder is not subject to backup withholding due to prior
underreporting of interest or dividend income. Each Rights holder who exercises
Rights should provide the Subscription Agent (as the Company's agent, in respect
of exercised Rights) with such Rights holder's correct taxpayer identification
number on Substitute Form W-9 below.
Exempt Rights holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt Rights holders, while not required to file,
should file Substitute Form W-9 to avoid possible erroneous backup withholding.
See the enclosed Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Company or the Subscription Agent,
as the case may be, will be required to withhold 31 percent of any such payments
made to the Rights holder. Backup withholding is not an additional tax. Rather,
the tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding, the Rights holder is required to notify
the Subscription Agent of his correct taxpayer identification number by
completing the form below certifying that the taxpayer identification number
provided on Substitute Form W-9 is correct (or that such Rights holder is
awaiting a taxpayer identification number). To prevent backup withholding, the
Rights holder must, in addition, certify on Substitute Form W-9 that he is not
subject to backup withholding due to prior underreporting of interest or
dividend income.
WHAT NUMBER TO GIVE THE SUBSCRIPTION AGENT
The Rights holder is required to give the Subscription Agent the social
security number or employer identification number of the record owner of the
Rights. If such Rights holder is an individual, the taxpayer identification
number is his social security number. If the Rights are in more than one name or
are not in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidelines on which number to report. If the Subscription Agent,
which is also the transfer agent for the Company, is not provided with the
correct taxpayer identification number in connection
<PAGE>
with such payments, the Rights holder may be subject to a $50 penalty imposed by
the Internal Revenue Service.
C-2
<PAGE>
PAYER'S NAME: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
- -----------------------------------------------
Name (If joint names, see attached guidelines)
- -----------------------------------------------
Business name (Sole proprietors, see attached guidelines)
- -----------------------------------------------
Please check appropriate box:
/ / Individual/Sole proprietor / / Corporation / / Partnership / / Other:
- -----------------------------------------------
Address (number, street and apt. or suite no.)
- -----------------------------------------------
City, state and ZIP code
<TABLE>
- ------------------------------------ --------------------------------------------------------- -----------------------
<S> <C> <C> <C>
SUBSTITUTE PART I--TAXPAYER IDENTIFICATION NO. PART II--FOR PAYEES
EXEMPT
FORM W-9 Enter your taxpayer FROM BACKUP
DEPARTMENT OF THE TREASURY identification number in the WITHHOLDING (SEE
INTERNAL REVENUE SERVICE appropriate box. For most Social Security No. ENCLOSED GUIDELINES)
individuals, this is your OR
social security number. If you
do not have a number, see How
to Obtain a TIN in the enclosed
Guidelines.
Note: If the account is in more ------------------------
than one name, see the chart on Employer Identification
page 2 of the enclosed Number
PAYER'S REQUEST FOR TAXPAYER Guidelines to determine what
IDENTIFICATION NUMBER (TIN) number to give.
- ------------------------------------ ----------------------------- --------------------------- -----------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PART III CERTIFICATION
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are not longer subject to backup
withholding, do not cross out item (2).
SIGNATURE: DATE: , 1999
----------------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF
31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
C-3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
SPECIFIC INSTRUCTIONS
NAME
If you are an individual, you must generally enter the name shown on your social
security card. However, if you have changed your last name, for instance, due to
marriage, without informing the Social Security Administration of the name
change, please enter your first name, the last name shown on your social
security card, and your new last name. If you are a sole proprietor, you must
enter your individual name. (Enter either your Social Security Number or
Employer Identification Number in Part I.) You may also enter your business name
or "doing business as" name on the business name line. Enter your name as shown
on your social security card and business name as it was used to apply for your
Employer Identification Number on Form SS-4.
PART I -- TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a sole proprietor,
you may enter your Social Security Number or Employer Identification Number.
Also see the chart under "Guidelines for Determining Proper Identification
Number to Give to Payer" below, for further clarification of name and TIN
combinations. If you do not have a TIN, follow the instructions under "How to
Obtain a TIN" below.
PART II -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are not exempt from backup withholding.
Corporations are exempt from backup withholding for certain payments, such as
interest and dividends. For a complete list of exempt payees, see "Payees Exempt
from Backup Withholding" below.
If you are exempt from backup withholding, you should still complete this form
to avoid possible erroneous backup withholding. Enter your complete TIN in Part
I, write "Exempt" in Part II, and sign and date the form. If you are a
nonresident alien or a foreign entity not subject to backup withholding, give
the payer a completed Form W-8, Certificate of Foreign Status.
PART III -- CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign.
1. INTEREST, DIVIDENDS, AND PAYMENTS OF PROCEEDS RECEIVED BY OR THROUGH A
BROKER. You must sign the certification or backup withholding will
apply with respect to any dividend or interest payments that you
receive. If you are subject to backup withholding and you are merely
providing your correct TIN to the payer, you must cross out item 2 in
the certification before signing the form.
C-4
<PAGE>
2. OTHER PAYMENTS. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified of an incorrect
TIN. Other payments include payments made in the course of the payer's
trade or business for rents, royalties to a nonemployee for services
(including attorney and accounting fees), and payments to certain
fishing boat crew members.
PRIVACY ACT NOTICE
Section 6109 requires you to give your correct TIN to persons who must file
information returns with the IRS to report interest, dividends, and certain
other income paid to you, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or contributions you made
to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or not
you are required to file a tax return. Payers must generally withhold 31% of
taxable interest, dividend and certain other payments to a payee who does not
give a TIN to a payer. Certain penalties may also apply.
C-5
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens, i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen, i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF ---
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
<S> <C>
1. An Individual's account The individual account
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
2. Two or more individuals (joint accounts) The actual owner of the account, or
if combined funds, any one of the
individuals
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
3. Husband and wife (joint account) The actual owner of the account
or, if joint funds, either
person (1)
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
4. Custodian account of a minor (Uniform Gift to Minors Act) The minor (2)
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
5. Adult or minor (joint account) The adult or, if the minor is
the only contributor, the minor
(1)
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
6. Account in the name of guardian or committee for a designated ward, The ward, minor, or incompetent
minor or incompetent person person (3)
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
7. a. The usual revocable savings trust account (grantor is also The grantor-trustee (1)
trustee)
b. The so-called trust account that is not a legal or valid trust The actual owner (1)
under State law
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
8. Sole proprietorship account The owner (4)
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: EMPLOYER IDENTIFICATION
NUMBER OF
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
9. A valid trust, estate or pension Legal entity (do not furnish the
identification number of the
personal representative or trustee
unless the legal entity itself is
not designated in the account title)
(5)
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
10. Corporate account The corporation
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
11. Religious, charitable, or educational organization account The organization
</TABLE>
C-6
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
<S> <C>
12. Partnership account held in the name of the business The partnership
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
13. Association, club or other tax-exempt organization The organization
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
14. A broker or registered nominee The broker or nominee
- ------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------- --------------------------------------
15. Account with the Department of Agriculture in the name of a public The public entity
entity (such as a State or local government, school
district, or prison) that receives agricultural program payments
- ------------------------------------------------------------------------------- --------------------------------------
</TABLE>
- ---------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) Show the name of the owner. You may use either the owner's social
security number or employer identification number.
(5) List first and circle the name of the legal trust, estate or pension
trust.
NOTE: If no name is circled when more than one name is listed, the number
will be considered to be that of the first name listed.
C-7
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON FORM W-9
HOW TO OBTAIN A TIN
If you don't have a taxpayer identification number or you don't know
your number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
If you do not have a TIN, write "Applied For" in the space for the TIN
in Part I, sign and date the form, and give it to the payer. Generally, you will
then have 60 days to get a TIN and give it to the payer. If the payer does not
receive your TIN within 60 days, backup withholding, if applicable, will begin
and continue until you furnish your TIN.
NOTE: Writing "Applied For" on the form means that you have already
applied for a TIN or that you intend to apply for one soon. As soon as you
receive your TIN, complete another Form W-9, include your TIN, sign and date the
form, and send it to the payer.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on all payments of
interest, dividends and gross proceeds from a sale or other disposition include
the following:
- - A corporation.
- - An organization exempt from tax under section 501(a), or an individual
retirement account, or a custodial account under section 403(b)(7).
- - The United States or any of its agencies and instrumentalities.
- - A State, the District of Columbia, a possession of the United States or
any subdivision or instrumentality thereof.
- - A foreign government or any of its political subdivisions, agencies or
instrumentalities.
- - An international organization or any agency or instrumentality thereof.
- - A foreign central bank of issue.
- - A registered dealer in securities or commodities registered in the
United States.
- - A real estate investment trust.
- - An entity registered at all times under the Investment Company Act of
1940.
- - A common trust fund operated by a bank under section 584(a).
- - A financial institution.
- - An exempt charitable remainder trust, or a trust described in section
4947.
- - A foreign central bank of issue.
C-8
<PAGE>
Payment of dividends and patronage dividends not generally subject to
backup withholding include the following:
- - Payments to non-resident aliens subject to withholding under section
1441.
- - Payments to partnerships not engaged in a trade or business in the
United States and which have at least one non-resident partner.
- - Payments of patronage dividends where a trade or business in the U.S.
and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid
in money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
- - Payments to an exempt charitable remainder trust, or a non-exempt trust
described in Section 45957(a)(1).
Payments of interest not generally subject to backup withholding
include the following:
- - Payments of interest on obligations issued by individuals. Note: you
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the taxpayer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
- - Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
- - Payments described in section 6049(b)(5) to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
- - Payments to an exempt charitable remainder trust, or a non-exempt trust
described in Section 45957(a)(1).
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see the regulations under sections
6041, 6041A(a), 6044 and 6050A.
PRIVACY ACT NOTICE.
Section 6109 requires most recipients of dividends, interest, or other
payments to give taxpayer identification numbers to payers who must report the
payments to IRS. The IRS uses the numbers for identification purposes and to
help verify the accuracy of your tax return. Payers
C-9
<PAGE>
must be given the numbers whether or not recipients are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividends, and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply:
PENALTIES
(3) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If
you fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not willful neglect.
(4) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you
fail to include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 20% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(5) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(6) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE
C-10
<PAGE>
APPROXIMATELY 1,389,000 SHARES OF COMMON STOCK
OFFERED PURSUANT TO RIGHTS DISTRIBUTED TO
SHAREHOLDERS OF EVERCEL, INC.
To: Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
This letter is being distributed to securities dealers commercial
banks, trust companies and other nominees in connection with the offering by
Evercel, Inc. ("Evercel") of an aggregate of approximately 1,389,000 shares of
common stock, par value $.01 per share ("Common Stock"), of Evercel, at a
subscription price of $6.00 per share of Common Stock (the "Subscription
Price"), pursuant to the exercise of transferable rights (the "Rights")
initially distributed to all holders of record of shares of Evercel's Common
Stock, as of the close of business on February ___, 1999 (the "Record Date").
Evercel was formed as a wholly owned subsidiary of Energy Research Corporation,
a New York corporation ("ERC") on June 22, 1998. Prior to the Record Date, ERC
expects to transfer to Evercel the principal assets related to its battery
business group ("Battery Business Group"), and Evercel will assume certain
liabilities related to those assets. Immediately prior to the grant of the
Rights by Evercel, ERC will distribute to its stockholders (the "Distribution")
one share of Evercel Common Stock for every three shares of ERC Common Stock
that such stockholders hold as of February ___, 1999 (the "ERC Record Date").
Each Right also carries the right to "oversubscribe" at the Subscription Price
for shares of Common Stock that are not otherwise purchased pursuant to the
exercise of Rights. The Rights are described in the enclosed Prospectus and
evidenced by a Subscription Certificate registered in your name or the name of
your nominee.
Each beneficial owner of shares of Common Stock registered in your name
or the name of your nominee is entitled to one Right for each share of Common
Stock owned by such beneficial owner.
We are asking you to contact your clients for whom you hold shares of
Common Stock registered in your name or in the name of your nominee to obtain
instructions with respect to the Rights.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter from ERC and Evercel to shareholders;
3. A Letter from brokers to clients;
4. A form of Notice of Guaranteed Delivery for Subscription
Certificates issued by Evercel, Inc.;
5. A form of Notice of Guaranteed Payment for exercise of
Subscription Certificates issued by Evercel, Inc. pursuant to
Guaranteed Payment Procedures;
6. A return envelope addressed to Continental Stock Transfer, as
Subscription Agent;
7. A DTC Participation Oversubscription Exercise Form; and
8. A Nominee Holder Certification
Your prompt action is requested. The Rights will expire at 5:00 P.M.,
Eastern time, on March ___, 1999, unless extended by Evercel, subject to the
consent of the Underwriters (as it may be
extended, the "Expiration Date").
To exercise Rights, properly completed and executed Subscription
Certificates and payment in full for all Rights exercised must be delivered to
the Subscription Agent as indicated in the Prospectus prior to the Expiration
Date, unless the Guaranteed Delivery Procedures with respect to delivery of the
Subscription Certificates or Guaranteed Payment Procedures with respect to the
Oversubscription Privilege described in the Prospectus are followed.
<PAGE>
Additional copies of the enclosed materials may be obtained from
Evercel, Inc. at 3 Great Pasture Road, Danbury, Connecticut 06813 and at (203)
825-6000.
Very truly yours,
EVERCEL, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF EVERCEL, INC., THE SUBSCRIPTION AGENT OR ANY OTHER PERSON MAKING
OR DEEMED TO BE MAKING OFFERS OF THE COMMON STOCK ISSUABLE UPON VALID EXERCISE
OF THE RIGHTS, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON
BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFERING EXCEPT FOR STATEMENTS MADE IN
THE PROSPECTUS.
<PAGE>
RIGHTS OFFERING FOR SHARES OF COMMON STOCK
OF
EVERCEL, INC.
February , 1999
To Our Clients:
We are enclosing for your consideration a Prospectus dated February
___, 1999 describing the issuance to shareholders of record as of the close of
business on February ___, 1999 of transferable rights ("Rights") to purchase at
the subscription price shares of Common Stock ("Common Stock") of Evercel, Inc.
("Evercel").
Your attention is directed to the following:
- Evercel was formed as a wholly owned subsidiary of Energy
Research Corporation, a New York corporation ("ERC") on June
22, 1998. Prior to the Record Date, ERC expects to transfer to
Evercel the principal assets related to its battery business
group ("Battery Business Group"), and Evercel will assume
certain liabilities related to those assets. Immediately prior
to the grant of the Rights by Evercel, ERC will distribute to
its stockholders (the "Distribution") one share of Evercel
Common Stock for every three shares of ERC Common Stock that
such stockholders hold as of February ___, 1999 (the "ERC
Record Date"). Fractional shares will not be issued by ERC; a
cash payment will be made to ERC stockholders otherwise
entitled to a fractional share of Evercel Common Stock as a
result of the Distribution.
- Shareholders will receive one transferable Right for each
share of Common Stock of Evercel held as of the close of
business on February ___, 1999 (the "Record Date"). No
fractional rights or cash in lieu thereof will be paid by
Evercel.
- It is anticipated that the Rights will trade in the
over-the-counter market. Assuming a market exists, Rights may
be purchased or sold through normal brokerage channels up to
the last trading day prior to the Expiration Date, March ___,
1999, as more fully described in the Prospectus.
- BASIC SUBSCRIPTION PRIVILEGE: One Right will entitle the
holder to purchase one share of Common Stock of Evercel at the
subscription price of $6.00 per share (the "Subscription
Price").
- OVERSUBSCRIPTION PRIVILEGE: Any holder of Rights who fully
exercises the Basic Subscription Privilege held by him is
entitled to subscribe at the Subscription Price for shares
that were not otherwise subscribed for during the basic
subscription. However, if such oversubscriptions exceed the
number of shares available, the shares available will be
allocated among those who exercised the Oversubscription
Privilege based on the number of shares subscribed for by such
holder pursuant to the Basic Subscription Privilege, as more
fully described in the Prospectus.
- The expiration date of the rights offering is 5:00 p.m.
Eastern time, on March ___, 1999, unless extended by Evercel,
subject to the consent of the Underwriters.
Since we are the holder of record of the shares of Common Stock of
Evercel held in your Account, we have received your transferable Rights. We will
exercise or sell your Rights only in accordance with your instructions. IF YOU
DO NOT GIVE US YOUR INSTRUCTIONS, YOUR RIGHTS WILL BECOME VALUELESS AFTER THE
EXPIRATION DATE.
Please forward your instructions to us immediately by completing the
form on the reverse side. Your Rights will expire at 5:00 p.m. Eastern time,
March ___, 1999, unless the rights offering is extended by Evercel, subject
to the consent of the Underwriters.
<PAGE>
LETTER OF INSTRUCTIONS
To My Bank or Broker:
The undersigned acknowledges receipt of the Prospectus relating to the
rights offering by Evercel, Inc. This letter instructs you to either exercise or
sell the Rights, as indicated below, which you hold for the account of the
undersigned, upon the terms and conditions set forth in the Prospectus.
(1) BASIC SUBSCRIPTION PRIVILEGE
- SELL_______________ Rights (if no number is specified, all
rights will be sold)
- EXERCISE_______________ Rights to purchase shares of Common
Stock of Evercel, Inc. at the subscription price. (One Right
is required for the purchase of each share of Common Stock)
I am enclosing a check for $ (equal to the number of shares to
be purchased multiplied by the subscription price).
(2) OVERSUBSCRIPTION PRIVILEGE (available only to those who have fully
exercised their Rights in the basic subscription privilege)
- PURCHASE_______________ shares of additional Common Stock of
Evercel, Inc. at the subscription price, subject to
availability as described in the Prospectus.
I have enclosed a second check for $ equal to the number of
shares to be purchased pursuant to the Oversubscription
Privilege multiplied by the Subscription Price. I understand
that if I am not allocated the full amount of shares for which
I have subscribed pursuant to the Oversubscription Privilege
above, any excess payment will be refunded to me by you
(without interest or deduction). Or,
- PURCHASE _______ shares of additional Common Stock of Evercel,
Inc. at the subscription price, subject to availability as
described in the Prospectus, pursuant to the Guaranteed
Payment Procedures.
I understand that payment for the number of shares to be
purchased under the Guaranteed Payment Procedures pursuant to
the Oversubscription Privilege multiplied by the Subscription
Price must be received by the Subscription Agent at or before
5:00 p.m., Eastern time, on March ___, 1999 in immediately
available funds and I am requesting that you guarantee to
the Subscription Agent my payment of $_______ by such date.
DATED:
---------------- -----------------------------------
Signature(s)
-----------------------------------
Account Number
-----------------------------------
Please type or print name
<PAGE>
EVERCEL, INC.
RIGHTS OFFERING
DTC PARTICIPANT OVERSUBSCRIPTON FORM
THIS FORM IS TO BE USED ONLY BY DEPOSITORY TRUST COMPANY PARTICIPANTS TO
EXERCISE THE OVERSUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO
WHICH THE BASIC SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY, ALL OTHER EXERCISES OF
OVERSUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION
FORMS.
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE PROSPECTUS
OF EVERCEL, INC. ("EVERCEL") DATED FEBRUARY ___, 1999 (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON
REQUEST FROM EVERCEL AND THE SUBSCRIPTION AGENT.
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL FOR EACH
UNDERLYING SHARE SUBSCRIBED FOR PURSUANT TO THE BASIC SUBSCRIPTION PRIVILEGE
AND, EXCEPT AS DESCRIBED BELOW IN ACCORDANCE WITH THE GUARANTEED PAYMENT
PROCEDURES, THE OVERSUBSCRIPTION PRIVILEGE, BY 5:00 P.M., EASTERN TIME, ON MARCH
___, 1999 (THE "EXPIRATION DATE").
1. The undersigned hereby certifies to EVERCEL and the
Subscription Agent that it is a participant in The Depository
Trust Company ("DTC") and that it has either (i) exercised the
Basic Subscription Privilege in respect of Rights and
delivered such exercised Rights to the Subscription Agent by
means of transfer to the DTC account of the Subscription Agent
or (ii) delivered to the Subscription Agent a Notice of
Guaranteed Delivery in respect of the exercise of the Basic
Subscription Privilege and will deliver the Rights called for
in such Notice of Guaranteed Delivery to the Subscription
Agent by means of transfer to such DTC account of the
Subscription Agent. The undersigned hereby certifies to
EVERCEL and the Subscription Agent that it owned ____________
Shares of Common Stock on February ___, 1999 (the "Record
Date").
2. The undersigned hereby exercises the Oversubscription
Privilege to purchase, to the extent available, shares of
Common Stock and certifies to EVERCEL and the Subscription
Agent that such Oversubscription Privilege is being exercised
for the account or accounts of persons (which may include the
undersigned) on whose behalf all Basic Subscription Privilege
Rights have been exercised.
3. The undersigned understands that payment except as described
below in accordance with the Guaranteed Payment Procedures, of
the Subscription Price of $6.00 per share for each share of
Common Stock subscribed for pursuant to the Oversubscripton
Privilege must be received by the Subscription Agent at or
before 5:00 p.m. Eastern time on the Expiration Date and
represents that such payment, in the aggregate amount of $
either (check appropriate box):
<PAGE>
/_/ is being delivered to the Subscription Agent herewith
or
/_/ has been delivered separately to the Subscription
Agent;
or
/_/ is being made pursuant to the Notice of Guaranteed
Payment and payment will be delivered in immediately
available funds to the Subscription Agent by 5:00
p.m. Eastern time on March ___, 1999.
---------------------------------------
Basic Subscription Confirmation Number
---------------------------------------
DTC Participant
---------------------------------------
Name of DTC Participant
By:
-------------------------------------
Name:
Title:
Contact Name:
----------------------------
Phone Number:
----------------------------
Dated: , 1999
-----------------------------
<PAGE>
NOMINEE HOLDER CERTIFICATION AND REQUEST FOR ADDITIONAL RIGHTS
To the Subscription Agent:
The undersigned hereby certifies that it is a broker-dealer
registered with the Securities and Exchange Commission, a commercial bank or
trust company, a securities depository or participant therein, or a nominee
therefor, holding of record ______ shares of Common Stock, par value $0.01
per share ("Common Stock"), of Evercel, Inc. ("Evercel") on behalf of ______
beneficial owners as of the close of business on February ___, 1999 (the
"Record Date") for the offering by Evercel of an aggregate of approximately
1,389,000 shares of Common Stock pursuant to transferable subscription rights
(the "Rights") being distributed to record holders of shares of Common Stock,
all as described in Evercel's Prospectus dated February ___, 1999 (the
"Prospectus"), a copy of which the undersigned has received. As stated in the
Prospectus, one Right is being distributed for each share of Common Stock
held of record as of the close of business on the Record Date. Accordingly,
the undersigned requests that, upon surrender of its Subscription Certificate
evidencing ______ Rights, a Subscription Certificate evidencing _______ Rights
be issued. The undersigned further certifies that each such beneficial owner
is a bona fide beneficial owner of shares of Common Stock, that such
beneficial ownership is reflected on the undersigned's records and that all
shares of Common Stock which, to the undersigned's knowledge are beneficially
owned by any such beneficial owner through the undersigned have been
aggregated in calculating the foregoing. The undersigned agrees to provide
Evercel or its designee with such additional information as Evercel deems
necessary to verify the foregoing.
-------------------------------------
Name of Record Holder
By:
-------------------------------------
Name:
------------------------------
Title:
-------------------------------
Address:
-----------------------------
Telephone Number:
--------------------
Date: , 1999
-------------------------------
<PAGE>
February 8, 1999
Evercel, Inc.
3 Great Pasture Road
Danbury, Connecticut 06813
RE: EVERCEL, INC. REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We are general counsel to Evercel, Inc., a Delaware corporation (the
"Company"). We have been asked to deliver this opinion in connection with the
preparation and filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), of a Registration Statement on
Form SB-2 (the "Registration Statement") relating to an offering pursuant to the
issuance of approximately 1,389,000 transferable subscription rights (the
"Rights"), each Right entitling the holder thereof to purchase one share of
common stock, $.01 par value of the Company (the "Shares"). The Company has
registered pursuant to the Registration Statement a total of 1,389,000 Rights
and 1,697,350 Shares to be issued upon exercise of the Rights, upon the exercise
of certain outstanding options, and upon the exercise by Burnham Securities Inc.
and Loeb Partners Corporation of an option to purchase certain additional shares
of the Company.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the following documents (collectively, the "Documents"):
1. A copy of the Form of Amended and Restated Certificate of
Incorporation of the Company;
2. A copy of the Form of Restated By-laws of the Company;
3. Certificates of the Secretary of the Company with respect to the
proceedings of the stockholders and Board of Directors of the
Company;
4. A specimen certificate of the Company for the Common Stock
5. A specimen Subscription Certificate for the Rights;
6. The form of Rights Agent Agreement between the Company and
Continental Stock Transfer and Trust Company; and
7. The Registration Statement.
<PAGE>
Evercel, Inc.
February 8, 1999
Page 2
In giving our opinion, we have relied as to matters of fact upon
certificates of public officials and officers of the Company. For purposes of
this opinion we have assumed without any investigation (1) the legal capacity of
each natural person and (2) the genuineness of each signature, the completeness
of each document submitted to us as an original and the conformity with the
original of each document submitted to us as a copy.
Our opinion hereafter expressed is based solely upon (1) our review of
the Documents, (2) discussions with certain officers of the Company with respect
to the Documents, (3) discussions with those of our attorneys who have devoted
substantive attention to the matters contained herein and (4) such review of
published sources of law as we have deemed necessary. We have assumed that the
Form of Amended and Restated Certificate of Incorporation of the Company is
adopted and filed with the Secretary of State of Delaware and the Form of
Restated By-laws of the Company is adopted prior to the issuance of the Rights
as contemplated by the Registration Statement.
Based upon and subject to the foregoing, we are of the opinion that
the Rights and the Shares have been duly authorized and, when issued as
described in the Registration Statement, the Rights and the Shares will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to our firm wherever it appears in
the Registration Statement.
Very truly yours,
BROWN, RUDNICK, FREED & GESMER
By: Brown, Rudnick, Freed & Gesmer, Ltd.,
a partner
By: /s/ Jayne M. Donegan
------------------------------------
Jayne M. Donegan, a Member
duly authorized
<PAGE>
DRAFT As of [date of distribution]
The Shareholders of Energy Research Corporation
Energy Research Corporation
Evercel, Inc.
3 Great Pasture Road
Danbury, CT 06813
RE: DISTRIBUTION OF STOCK OF EVERCEL, INC.
Ladies and Gentlemen:
We have acted as counsel to Energy Research Corporation ("ERC") in
connection with the transfer of certain equipment, technology, know-how, cash
and other assets related to its business of manufacturing and selling batteries
to Evercel, Inc. ("Evercel") in exchange for all of the outstanding Evercel
common stock and the assumption of certain liabilities associated with the
battery business, followed by the distribution of the Evercel common stock to
the ERC shareholders in proportion to the shareholdings in ERC. In connection
therewith, you have requested our opinion with respect to certain federal income
tax issues relating to such transactions.
In rendering this opinion, we have relied upon the facts and
representations set forth below, the accuracy and completeness of which we have
assumed, without independent verification. Should there be any material
inaccuracy in the facts and representations as set forth below the tax
consequences of the proposed transactions could be substantially and adversely
different from those set forth in this opinion letter. In addition, we have
reviewed the documents listed on Exhibit A, attached hereto, and such other
documents as we have deemed necessary in rendering this opinion. We have assumed
that any party executing any document upon which we have relied has the capacity
to sign such document and that all signatures on such documents are genuine.
Capitalized terms used herein and not otherwise defined have the meanings given
to them in the documents to which they relate.
ERC has outstanding a single class of common stock. The ERC common
stock is publicly traded.
For at least the past ten years ERC has carried on both the fuel cell
business and the battery business, using its own employees, plant and equipment.
For at least the past ten years, both the battery and fuel cell businesses have
had revenues and expenses representative of the active conduct of an operating
business.
Evercel was incorporated on June 22, 1998. Currently, Evercel is a
wholly owned subsidiary of ERC, but has no substantial assets or liabilities.
The Board of Directors of ERC is of the view that the battery business
has great growth potential which it is currently unable to realize due to lack
of funds. Certain
<PAGE>
Energy Research Corporation ET ALS
As of [date of distribution]
Page 2
substantial ERC shareholders have advised ERC that they are willing to make
additional capital contributions to a corporation that owns and operates the
battery business, but they are not interested in making additional capital
contributions to fund the battery business unless the battery business and fuel
cell business are separated. They have stated that if ERC and Evercel are
separated, they would be inclined to invest substantial sums in Evercel. Evercel
requires such funds to continue its operations and would not be able to function
as a stand-alone business without them.
Accordingly, the Board of Directors of ERC has adopted the following plan:
1. ERC will contribute the assets of the battery business to Evercel in
exchange for the assumption of the operational liabilities and
obligations associated with the battery business;
2. ERC will then distribute to the common shareholders of ERC one share
of Evercel common stock with respect to each three ERC shares held.
Cash will be distributed in lieu of fractional share interests;
3. Immediately following the distribution of its stock to the ERC
shareholders, Evercel will issue to its shareholders Rights to
purchase additional Evercel stock at a price of $6.00 per share. One
Right will be issued with respect to each outstanding share of
Evercel so that, upon the exercise of all the Rights, at least fifty
percent of the outstanding Evercel common stock will have been
issued pursuant to the exercise of the Rights.
4. Evercel will enter into a firm commitment underwriting agreement
under which the underwriters will commit themselves to purchase any
offered shares of Evercel that are not purchased pursuant to the
exercise of Rights. As a result of this agreement, Evercel has been
assured that it will receive approximately $8 million from the
issuance of its common stock within approximately 45 days after the
distribution described in paragraph 2, supra.
5. Evercel will enter into a line of credit agreement with First Union
National Bank in the amount of $1 million. The agreement between
Evercel and First Union National Bank requires that any drawings
against this line of credit must be repaid from the proceeds of the
offering of Evercel common stock as described herein. ERC will
guarantee any indebtedness created by Evercel pursuant to this line
of credit.
6. Pursuant to a Loan Agreement, ERC will commit itself to loan Evercel
$3.5 million under a line of credit. However, the amount that ERC is
obligated to loan to Evercel will be reduced by any amounts loaned
to Evercel by First Union National Bank as described in the
preceding paragraph, and by any amounts received by Evercel upon the
issuance of its common stock as
<PAGE>
Energy Research Corporation ET ALS
As of [date of distribution]
Page 3
described in paragarphs 3 and 4, supra. Any drawings against this
line of credit must be repaid out of the proceeds of the offering of
Evercel common stock. As a result, ERC and Evercel expect that ERC's
commitment will expire upon the receipt of the proceeds of the
offering of Evercel common stock approximately 45 days after the
disribution of the Evercel common stock as described in paragarph 2,
supra, and that any indebtedness of Evercel to ERC under the Loan
Agreement will be repaid at that time.
The parties have made the following representations in connection with the
proposed transactions:
a) Persons holding more than fifty percent of the ERC common stock have
held more than fifty percent of the ERC common stock for at least
the past two years.
b) ERC and Evercel will pay their own expenses (but will not pay any
shareholder expenses) incurred in connection with the proposed
transactions.
c) No part of the Evercel common stock to be distributed by ERC will be
received by any ERC shareholder as a creditor, employee, or in any
capacity other than that of a ERC shareholder.
d) As soon as practical following the transaction, ERC and Evercel will
each continue the active conduct of its business, independently and
with its separate employees. However, immediately following the
distribution and for some time thereafter, Evercel and ERC will
share some key employees. Evercel and ERC will each bear its own
share of the costs and expenses associated with their shared
employees, based on the relative amounts of time spent by such
employees working in each company.
e) The rental of office and laboratory space by ERC to Evercel will be
at arms-length rates and terms. f) The distribution of the stock of
Evercel will carried out for the purpose of raising additional
equity capital for Evercel, and for other bona fide business
purposes.
g) Immediately following the expiration of the Evercel Right exercise
period, the current shareholders of ERC will own more than fifty
percent of the only outstanding class of Evercel stock.
h) Following the expiration of the Evercel Right exercise period,
neither Evercel nor ERC will have outstanding any rights, options
(other than options granted to employees or directors as
compensation for services rendered or to be
<PAGE>
Energy Research Corporation ET ALS
As of [date of distribution]
Page 4
rendered), convertible debt securities or any other interest under
which any person may acquire an equity interest in either Evercel or
ERC.
i) There is no plan or intention by any shareholder who owns 5% or more
of the stock of ERC, and the management of ERC, to its best
knowledge, is not aware of any plan or intention on the part of any
particular remaining shareholder or security holder of ERC to sell,
exchange, transfer by gift, or otherwise dispose of any stock in, or
securities of, either ERC or Evercel after the transaction.
j) The payment of cash in lieu of fractional shares of Evercel will be
solely for the purpose of avoiding the expense and inconvenience to
Evercel of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration
to be paid in lieu of fractional shares of Evercel stock will not
exceed one percent of the total consideration that will be issued in
the transaction to ERC shareholders. No ERC shareholder will receive
cash in an amount equal to or greater than the value of one full
share of Evercel stock.
k) There is no plan or intention by either ERC or Evercel, directly or
through any subsidiary corporation, to redeem any of its outstanding
stock after the transaction.
l) There is no plan or intention to liquidate either ERC or Evercel, to
merge ERC or Evercel with any other corporation, or to sell or
otherwise dispose of the assets of ERC or Evercel after the
transaction, except in the ordinary course of business.
m) The total fair market value of the assets transferred to Evercel by
ERC will exceed the sum of the liabilities assumed by Evercel plus
any liabilities to which the transferred assets are subject.
n) The total adjusted basis of the assets transferred to Evercel by ERC
will be greater than the sum of the liabilities assumed by Evercel
plus any liabilities to which the transferred assets are subject.
o) The liabilities of ERC assumed by Evercel in the transaction and the
liabilities to which the transferred assets and business are subject
were incurred in the ordinary course of business and are associated
with the assets and business being transferred.
p) ERC neither accumulated its receivables nor made extraordinary
payment of its payables in anticipation of the transaction.
<PAGE>
Energy Research Corporation ET ALS
As of [date of distribution]
Page 5
q) Payments made after the distribution in connection with all
continuing transactions, if any, between ERC and Evercel, will be
for fair market value based on terms and conditions arrived at by
the parties bargaining at arm's length.
r) Following the distribution of the Evercel stock, neither Evercel nor
ERC will own stock or obligations issued by other corporations
having a fair market value of more than ten percent of the total
value of the assets of ERC and Evercel, respectively.
s) The underwriters who will enter into the Underwriting Agreement
have, and at all relevent times will have, the financial capactiy to
discharge their obligations created by the Underwriting Agreement.
Based solely on the facts and representations set forth above, upon which
we have relied in rendering this opinion letter, it is our opinion that:
1. The transfer of the assets of the battery business by ERC to Evercel
in exchange for the receipt of common stock of Evercel, the
assumption by Evercel of the obligations and liabilities of ERC
associated with the battery business (hereinafter referred as the
"Exchange") will be a reorganization within the meaning of section
368(a)(1)(D).1 ERC and Evercel each will be a "party to the
reorganization" within the meaning of section 368(b).
2. No gain or loss will be recognized by ERC on the Exchange. Sections
361(a) and 357(a).
3. No gain or loss will be recognized by Evercel upon the Exchange.
Section 1032(a).
4. The basis of each asset received by Evercel in the Exchange will be
the same as the basis of such asset in the hands of ERC immediately
prior to the Exchange. Section 362(b).
5. The holding period of the ERC assets received by Evercel will
include the holding period during which such assets were held by
ERC. Section 1223(2).
6. No gain or loss will be recognized by ERC upon the distribution of
all of its Evercel common stock to the shareholders of ERC pursuant
to the Exchange. Section 361(c).
7. Other than on account of the receipt of cash in lieu of a fractional
share interest (see paragraph 15, below), no gain or loss will be
recognized by the
- --------
1 Unless otherwise indicated, all statutory citations are to the Internal
Revenue Code of 1986, as amended.
<PAGE>
Energy Research Corporation ET ALS
As of [date of distribution]
Page 6
shareholders of ERC (and no amount will be included in their income)
upon their receipt of the Evercel common stock with respect to their
ERC common stock. Section 355(a).
8. The aggregate bases of the shares of Evercel common stock received
in the Distribution (including any fractional share in lieu of which
cash is received) and the shares of ERC common stock with respect to
which such shares of Evercel common stock are distributed in the
hands of a ERC shareholder after the distribution will, in each
instance, be the same as such shareholder's basis in such ERC common
stock immediately before the distribution, allocated in proportion
to the fair market value of each in accordance with Treas. Reg. ss.
1.358-2(a)(2).
9. The holding period of the shares of Evercel common stock received by
a ERC shareholder in the Distribution (including any fractional
share in lieu of which cash is received) will, in each instance,
include the holding period of the shares of ERC stock with respect
to which such shares of Evercel common stock are distributed,
provided that such shares of ERC stock are held as a capital asset
on the date of the Distribution. Section 1223(1).
10. The Evercel shareholders will recognize no gain or other income upon
the receipt of Rights to acquire additional Evercel stock. Treas.
Reg. ss. 1.305-1(a).
11. Provided that the fair market value of the Evercel Rights is less
than 15% of the fair market value of the Evercel common stock
outstanding immediately after the issuance of such Rights, the basis
of such Rights in the hands of a Evercel shareholder will be zero,
unless such shareholder elects to allocate the basis of the Evercel
stock between such stock and such Rights in accordance with Treas.
Reg. ss. 1.307-1(a). Treas. Reg. ss. 1.307-2.
12. No gain or loss will be recognized by the holder of a Right or by
Evercel upon the exercise of a Evercel Right as described herein.
Rev. Rul. 78-182, 1978-1 C.B. 265 (holder); section 1032(a)
(Evercel).
13. The basis of the Evercel common stock received upon the exercise of
a Evercel Right will be the sum of the holder's basis in such Right
and the exercise price of the Right. Rev. Rul. 78-182, SUPRA.
14. The holding period of the Evercel stock received upon the exercise
of a Evercel Right will begin on the day on which the Right is
exercised. Section 1223(6).
<PAGE>
Energy Research Corporation ET ALS
As of [date of distribution]
Page 7
15. A shareholder who receives cash in lieu of a fractional share
interest in Evercel will be treated as if he had received such
fractional share interest and then disposed of it in exchange for
cash. Such shareholder will recognize gain or loss on the deemed
sale of the fractional share interest equal to the difference
between the cash received and the shareholder's basis in such
interest. Provided the fractional share interest is a capital asset
in the hands of the exchanging holder, such gain or loss will be
capital gain or loss.
A number of issues discussed herein, including matters on which we have
expressed an opinion herein, have not been definitively resolved by statute,
regulations, rulings or court decisions. Moreover, with respect to some of such
matters, existing precedents provide very little guidance. While our opinions
and views expressed herein are based upon our best interpretations of existing
sources of law and express what we believe a court would conclude if presented
with these issues, no assurance can be given that such interpretations would be
followed if they became the subject of judicial or administrative proceedings.
Furthermore, our opinions are based on existing law. No assurance can be given
that legislative or administrative changes, or court decisions, which may or may
not be retroactive with respect to transactions completed prior to the effective
dates of such changes, or any IRS determination of the facts, which may be made
with the benefit of "hindsight" will not significantly affect the tax
consequences to the parties. Although we believe that all of the factual
assumptions upon which our opinions rely are warranted, we can give no assurance
that the Internal Revenue Service would agree.
We express no opinion as to the tax treatment of any of the transactions
described above which are not specifically addressed in the foregoing opinion.
This opinion is given to you by us solely for your use and is not to be quoted
or otherwise referred to or furnished to any governmental agency or to other
persons without our prior written consent.
Very truly yours,
BROWN, RUDNICK, FREED & GESMER, P.C.
By:
------------------------------------
Kenneth Glusman
A Member Duly Authorized
<PAGE>
Exhibit 10.1
DISTRIBUTION AGREEMENT
BY AND BETWEEN
ENERGY RESEARCH CORPORATION
AND
EVERCEL, INC.
DATED AS OF
, 1999
---------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I. DEFINITIONS............................................................................................1
ARTICLE II. TRANSFER OF ASSETS....................................................................................6
SECTION 2.01. TRANSFER OF ASSETS TO EVERCEL......................................................................6
SECTION 2.02. CONSIDERATION FOR ASSET TRANSFERS..................................................................7
SECTION 2.03. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION...................................................7
SECTION 2.04. COOPERATION RE: ASSETS............................................................................8
SECTION 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS.........................................................8
SECTION 2.06. CONVEYANCING AND ASSUMPTION INSTRUMENTS............................................................9
SECTION 2.07. CASH MANAGEMENT....................................................................................9
SECTION 2.08. RETAINED LICENSE TO USE TECHNOLOGY................................................................10
ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES..........................................................11
SECTION 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES........................................................11
ARTICLE IV. THE DISTRIBUTION.....................................................................................12
SECTION 4.01. COOPERATION PRIOR TO THE DISTRIBUTION.............................................................12
SECTION 4.02. ERC BOARD ACTION; CONDITIONS PRECEDENT TO THE DISTRIBUTION........................................12
SECTION 4.03. THE DISTRIBUTION..................................................................................13
ARTICLE V. INDEMNIFICATION.......................................................................................13
SECTION 5.01. INDEMNIFICATION BY ERC............................................................................13
SECTION 5.02. INDEMNIFICATION BY EVERCEL........................................................................13
SECTION 5.03. INSURANCE PROCEEDS................................................................................14
SECTION 5.04. PROCEDURE FOR INDEMNIFICATION.....................................................................14
SECTION 5.05. REMEDIES CUMULATIVE...............................................................................16
SECTION 5.06. SURVIVAL OF INDEMNITIES...........................................................................16
ARTICLE VI. CERTAIN ADDITIONAL MATTERS...........................................................................17
SECTION 6.01. CERTAIN POST-DISTRIBUTION TRANSACTIONS............................................................17
SECTION 6.02. NOTICES BY ERC....................................................................................17
ARTICLE VII. ACCESS TO INFORMATION AND SERVICES..................................................................17
SECTION 7.01. PROVISION OF CORPORATE RECORDS....................................................................17
SECTION 7.02. ACCESS TO INFORMATION.............................................................................18
SECTION 7.03. PRODUCTION OF WITNESSES...........................................................................18
SECTION 7.04. REIMBURSEMENT.....................................................................................18
SECTION 7.05. RETENTION OF RECORDS..............................................................................18
SECTION 7.06. CONFIDENTIALITY...................................................................................19
SECTION 7.07. PRIVILEGED MATTERS................................................................................19
ARTICLE VIII. INSURANCE..........................................................................................21
SECTION 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE EVERCEL ASSETS............................................21
SECTION 8.02. POST-DISTRIBUTION DATE CLAIMS.....................................................................21
SECTION 8.03. ADMINISTRATION AND RESERVES.......................................................................21
SECTION 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE...............................................22
ARTICLE IX. MISCELLANEOUS........................................................................................22
SECTION 9.01. COMPLETE AGREEMENT; CONSTRUCTION..................................................................22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 9.02. EXPENSES..........................................................................................23
SECTION 9.03. GOVERNING LAW.....................................................................................23
SECTION 9.04. NOTICES..........................................................................................23
SECTION 9.05. AMENDMENTS; WAIVERS...............................................................................23
SECTION 9.06. SUCCESSORS AND ASSIGNS............................................................................24
SECTION 9.07. TERMINATION.......................................................................................24
SECTION 9.08. NO THIRD-PARTY BENEFICIARIES......................................................................24
SECTION 9.09. TITLES AND HEADINGS...............................................................................24
SECTION 9.10. EXHIBITS AND SCHEDULES............................................................................24
SECTION 9.11. LEGAL ENFORCEABILITY..............................................................................24
SECTION 9.12. ARBITRATION OF DISPUTES...........................................................................25
SECTION 9.14. COUNTERPARTS......................................................................................26
SECTION 9.15. RELATIONSHIP OF PARTIES...........................................................................26
SECTION 9.16. FURTHER ACTION....................................................................................26
SECTION 9.17. PREDECESSORS AND SUCCESSORS.......................................................................26
SCHEDULES........................................................................................................28
EXHIBIT A: FORM OF SERVICES AGREEMENT
EXHIBIT B: FORM OF TAX SHARING AGREEMENT
EXHIBIT C: FORM OF LICENSE ASSISTANCE AGREEMENT
</TABLE>
ii
<PAGE>
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this _____
day of _______________, 1999 by and between Energy Research Corporation, a New
York corporation ("ERC"), and Evercel, Inc., a Delaware corporation and
wholly-owned subsidiary of ERC ("Evercel").
RECITALS
WHEREAS, the Board of Directors of ERC has determined that it is in the
best interests of its stockholders to transfer to Evercel certain principal
assets related to ERC's battery business group and for Evercel to assume certain
liabilities related to such assets (the "Asset Transfers") in consideration for
shares of Evercel Common Stock, and thereafter to distribute all of the
outstanding shares of Evercel Common Stock that are held by ERC to the holders
of ERC common stock (the "Distribution");
WHEREAS, in connection with the Distribution, ERC and Evercel have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers and the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of ERC shall not include
Evercel or any other Person which would be an Affiliate of ERC by reason of
ERC's ownership of the capital stock of Evercel prior to the Distribution or the
fact that any officer or director of Evercel shall also serve as an officer or
director of ERC, and (ii) the Affiliates of Evercel shall not include ERC or any
other Person which would be an Affiliate of Evercel by reason of ERC's ownership
of the capital
<PAGE>
stock of Evercel prior to the Distribution or the fact that any officer or
director of Evercel shall also serve as an officer or director of ERC.
AGENT: Continental Stock Transfer and Trust Company, the distribution
agent appointed by ERC to distribute the Evercel Common Stock pursuant to the
Distribution.
ASSET TRANSFERS: Shall have the meaning set forth in the recitals
hereof.
COMMISSION: The Securities and Exchange Commission.
CONSENTS: Shall have the meaning set forth in Section 4.01(c) hereof.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers and the assumption of Liabilities in the manner contemplated by
this Agreement and the Related Agreements.
DISTRIBUTION: Shall have the meaning set forth in the recitals hereof.
DISTRIBUTION DATE: The date determined by the ERC Board as the date on
which the Distribution shall be effected, which Distribution Date is
contemplated by the ERC Board to occur on or about [______________], 1999.
DISTRIBUTION RECORD DATE: The date established by the ERC Board as the
date for taking a record of the Holders of ERC Common Stock entitled to
participate in the distribution, which Distribution Record Date has been
established as _____________ ___, 1999, subject to the fulfillment on or before
__________, 1999 of certain conditions to the Distribution as provided in
Section 4.02.
ERC: Shall have the meaning set forth in the recitals hereof.
ERC BOARD: The Board of Directors of ERC.
ERC BOOKS AND RECORDS: The books and records (including computerized
records) of ERC and all books and records owned by ERC which relate to the ERC
Retained Business or are necessary to operate the ERC Retained Business, or are
required by law to be retained by ERC, including without limitation, all files
relating to any Action pertaining to the ERC Retained Liabilities, original
corporate minute books, stock ledgers and certificates and corporate seals, and
all licenses, leases, agreements and filings, relating to ERC or the ERC
Retained Business (but not including the Evercel Books and Records, provided
that ERC shall have access to, and shall have the right to obtain duplicate
copies of, the Evercel Books and Records in accordance with the provisions of
Article VII).
ERC COMMON STOCK: The common stock, par value $.0001 per share, of ERC.
ERC CONTRACTS: The contracts to be assigned by ERC to Evercel listed on
Schedule 1.01(b).
-2-
<PAGE>
ERC INDEMNIFIABLE LOSSES: Shall have the meaning set forth in Section
5.02 hereof.
ERC INDEMNITEES: Shall have the meaning set forth in Section 5.02
hereof.
ERC INTELLECTUAL PROPERTY ASSETS: The intellectual property assets
listed on Schedule 1.01(d).
ERC PERSONAL PROPERTY ASSETS: The personal property assets listed on
Schedule 1.01(a).
ERC RETAINED ASSETS: The assets of ERC other than the Evercel Assets
transferred to Evercel by ERC, including without limitation (i) assets relating
to the ERC Retained Business, (ii) all of the assets expressly allocated to ERC
under this Agreement or the Related Agreements, and (iii) any other assets of
ERC and its Affiliates relating to the ERC Retained Business.
ERC RETAINED BUSINESS: The businesses conducted by ERC pursuant to or
utilizing the ERC Retained Assets, including without limitation, the fuel cell
business.
ERC RETAINED LIABILITIES: (i) All of the Liabilities arising out of or
in connection with the ERC Retained Assets or the ERC Retained Business, (ii)
all Liabilities arising out of or in connection with any lawsuits relating to
the Distribution, (iii) all of the Liabilities of ERC under, or to be retained
or assumed by ERC pursuant to, this Agreement or any of the Related Agreements,
(iv) any Financing Obligations not constituting Evercel Liabilities, (v) all
Liabilities for the payment of outstanding drafts of ERC attributable to the ERC
Retained Business existing as of the Distribution Date, (v) all Liabilities
arising out of or in connection with lawsuits or other claims or actions
relating to the Davis Superfund Site and the Gallups Quarry Superfund Site, (vi)
any obligation to repay up to $1,300,000 of payments previously made to ERC
pursuant to the Nan Ya License Agreement (as defined in Section 2.01(a) hereof),
and (vii) all other Liabilities of ERC not constituting Evercel Liabilities.
ERC RETAINED POLICIES: All Policies, current or past, which are owned
or maintained by or on behalf of ERC (or any of its predecessors) which relate
to the ERC Retained Business but do not relate to the Evercel Business.
EVERCEL: Shall have the meaning set forth in the recitals hereof.
EVERCEL ASSETS: Shall have the meaning set forth in Section 2.01(b)
hereof.
EVERCEL BOOKS AND RECORDS: The books and records (including
computerized records) of Evercel and all books and records owned by ERC which
relate to the Evercel Business or are necessary to operate the Evercel Business,
including, without limitation, all such books and records relating to Evercel
Employees, all files relating to any Action being assumed by Evercel as part of
the Evercel Liabilities, original corporate minute books, stock ledgers and
certificates and corporate seals, and all licenses, leases, agreements and
filings, relating to Evercel or the Evercel Business (but not including the ERC
Books and Records, provided that
-3-
<PAGE>
Evercel shall have access to, and have the right to obtain duplicate copies of,
the ERC Books and Records in accordance with the provisions of Article VII).
EVERCEL BUSINESS: The business conducted by ERC prior to the Transfer
Date, and by Evercel thereafter, pursuant to or utilizing the Evercel Assets,
including without limitation, the acquisition, development and operation of
battery assets and business.
EVERCEL COMMON STOCK: The common stock, par value $.01 per share, of
Evercel.
EVERCEL EMPLOYEES: All of the Evercel employees at the time of the
Distribution, as identified on Schedule 1.01(e).
EVERCEL INDEMNIFIABLE LOSSES: Shall have the meaning set forth in
Section 5.01 hereof.
EVERCEL INDEMNITEES: Shall have the meaning set forth in Section 5.01
hereof.
EVERCEL LIABILITIES: (i) All of the Liabilities of Evercel under, or to
be retained or assumed by Evercel pursuant to, this Agreement or any of the
Related Agreements, including those set forth on Schedule 1.01(c), (ii) all
Liabilities for payment of outstanding drafts of ERC attributable to the Evercel
Business existing as of the Distribution Date, and (iii) all Liabilities arising
out of or in connection with any of the Evercel Assets or the Evercel Business.
EVERCEL POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of ERC or any of its Affiliates or predecessors,
which relate to the Evercel Business but do not relate to the ERC Retained
Business, and which Policies are either maintained by Evercel or assignable to
Evercel.
FINANCING OBLIGATIONS: All (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, notes, debentures or similar instruments, (iii)
obligations under capitalized leases and deferred purchase arrangements, (iv)
reimbursement or other obligations relating to letters of credit or similar
arrangements, and (v) obligations to guarantee, directly or indirectly, any of
the foregoing types of obligations on behalf of others.
HOLDERS: The holders of record of ERC Common Stock as of the
Distribution Record Date.
INDEMNIFIABLE LOSSES: Shall have the meaning set forth in Section 5.02
hereof.
INDEMNIFYING PARTY: Shall have the meaning set forth in Section 5.03
hereof.
INDEMNITEE: Shall have the meaning set forth in Section 5.03 hereof.
INFORMATION: Shall have the meaning set forth in Section 7.02 hereof.
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INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
INSURED CLAIMS: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
LIABILITIES: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
PERSON: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
POLICIES: Insurance policies and insurance contracts of any kind
relating to the Evercel Business or the ERC Retained Business as conducted prior
to the Distribution Date, including without limitation primary and excess
policies, comprehensive general liability policies, automobile and workers'
compensation insurance policies, and self-insurance and captive insurance
company arrangements, together with the rights, benefits and privileges
thereunder.
PRIVILEGES: All privileges that may be asserted under applicable law,
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
PRIVILEGED INFORMATION: All Information as to which ERC, Evercel or any
of their Subsidiaries are entitled to assert the protection of a Privilege.
RELATED AGREEMENTS: All of the agreements, instruments, understandings,
assignments or other arrangements which are entered into in connection with the
transactions contemplated hereby and which are set forth in a writing,
including, without limitation (i) the Conveyancing and Assumption Instruments,
(ii) the Services Agreement, (iii) the Tax Sharing Agreement and (iv) the
License Assistance Agreement.
RIGHTS OFFERING: The offering by Evercel to its stockholders, following
the Distribution, to subscribe for and purchase additional shares of Evercel
Common Stock pursuant to the exercise of transferable subscription rights issued
to such stockholders following the Distribution pursuant to a Registration
Statement on Form SB-2 which has been declared effective under the Securities
Act.
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SECURITIES ACT: The Securities Act of 1933, as amended.
SERVICES AGREEMENT: The Services Agreement between ERC and Evercel,
which agreement shall be entered into on or prior to the Distribution Date in
substantially the form of Exhibit A attached hereto.
SHARED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of ERC or its predecessors which relate to both the
ERC Retained Business and the Evercel Business, and all other Policies not
constituting Evercel Policies or ERC Retained Policies.
SUBSIDIARY: With respect to any Person, (a) any corporation of which at
least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any non-corporate entity in which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of such
Person, directly or indirectly, at the date of determination thereof, has at
least majority ownership interest.
TAX SHARING AGREEMENT: The Tax Sharing Agreement between Evercel and
ERC, which agreement shall be entered into on or prior to the Distribution Date
in substantially the form of Exhibit B attached hereto.
THIRD-PARTY CLAIM: Shall have the meaning set forth in Section 5.04(a)
hereof.
TRANSFER DATE: The effective date of the transfer of assets and
liabilities hereunder by ERC to Evercel which date shall be on or prior to the
Distribution Date.
ARTICLE II.
TRANSFER OF ASSETS
Section 2.01. TRANSFER OF ASSETS TO EVERCEL
(a) On the Transfer Date, ERC shall take or cause to be taken all
actions necessary to cause the transfer, assignment, delivery and conveyance to
Evercel of all of ERC's right, title and interest in and to the principal assets
related to the Evercel Business, including, without limitation, the following
assets:
(i) the ERC Personal Property Assets;
(ii) the ERC Contracts;
(iii) the ERC Intellectual Property Assets;
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(iv) the Evercel Books and Records;
(v) all of the other assets to be assigned to Evercel by ERC
under this Agreement or the Related Agreements; and
(vi) all other assets primarily relating to the Evercel
Business held by ERC.
Notwithstanding the foregoing, the following assets shall not be
transferred to Evercel:
(i) payments received by ERC pursuant to the license agreement
(the "Nan Ya License Agreement") between ERC and a joint venture between Nan Ya
Plastics Corporation of Taiwan and Xiamen Three Circles Co., Ltd. (formerly
Xiamen Daily-Used Chemicals Co., Ltd.) up to $1,300,000; and
(ii) subject to the provisions of Section 2.03 hereof, ERC's
interest in the Cooperative Joint Venture Contract (the "Joint Venture
Contract") between ERC and Xiamen Three Circles Co., Ltd. for the Establishment
of Xiamen Three Circles - ERC Battery Corp., Ltd., a Sino-Foreign Manufacturing
Joint Venture (the "Joint Venture"), dated as of July 7, 1998, and the related
Technology Transfer and License Contract between ERC and the Joint Venture (the
"Three Circles License Agreement").
(b) The "Evercel Assets" shall consist of the assets transferred to
Evercel by ERC pursuant to this Section 2.01.
Section 2.02. CONSIDERATION FOR ASSET TRANSFERS
As consideration for the foregoing asset transfers on or prior to the
Distribution Date, ERC shall receive from Evercel a sufficient number of shares
of Evercel Common Stock to effect the Distribution to the Holders of ERC Common
Stock.
Section 2.03. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION
To the extent that any transfers contemplated by this Article II shall
not have been fully effected on the Distribution Date, the parties shall
cooperate to effect such transfers as promptly as shall be practicable following
the Distribution Date. Nothing herein shall be deemed to require the transfer of
any assets or the assumption of any Liabilities which by their terms or
operation of law cannot be transferred or assumed; PROVIDED, HOWEVER, that ERC
and Evercel and their respective Subsidiaries and Affiliates shall cooperate in
seeking to obtain any necessary consents or approvals for the transfer of all
assets and Liabilities contemplated to be transferred pursuant to this Article
II. In the event that any such transfer of assets or Liabilities has not been
consummated effective as of the Distribution Date, the party retaining such
asset or Liability shall thereafter hold such asset in trust for the use and
benefit of the party entitled thereto (at the expense of the party entitled
thereto) and retain such Liability for the account of the party by whom such
Liability is to be assumed pursuant hereto, and take such other actions as may
be reasonably required in order to place the parties, insofar as reasonably
possible, in the same position as would have existed had such asset been
transferred or such Liability been
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assumed as contemplated hereby. As and when any such asset or Liability becomes
transferable, such transfer and assumption shall be effected forthwith. The
parties agree that, except as set forth in this Section 2.03, as of the
Distribution Date, each party hereto shall be deemed to have acquired complete
and sole beneficial ownership over all of the assets, together with all rights,
powers and privileges incidental thereto, and shall be deemed to have assumed in
accordance with the terms of this Agreement all of the Liabilities, and all
duties, obligations and responsibilities incidental thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement. The parties expressly agree that ERC's interest in the Joint Venture
Contract and the Three Circles License Agreement (together, the "Three Circles
Contracts") may not be assigned to Evercel prior to obtaining the written
consent and approval of ERC's Chinese partner and the appropriate Chinese
governmental authorities. Pending receipt of these approvals, ERC and Evercel
agree to enter into the License Assistance Agreement in the form attached hereto
as Exhibit C. Once such consents and approvals have been obtained, ERC agrees to
transfer and assign the Three Circles Contracts to Evercel.
Section 2.04. COOPERATION RE: ASSETS
In the case that at any time after the Distribution Date, Evercel
reasonably determines that any of the ERC Retained Assets are essential for the
conduct of the Evercel Business, or ERC reasonably determines that any of the
Evercel Assets are essential for the conduct of the ERC Retained Business, and
the nature of such assets makes it impracticable for Evercel or ERC, as the case
may be, to obtain substitute assets or to make alternative arrangements on
commercially reasonable terms to conduct their respective businesses, and
reasonable provisions for the use thereof are not already included in the
Related Agreements, then Evercel (with respect to the Evercel Assets) and ERC
(with respect to the ERC Retained Assets) shall cooperate to make such assets
available to the appropriate party on commercially reasonable terms, as may be
reasonably required for such party to maintain normal business operations
(provided that such assets shall be required to be made available only until
such time as the other party may reasonably obtain substitute assets or make
alternative arrangements on commercially reasonable terms to permit it to
maintain normal business operations).
Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS
Each of the parties hereto understands and agrees that no party hereto
is, in this Agreement or in any other agreement or document contemplated by this
Agreement or otherwise, representing or warranting in any way (i) as to the
value or freedom from encumbrance of, or any other matter concerning, any assets
of such party or (ii) as to the legal sufficiency to convey title to any asset
transferred pursuant to this Agreement or any Related Agreement, including,
without limitation, any Conveyancing and Assumption Instruments. It is also
agreed and understood that there are no warranties, express or implied, as to
the merchantability or fitness of any of the assets either transferred to or
retained by the parties, as the case may be, and all such assets shall be "as
is, where is" and "with all faults" (provided, however, that the absence of
warranties shall have no effect upon the allocation of liabilities under this
Agreement). Similarly, each party hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting
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in any way that the obtaining of any consents or approvals, the execution and
delivery of any amendatory agreements and the making of any filings or
applications contemplated by this Agreement will satisfy the provisions of any
or all applicable laws or judgments or other instruments or agreements relating
to such assets. Notwithstanding the foregoing, the parties shall use their good
faith efforts to obtain all consents and approvals, to enter into all reasonable
amendatory agreements and to make all filings and applications which may be
reasonably required for the consummation of the transactions contemplated by
this Agreement, and shall take all such further reasonable actions as shall be
reasonably necessary to preserve for each of ERC and Evercel, to the greatest
extent feasible, the economic and operational benefits of the allocation of
assets and liabilities provided for in this Agreement. In case at any time after
the Distribution Date any further action is necessary or desirable to carry out
the purposes of this Agreement, the proper officers and directors of each party
to this Agreement shall take all such necessary or desirable action.
Section 2.06. CONVEYANCING AND ASSUMPTION INSTRUMENTS
In connection with the Asset Transfers and the assumptions of
Liabilities contemplated by this Agreement, the parties shall execute or cause
to be executed by the appropriate entities the Conveyancing and Assumption
Instruments in such forms as the parties shall reasonably agree, including the
assignment of trademarks, patents, patent applications and other intellectual
property rights.
Section 2.07. CASH MANAGEMENT
(a) Evercel shall establish and maintain a separate cash management
system and accounting records with respect to the Evercel Business effective as
of 12:01 a.m. on the day following the Distribution Date; thereafter, (i) any
payments by ERC on behalf of Evercel in connection with the Evercel Business
(including, without limitation, any such payments in respect of Liabilities or
other obligations of Evercel under the Related Agreements) shall be recorded in
the accounts of Evercel as a payable to ERC; (ii) any payments by Evercel on
behalf of ERC in connection with the ERC Retained Business (including, without
limitation, any such payments in respect of Liabilities or other obligations of
ERC under the Related Agreements), shall be recorded in the accounts of ERC, as
a payable to Evercel; (iii) any cash payments received by ERC relating to the
Evercel Business or the Evercel Assets shall be recorded in the accounts of ERC,
as a payable to Evercel; (iv) any cash payments received by Evercel relating to
the ERC Retained Business or the ERC Retained Assets shall be recorded in the
accounts of Evercel as a payable to ERC; (v) ERC and Evercel shall make
adjustments for late deposits, checks returned for not sufficient funds and
other post-Distribution Date transactions as shall be reasonable under the
circumstances consistent with the purpose and intent of this Agreement; and (vi)
the net balance due to ERC or Evercel, as the case may be, in respect of the
aggregate amounts of clauses (i), (ii), (iii), (iv) and (v) shall be paid by ERC
or Evercel, as appropriate, as promptly as practicable. For purposes of this
Section 2.07 (a), the parties contemplate that the ERC Retained Business and the
Evercel Business, including but not limited to the administration of accounts
payable and accounts receivable, will be conducted in the normal course.
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(b) All transactions contemplated in this Section 2.07 shall be subject
to audit by the parties, and any dispute thereunder shall be resolved by KPMG
Peat Marwick LLP (or, if KPMG Peat Marwick LLP is not available or the parties
mutually agree, by such other independent firm of certified public accountants
mutually acceptable to ERC and Evercel), whose decision shall be final and
unappealable.
Section 2.08. RETAINED LICENSE TO USE TECHNOLOGY
Notwithstanding anything to the contrary contained in this Agreement,
Evercel acknowledges that ERC has licensed certain of the ERC Intellectual
Property Assets to the Joint Venture pursuant to the Three Circles License
Agreement. The Three Circles Contracts may require certain consents and
approvals prior to being transferred to Evercel. Therefore, without limitation
of the foregoing, following the transfer of the ERC Intellectual Property
Assets, pending the receipt of such consents and approvals, ERC shall retain a
non-exclusive license to use the ERC Intellectual Property Assets for the sole
purpose of fulfilling its obligations under the Three Circles Contracts. Evercel
agrees to promptly from time to time, but at least once a year, disclose to ERC
any know-how or patents of Evercel arising or issued after the Distribution Date
necessary for ERC to fulfill its obligations under such contracts.
Notwithstanding the foregoing, with respect to the Three Circles Contracts, upon
receipt of the necessary approvals as described in Section 2.03 hereof,
Evercel's obligations under this Section 2.08 shall terminate.
Section 2.09 AGREEMENT NOT TO COMPETE
ERC agrees not to participate, directly or indirectly, as principal,
owner, part-owner, partner, or in any other capacity, including as a passive
stockholder, partner or beneficial owner, in any business which owns, controls,
manages or otherwise operates a business which competes directly with the
Evercel Business. ERC and Evercel understand and acknowledge, however, that ERC
has formed a joint venture, called the Xiamen-ERC Technology Company, Limited
(the "Technology Joint Venture"), to develop and commercialize various advanced
electrochemical technologies, including battery technologies. ERC agrees that it
will endeavor to obtain amendments to the joint venture contract and articles of
association for the Technology Joint Venture to add Evercel as a party to the
Technology Joint Venture. Until Evercel becomes a party to the Technology Joint
Venture, however, ERC and Evercel agree that the Technology Joint Venture will
not undertake any projects involving battery technology without Evercel's prior
consent.
Section 2.10 CERTAIN MATTERS REGARDING EMPLOYEES
(a) Reference is made to the Option Agreement entered into between ERC
and Jerry D. Leitman ("Leitman"), dated as of August 1, 1997 (the "Option
Agreement"). Pursuant to the terms of the Option Agreement, Evercel agrees to
issue one share of Evercel Common Stock to Leitman for every three shares of ERC
Common Stock which he purchases from ERC from time
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to time pursuant to his exercise of options granted by the Option Agreement. The
exercise price received from Leitman with respect to his exercise of options
pursuant to the Option Agreement will be allocated between ERC and Evercel
proportionately, based upon the fair market value of shares of each company
immediately after the Distribution. Evercel agrees to register under the
Securities Act of 1933, as amended, the shares of Evercel Common Stock to be
issued to Leitman pursuant to the exercise of the options granted by the Option
Agreement.
(b) In addition, Evercel agrees to issue to Leitman a
non-transferable option (the "Evercel Option") to acquire 83,333 shares of
Evercel Common Stock exercisable at the Rights Offering purchase price
(currently expected to be $6.00 per share). Evercel agrees that the Evercel
Option will be issued pursuant to Evercel's 1998 Equity Incentive Plan and
will be exercisable during the Rights Offering and will terminate at the end
of the Rights Offering. The Evercel Option will be exercisable to acquire
33,333 vested shares and 50,000 restricted (unvested) shares. The restricted
(unvested) shares acquired pursuant to the Evercel Option will vest in
accordance with the vesting schedule set forth in the Option Agreement.
Evercel further agrees to allow Leitman to exercise the Evercel Option with
respect to the 50,000 restricted (unvested) shares by issuing to Evercel a
nonrecourse note (the "Note") in the amount of the total exercise price. The
Note shall provide that, at such time as these restricted (unvested) shares
would otherwise vest, Leitman may repay the applicable installment of the
Note (i.e. the Note shall be payable in three installments corresponding to
the three remaining vesting dates set forth in the Option Agreement).
However, until the applicable installment of the Note is repaid, the shares
will remain restricted. In the event the Note is not fully repaid by
August 1, 2001, the shares shall be forfeited to the Company for no
consideration.
(c) Evercel agrees to issue to Joseph G. Mahler a non-transferable
option to acquire 16,666 shares of Evercel Common Stock exercisable at the
Rights Offering purchase price (currently expected to be $6.00 per share).
Evercel agrees that this option will be issued pursuant to Evercel's 1998 Equity
Incentive Plan and will vest in 25% installments over a four year period
beginning on December 11, 1999.
ARTICLE III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES
Except as set forth in the Services Agreement, the Tax Sharing
Agreement or the other Related Agreements, effective as of and after the
Distribution Date, (a) Evercel shall assume, pay, perform and discharge in due
course all of the Evercel Liabilities, and (b) ERC shall pay, perform and
discharge in due course all of the ERC Retained Liabilities.
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ARTICLE IV. THE DISTRIBUTION
Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION
(a) ERC and Evercel shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the transactions
contemplated by this Agreement and the Related Agreements.
(b) ERC and Evercel shall use all reasonable efforts to obtain any
third-party consents or approvals necessary or desirable in connection with the
transactions contemplated hereby ("Consents").
(c) ERC and Evercel will use all reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary
or desirable under applicable law, to consummate the transactions contemplated
under this Agreement and the Related Agreements.
Section 4.02. ERC BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION
The ERC Board shall, in its discretion, establish any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall have been satisfied:
(a) The transactions contemplated by Sections 2.01 and 2.02 shall have
been consummated in all material respects;
(b) ERC and Evercel shall have obtained all Consents, the failure of
which to obtain would not, in the sole judgment of the ERC Board, have a
material adverse effect on ERC or Evercel;
(c) The Registration Statement on Form SB-2 under the Securities Act
filed by Evercel shall have been declared effective by the Commission;
(d) ERC and Evercel shall have entered into the Related Agreements to
which they are a party;
(e) ERC and the Company shall have received an opinion of counsel
satisfactory to the ERC Board to the effect that the Distribution will qualify
as a tax free spin-off under Sections 355 and 368(a)(1)(D) of the Internal
Revenue Code of 1986, as amended.
PROVIDED, HOWEVER, that (i) any such condition may be waived by the ERC
Board in its sole discretion, and (ii) the satisfaction of such conditions shall
not create any obligation on the part of ERC or any other party hereto to effect
the Distribution or in any way limit ERC's power of termination set forth in
Section 9.07 or alter the consequences of any such termination from those
specified in such Section; and
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PROVIDED, FURTHER, that ERC has entered into the Nan Ya License
Agreement and the Three Circles Contracts with certain Chinese and/or Taiwanese
entities. The parties acknowledge that the Joint Venture Contract does require
consent, and the Nan Ya License Agreement and the Three Circles License
Agreement may require consent, of the other parties to such contracts in order
for ERC to transfer them to Evercel. It is understood and agreed by the parties
that such Consents may not be obtained prior to the Transfer Date or the
Distribution Date and such Consents shall not be conditions precedent to the
Distribution
Section 4.03. THE DISTRIBUTION
On the Distribution Date, subject to the conditions and rights of
termination set forth in this Agreement, ERC shall deliver to the Agent all of
the then outstanding shares of Evercel Common Stock owned by ERC and shall
instruct the Agent to distribute to the Holders one share of Evercel Common
Stock for every three shares of ERC Common Stock held as of the Distribution
Record Date, provided that such Evercel Common Stock shall be subject to a
restriction such that it may not be sold or otherwise disposed of prior to the
closing of the Rights Offering. As soon as practicable following the closing of
the Rights Offering, the Agent shall deliver certificates representing the
Evercel Common Stock to the Holders.
ARTICLE V.
INDEMNIFICATION
Section 5.01. INDEMNIFICATION BY ERC
Except as otherwise expressly set forth in a Related Agreement, ERC
shall indemnify, defend and hold harmless Evercel and its directors, officers,
employees, agents and Affiliates and each of the heirs, executors, successors
and assigns of any of the foregoing (the "Evercel Indemnitees") from and against
the ERC Retained Liabilities and any and all losses, Liabilities, damages,
including, without limitation, the costs and expenses of any and all Actions,
threatened Actions, demands, assessments, judgments, settlements and compromises
relating to the ERC Retained Liabilities and attorneys' fees and any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any such Actions or threatened Actions (collectively, "Evercel
Indemnifiable Losses" and, individually, an "Evercel Indemnifiable Loss") of the
Evercel Indemnitees arising out of or due to the failure or alleged failure of
ERC or any of its Affiliates (i) prior to or after the Distribution Date to pay,
perform or otherwise discharge in due course any of the ERC Retained
Liabilities, or (ii) comply with the provisions of Section 6.01.
Section 5.02. INDEMNIFICATION BY EVERCEL
Except as otherwise expressly set forth in a Related Agreement, Evercel
shall indemnify, defend and hold harmless ERC and each of its respective
directors, officers, employees, agents and Affiliates and each of the heirs,
executors, successors and assigns of any of the foregoing (the "ERC
Indemnitees") from and against the Evercel Liabilities and any and all losses,
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Liabilities, damages, including, without limitation, the costs and expenses of
any and all Actions, threatened Actions, demands, assessments, judgments,
settlements and compromises relating to the Evercel Liabilities and attorneys'
fees and any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any such Actions or threatened Actions
(collectively, "ERC Indemnifiable Losses" and, individually, an "ERC
Indemnifiable Loss") of the ERC Indemnitees arising out of or due to the failure
or alleged failure of Evercel or any of its Affiliates (i) prior to or after the
Distribution Date to pay, perform or otherwise discharge in due course any of
the Evercel Liabilities or (ii) comply with the provisions of Section 6.01. The
"Evercel Indemnifiable Losses," and the "ERC Indemnifiable Losses" are
collectively referred to as the "Indemnifiable Losses."
Section 5.03. INSURANCE PROCEEDS
The amount which any party (an "Indemnifying Party") is or may be
required to pay to any other Person (an "Indemnitee") pursuant to Section 5.01
or Section 5.02 shall be reduced (including, without limitation, retroactively)
by any Insurance Proceeds or other amounts actually recovered by or on behalf of
such Indemnitee in reduction of the related Indemnifiable Loss. If an Indemnitee
shall have received the payment required by this Agreement from an Indemnifying
Party in respect of an Indemnifiable Loss and shall subsequently actually
receive Insurance Proceeds, or other amounts in respect of such Indemnifiable
Loss as specified above, then such Indemnitee shall pay to such Indemnifying
Party a sum equal to the amount of such Insurance Proceeds or other amounts
actually received.
Section 5.04. PROCEDURE FOR INDEMNIFICATION
(a) Except as may be set forth in a Related Agreement, if an Indemnitee
shall receive notice or otherwise learn of the assertion by a Person (including,
without limitation, any governmental entity) who is not a party to this
Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; provided that the failure of any Indemnitee to give notice as
required by this Section 5.04 shall not relieve the Indemnifying Party of its
obligations under this Article V, except to the extent that such Indemnifying
Party is prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.04(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within
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30 days after receipt of such notice from the Indemnitee, the Indemnifying Party
shall be deemed to have elected not to assume responsibility for such
Third-Party Claim), and such Indemnitee shall cooperate in the defense or
settlement or compromise of such Third-Party Claim. After notice from an
Indemnifying Party to an Indemnitee of its election to assume responsibility for
a Third-Party Claim, such Indemnifying Party shall not be liable to such
Indemnitee under this Article V for any legal or other expenses (except expenses
approved in advance by the Indemnifying Party) subsequently incurred by such
Indemnitee in connection with the defense thereof; provided that if the
defendants in any such claim include both the Indemnifying Party and one or more
Indemnitees and in such Indemnitees' reasonable judgment a conflict of interest
between such Indemnitees and such Indemnifying Party exists in respect of such
claim, such Indemnitees shall have the right to employ separate counsel and in
that event the reasonable fees and expenses of such separate counsel (but not
more than one separate counsel reasonably satisfactory to the Indemnifying
Party) shall be paid by such Indemnifying Party. If an Indemnifying Party elects
not to assume responsibility for a Third-Party Claim (which election may be made
only in the event of a good faith dispute that a claim was inappropriately
tendered under Section 5.01 or 5.02, as the case may be) such Indemnitee may
defend or (subject to the following sentence) seek to compromise or settle such
Third-Party Claim. Notwithstanding the foregoing, an Indemnitee may not settle
or compromise any claim without prior written notice to the Indemnifying Party,
which shall have the option within ten days following the receipt of such notice
(i) to disapprove the settlement and assume all past and future responsibility
for the claim, including reimbursing the Indemnitee for prior expenditures in
connection with the claim, or (ii) to disapprove the settlement and continue to
refrain from participation in the defense of the claim, in which event the
Indemnifying Party shall have no further right to contest the amount or
reasonableness of the settlement if the Indemnitee elects to proceed therewith,
or (iii) to approve the amount of the settlement, reserving the Indemnifying
Party's right to contest the Indemnitee's right to indemnity, or (iv) to approve
and agree to pay the settlement. In the event the Indemnifying Party makes no
response to such written notice from the Indemnitee, the Indemnifying Party
shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to compromise
any Third-Party Claim, the Indemnitee shall make available to such Indemnifying
Party any personnel and any books, records or other documents within its control
or which it otherwise has the ability to make available that are necessary or
appropriate for such defense.
(d) Notwithstanding anything else in this Section 5.04 to the contrary,
an Indemnifying Party shall not settle or compromise any Third-Party Claim
unless such settlement or compromise contemplates as an unconditional term
thereof the giving by such claimant or plaintiff to the Indemnitee of a written
release from all liability in respect of such Third-Party Claim (and provided
further that such settlement may not provide for any non-monetary relief by
Indemnitee without the written consent of Indemnitee). In the event the
Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee
declines to accept any such settlement or compromise, such Indemnitee may
continue to contest such Third-Party Claim, free of any participation by such
Indemnifying Party, at such Indemnitee's sole expense. In such event, the
obligation of such Indemnifying Party to such Indemnitee with respect to such
Third-Party Claim shall be equal to (i) the costs and expenses of such
Indemnitee prior to the date such
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Indemnifying Party notifies such Indemnitee of the offer to settle or compromise
(to the extent such costs and expenses are otherwise indemnifiable hereunder)
plus (ii) the lesser of (A) the amount of any offer of settlement or compromise
which such Indemnitee declined to accept and (B) the actual out-of-pocket amount
such Indemnitee is obligated to pay subsequent to such date as a result of such
Indemnitee's continuing to pursue such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not result
from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement.
(f) In addition to any adjustments required pursuant to Section 5.03,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee
in connection with any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third-Party Claim against any claimant or plaintiff asserting
such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
Section 5.05. REMEDIES CUMULATIVE
The remedies provided in this Article V shall be cumulative and shall
not preclude assertion by any Indemnitee of any other rights or the seeking of
any and all other remedies against any Indemnifying Party.
Section 5.06. SURVIVAL OF INDEMNITIES
The obligations of each of ERC and Evercel under this Article V shall
survive the sale or other transfer by it of any assets or businesses or the
assignment by it of any Liabilities with respect to any Indemnifiable Loss of
the other related to such assets, businesses or Liabilities.
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ARTICLE VI.
CERTAIN ADDITIONAL MATTERS
Section 6.01. CERTAIN POST-DISTRIBUTION TRANSACTIONS
(a) EVERCEL. Evercel shall comply with each representation and
statement made, or to be made, to any taxing authority in connection with any
ruling obtained, or to be obtained, by ERC and Evercel acting together, from any
such taxing authority with respect to any transaction contemplated by this
Agreement.
(b) ERC. ERC shall comply with each representation and statement made,
or to be made, to any taxing authority in connection with any ruling obtained,
or to be obtained, by ERC and Evercel acting together, from any such taxing
authority with respect to any transaction contemplated by this Agreement.
Section 6.02. NOTICES BY ERC
ERC shall provide notice of the Distribution to all holders of its
securities, or options, rights or warrants convertible into its securities, as
may be required by ERC's Certificate of Incorporation or Bylaws or any agreement
to which ERC is a party.
ARTICLE VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. PROVISION OF CORPORATE RECORDS
(a) Except as may otherwise be provided in a Related Agreement, ERC
shall deliver to Evercel as soon as practicable following the Distribution Date,
to the extent not previously delivered in connection with the transactions
contemplated in Article II, the Evercel Books and Records in its possession,
except to the extent such items are already in the possession of Evercel. The
Evercel Books and Records shall be the property of Evercel, but shall be
available to ERC for review and duplication until ERC shall notify Evercel in
writing that such records are no longer of use to ERC.
(b) Except as otherwise provided in a Related Agreement, Evercel shall
deliver to ERC as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, the ERC Books and Records in its possession, except to the extent
such items are already in the possession of ERC. The ERC Books and Records shall
be the property of ERC, but shall be available to Evercel for review and
duplication until Evercel shall notify ERC in writing that such records are no
longer of use to Evercel.
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Section 7.02. ACCESS TO INFORMATION
Except as otherwise provided in a Related Agreement, from and after the
Distribution Date, ERC shall afford to Evercel and its authorized accountants,
counsel and other designated representatives reasonable access (including using
reasonable efforts to give access to persons or firms possessing information)
and duplicating rights during normal business hours to all records, books,
contracts, instruments, computer data and other data and information relating to
pre-Distribution operations (collectively, "Information") within ERC's
possession insofar as such access is reasonably required by Evercel for the
conduct of its business, subject to appropriate restrictions for classified or
Privileged Information. Similarly, except as otherwise provided in a Related
Agreement, Evercel shall afford to ERC and their authorized accountants, counsel
and other designated representatives reasonable access (including using
reasonable efforts to give access to persons or firms possessing information)
and duplicating rights during normal business hours to Information within
Evercel's possession, insofar as such access is reasonably required by ERC for
the conduct of its business, subject to appropriate restrictions for classified
or Privileged Information. Information may be requested under this Article VII
for the legitimate business purposes of either party, including, without
limitation, audit, accounting, claims (including claims for indemnification
hereunder), litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations and for performing this Agreement and the
transactions contemplated hereby.
Section 7.03. PRODUCTION OF WITNESSES
At all times from and after the Distribution Date, each of ERC and
Evercel shall use reasonable efforts to make available to the others, upon
written request, its and its Subsidiaries officers, directors, employees and
agents as witnesses to the extent that such persons may reasonably be required
in connection with any Action.
Section 7.04. REIMBURSEMENT
Except to the extent otherwise contemplated in any Related Agreement, a
party providing Information or witness services to another party under this
Article VII shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payments of such amounts, relating to
supplies, disbursements and other out-of-pocket expenses (at cost) and direct
and indirect expenses of employees who are witnesses or otherwise furnish
assistance (at cost), as may be reasonably incurred in providing such
Information or witness services.
Section 7.05. RETENTION OF RECORDS
Except as otherwise required by law or agreed to in a Related Agreement
or otherwise in writing, each of ERC and Evercel may destroy or otherwise
dispose of any of the Information, which is material Information and is not
contained in other Information retained by ERC or Evercel, as the case may be,
at any time after the sixth anniversary of this Agreement, provided that, prior
to such destruction or disposal, (a) it shall provide no less than 90 or more
than 120 days prior written notice to the other, specifying in reasonable detail
the Information proposed to be destroyed or disposed of and (b) if a recipient
of such notice shall request in writing prior to
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the scheduled date for such destruction or disposal that any of the Information
proposed to be destroyed or disposed of be delivered to such requesting party,
the party proposing the destruction or disposal shall promptly arrange for the
delivery of such of the Information as was requested at the expense of the party
requesting such Information.
Section 7.06. CONFIDENTIALITY
Each of ERC, Evercel and their respective Subsidiaries shall hold, and
shall cause its employees, consultants and advisors to hold, in strict
confidence, all Information concerning the other parties hereto in its
possession or furnished by the other parties or the other parties'
representatives pursuant to this Agreement (except to the extent that such
Information has been (i) in the public domain through no fault of such party or
(ii) later lawfully acquired from other sources by such party), and subject to
Section 7.07, each party shall not release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, rating
agencies, bankers and other consultants and advisors, unless compelled to
disclose by judicial or administrative process or, as reasonably advised by its
counsel or by other requirements of law, or unless such Information is
reasonably required to be disclosed in connection with (x) any litigation with
any third-parties or litigation between ERC and Evercel or any of them, (y) any
contractual agreement to which ERC or Evercel or any of them are currently
parties, or (z) in exercise of any party's rights hereunder.
Section 7.07. PRIVILEGED MATTERS
ERC and Evercel recognize that legal and other professional services
that have been and will be provided prior to the Distribution Date have been and
will be rendered for the benefit of each of ERC and Evercel and that each of ERC
and Evercel should be deemed to be the client for the purposes of asserting all
Privileges. To allocate the interests of each party in the Privileged
Information, the parties agree as follows:
(a) ERC shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the ERC Retained Business, whether or not the Privileged Information
is in the possession of or under the control of ERC or Evercel. ERC shall also
be entitled, in perpetuity, to control the assertion or waiver of all Privileges
in connection with Privileged Information that relates solely to the subject
matter of any claims constituting ERC Retained Liabilities, now pending or which
may be asserted in the future, in any lawsuits or other proceedings initiated
against or by ERC, whether or not the Privileged Information is in the
possession of or under the control of ERC or Evercel.
(b) Evercel shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the Evercel Business, whether or not the Privileged
Information is in the possession of or under the control of ERC or Evercel.
Evercel shall also be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the subject matter of any claims constituting Evercel Liabilities, now
pending or which may be asserted in the future, in any lawsuits or other
proceedings initiated against or by Evercel, whether or not the Privileged
Information is in the possession of Evercel or under the control of ERC or
Evercel.
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(c) ERC and Evercel agree that they shall have a shared Privilege, with
equal right to assert or waive, subject to the restrictions in this Section
7.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings,
litigation, disputes or other matters which involve each of ERC and Evercel in
respect of which ERC and Evercel retain any responsibility or liability under
this Agreement shall be subject to a shared Privilege.
(d) No party may waive any Privilege which could be asserted under any
applicable law, and in which any other party has a shared Privilege, without the
consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within 20 days after notice upon the other party
requesting such consent.
(e) In the event of any litigation or dispute between ERC and Evercel,
or any of them, any party may waive a Privilege in which any other party has a
shared Privilege, without obtaining the consent of the other party, provided
that such waiver of a shared Privilege shall be effective only as to the use of
Information with respect to the litigation or dispute between such parties, and
shall not operate as a waiver of the shared Privilege with respect to
third-parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of any party, each
party agrees that it shall negotiate in good faith, shall endeavor to minimize
any prejudice to the rights of the other parties, and shall not unreasonably
withhold consent to any request for waiver by the other parties. Each party
specifically agrees that it will not withhold consent to waiver for any purpose
except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which any other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(h) The transfer of the Evercel Books and Records and the ERC Books and
Records and other Information between ERC, Evercel and their respective
Subsidiaries is made in reliance on the agreement of ERC and Evercel, as set
forth in Sections 7.06 and 7.07, to maintain the confidentiality of Privileged
Information and to assert and maintain all applicable Privileges. The access to
information being granted pursuant to Sections 7.01 and 7.02, the agreement to
provide witnesses and individuals pursuant to Section 7.03 and the transfer of
Privileged Information between ERC, Evercel and their respective Subsidiaries
pursuant to this Agreement
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shall not be deemed a waiver of any Privilege that has been or may be asserted
under this Agreement or otherwise.
ARTICLE VIII.
INSURANCE
Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE EVERCEL ASSETS
Without limiting the generality of the definition of the Evercel Assets
set forth in Section 2.01 or the effect of Section 2.01, the Evercel Assets
shall include (a) any and all rights of an insured party under each of the
Shared Policies, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer, with respect to all injuries,
losses, liabilities, damages and expenses incurred or claimed to have been
incurred on or prior to the Distribution Date by any party in or in connection
with the conduct of the Evercel Business or, to the extent any claim is made
against Evercel or any of its Subsidiaries, the ERC Retained Business, and which
injuries, losses, liabilities, damages and expenses may arise out of insured or
insurable occurrences or events under one or more of the Shared Policies;
PROVIDED, HOWEVER, that nothing in this Section 8.01 shall be deemed to
constitute (or to reflect) the assignment of the Shared Policies, or any of
them, to Evercel, and (b) the Evercel Policies.
Section 8.02. POST-DISTRIBUTION DATE CLAIMS
If, subsequent to the Distribution Date, any person, corporation, firm
or entity shall assert a claim against Evercel with respect to any injury, loss,
liability, damage or expense incurred or claimed to have been incurred on or
prior to the Distribution Date in or in connection with the Distribution or the
conduct of the Evercel Business or, to the extent any claim is made against
Evercel or any of its Subsidiaries, the ERC Retained Business, and which injury,
loss, liability, damage or expense may arise out of insured or insurable
occurrences or events under one or more of the Shared Policies, ERC shall at the
time such claim is asserted be deemed to assign, without need of further
documentation, to Evercel any and all rights of an insured party under the
applicable Shared Policy with respect to such asserted claim, specifically
including rights of indemnity and the right to be defended by or at the expense
of the insurer; provided, however, that nothing in this Section 8.02 shall be
deemed to constitute (or to reflect) the assignment of the Shared Policies, or
any of them, to Evercel.
Section 8.03. ADMINISTRATION AND RESERVES
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:
(i) Evercel shall be entitled to any reserves established by
ERC or any of its Subsidiaries, or the benefit of reserves held by any insurance
carrier, with respect to the Evercel Liabilities; and
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(ii) ERC shall be entitled to any reserves established by ERC
or any of its Subsidiaries, or the benefit of reserves held by any insurance
carrier, with respect to the ERC Retained Liabilities.
(b) INSURANCE PREMIUMS. Evercel shall have the right but not the
obligation to pay the premiums, to the extent that ERC does not pay premiums
with respect to the ERC Retained Liabilities (retrospectively-rated or
otherwise), with respect to Shared Policies and the Evercel Policies, as
required under the terms and conditions of the respective Policies, whereupon
ERC shall forthwith reimburse Evercel for that portion of such premiums paid by
Evercel as are attributable to the ERC Retained Liabilities.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received with
respect to claims, costs and expenses under the Policies shall be paid to
Evercel with respect to the Evercel Liabilities and to ERC with respect to the
ERC Retained Liabilities. Payment of the allocable portions of indemnity costs
of Insurance Proceeds resulting from the liability policies will be made to the
appropriate party upon receipt from the insurance carrier. In the event that the
aggregate limits on any Shared Policies are exceeded, the parties agree to
provide an equitable allocation of Insurance Proceeds received after the
Distribution Date based upon their respective bona fide claims. The parties
agree to use their best efforts to cooperate with respect to insurance matters.
Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE
In the event that Insured Claims of ERC and Evercel exist relating to
the same occurrence, such parties agree to jointly defend and to waive any
conflict of interest necessary to the conduct of that joint defense. Nothing in
this Section 8.04 shall be construed to limit or otherwise alter in any way the
indemnity obligations of the parties to this Agreement, including those created
by this Agreement, by operation of law or otherwise.
ARTICLE IX.
MISCELLANEOUS
Section 9.01. COMPLETE AGREEMENT; CONSTRUCTION
This Agreement, including the Schedules and Exhibits and the Related
Agreements and other agreements and documents referred to herein, constitutes
the entire agreement and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral, between the parties
hereto with respect to the subject matter hereof, so that no such external or
separate agreement relating to the subject matter of this Agreement shall have
any effect or be binding, unless the same is referred to specifically in this
Agreement or is executed by the parties after the date hereof. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the provisions of the Related Agreements, the Related Agreements shall
control.
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Section 9.02. EXPENSES
Except as otherwise set forth in this Agreement or any Related
Agreement, all costs and expenses in connection with the preparation, execution,
delivery and implementation of this Agreement, the Distribution and with the
consummation of the transactions contemplated by this Agreement shall be charged
to the party for whose benefit the expenses are incurred, with any expenses
which cannot be allocated on such basis to be split equally between the parties.
Notwithstanding the foregoing, Evercel agrees to pay and/or reimburse ERC for
any and all expenses incurred by ERC pursuant to the License Assistance
Agreement.
Section 9.03. GOVERNING LAW
This Agreement and the rights and obligations of the parties hereunder
shall be governed by the laws of the State of Connecticut, without regard to the
principles of choice of law thereof, except with respect to matters of law
concerning the internal corporate affairs of any corporate entity which is a
party to or subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall govern.
Section 9.04. NOTICES
Notices shall be sent to the parties at the following addresses:
Energy Research Corporation
3 Great Pasture Road
Danbury, Connecticut 06813
Evercel, Inc.
3 Great Pasture Road
Danbury, Connecticut 06813
Notices may be hand-delivered or sent by certified mail, return receipt
requested, Federal Express or comparable overnight delivery service, or
facsimile. Notice shall be deemed received at the time delivered by hand, on the
fourth business day following deposit in the U.S. mail, and on the first
business day following deposit with Federal Express or other delivery service,
or upon transmission by facsimile. Any party to this Agreement may change its
address for notice by giving written notice to the other party at the address
and in accordance with the procedures provided above.
Section 9.05. AMENDMENTS; WAIVERS
No termination, cancellation, modification, amendment, deletion,
addition or other change in this Agreement, or any provision hereof, or waiver
of any right or remedy herein provided, shall be effective for any purpose
unless such change or waiver is specifically set forth in a writing signed by
the party or parties to be bound thereby. The waiver of any right or remedy with
respect to any occurrence on one occasion shall not be deemed a waiver of such
right or remedy with respect to such occurrence on any other occasion.
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Section 9.06. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. This Agreement shall
not be assigned without the express written consent of each of the parties
hereto.
Section 9.07. TERMINATION
This Agreement may be terminated and the Distribution abandoned at any
time prior to the Distribution Date by and in the sole discretion of the ERC
Board without the approval of Evercel. In the event of such termination, no
party shall have any liability to any other party pursuant to this Agreement.
Section 9.08. NO THIRD-PARTY BENEFICIARIES
Except for the provisions of Article V relating to Indemnities, this
Agreement is solely for the benefit of the parties hereto and their respective
Subsidiaries and Affiliates and should not be deemed to confer upon
third-parties any remedy, claim, Liability, reimbursement, claim of action or
other right in excess of those existing without reference to this Agreement.
Section 9.09. TITLES AND HEADINGS
Titles and headings to sections herein are inserted for the convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
Section 9.10. EXHIBITS AND SCHEDULES
The Exhibits and Schedules shall be construed with and as an integral
part of this Agreement to the same extent as if the same had been set forth
verbatim herein.
Section 9.11. LEGAL ENFORCEABILITY
In the event that one or more of the terms or provisions of this
Agreement or the application thereof to any person(s) or in any circumstance(s)
shall, for any reason and to any extent be found by a court of competent
jurisdiction to be invalid, illegal or unenforceable, such court shall have the
power, and hereby is directed, to substitute for or limit such invalid term(s),
provision(s) or application(s) and to enforce such substituted or limited terms
or provisions, or the application thereof. Subject to the foregoing, the
invalidity, illegality or enforceability of any one or more of the terms or
provisions of this Agreement, as the same may be amended from time to time,
shall not affect the validity, legality or enforceability of any other term or
provision hereof. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Without prejudice to any rights or remedies otherwise
available to any party hereto, each party hereto acknowledges that damages would
be an inadequate remedy for
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any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
Section 9.12. ARBITRATION OF DISPUTES
(a) Any controversy or claim arising out of this Agreement, or any
breach of this Agreement, including any controversy relating to a determination
of whether specific assets constitute Evercel Assets or ERC Retained Assets or
whether specific Liabilities constitute Evercel Liabilities or ERC Retained
Liabilities, shall be settled by arbitration in accordance with the Rules of the
American Arbitration Association then in effect, as modified by this Section
9.12 or by the further agreement of the parties.
(b) Such arbitration shall be conducted in Connecticut.
(c) Any judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitrators shall have the
authority to award to the prevailing party its attorneys' fees and costs
incurred in such arbitration. The arbitrators shall not, under any
circumstances, have any authority to award punitive, exemplary or similar
damages, and may not, in any event, make any ruling, finding or award that does
not conform to the terms and conditions of this Agreement.
(d) Nothing contained in this Section 9.12 shall limit or restrict in
any way the right or power of a party at any time to seek injunctive relief in
any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain any other party from breaching this
Agreement or (ii) for specific enforcement of this Section 9.12. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 9.12 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this Section
9.12.
(e) The parties hereby consent to the jurisdiction of the federal
courts located in Hartford, Connecticut for all purposes under this Agreement.
(f) Neither the parties nor the arbitrators may disclose the existence
or results of any arbitration under this Agreement or any evidence presented
during the course of the arbitration without the prior written consent of the
parties, except as required to fulfill applicable disclosure and reporting
obligations, or as otherwise required by law.
(g) Except as provided in Section 9.12(c), each party shall bear its
own costs incurred in the arbitration. If any party refuses to submit to
arbitration any dispute required to be submitted to arbitration pursuant to this
Section 9.12, and instead commences any other proceeding, including, without
limitation, litigation, then the party who seeks enforcement of the obligation
to arbitrate shall be entitled to its attorneys' fees and costs incurred in any
such proceeding.
Section 9.13.
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COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which together shall be deemed to be an original and all of which together shall
be deemed to constitute one and the same agreement.
Section 9.14. RELATIONSHIP OF PARTIES
Nothing in this Agreement shall be deemed or construed by the parties
or any third party as creating the relationship of principal and agent,
partnership or joint venture between the parties, it being understood and agreed
that no provision contained herein, and no act of the parties, shall be deemed
to create any relationship between the parties other than the relationship set
forth herein.
Section 9.15. FURTHER ACTION
Evercel and ERC each shall cooperate in good faith and take such steps
and execute such papers as may be reasonably requested by the other party to
implement the terms and provisions of this Agreement.
Section 9.16. PREDECESSORS AND SUCCESSORS
To the extent necessary to give effect to the purposes of this
Agreement, any reference to any corporation shall also include any predecessor
or successor thereto, by operation of law or otherwise.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
ENERGY RESEARCH CORPORATION
By:
----------------------------
Name:
Title:
EVERCEL, INC.
By:
----------------------------
Name:
Title:
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SCHEDULES
Schedule 1.01(a): ERC Personal Property Assets
Schedule 1.01(b): ERC Contracts
Schedule 1.01(c): Evercel Liabilities
Schedule 1.01(d): ERC Intellectual Property Assets
Schedule 1.01(e): Evercel Employees
-28-
<PAGE>
SCHEDULE 1.01(a)
ERC PERSONAL PROPERTY ASSETS
<TABLE>
<CAPTION>
DESCRIPTION ACQUISITION DATE
----------- ----------------
<S> <C>
HP 6291A Power Supply 01/01/79
HP 6296A Power Supply 01/01/79
Mettler PC 4400 Balance 06/01/80
Dispatch Oven 01/01/79
Potentiostat Model 371 01/01/79
Polarographic Analyzer System 11/01/82
Power Supply DCR20-115B 11/01/82
Drying Racks 08/01/82
Mettler Balance Model PN1210 11/01/82
RE0091 X-Y Recorder 10/01/84
EG&G Par C MD 175 Programmer 11/01/82
Simpson 462 Digital Multimeter 01/01/79
Omega RD-115-T-AR12 Chart Recorder 08/01/87
HP 6263B Power Supply 01/01/75
Potentiostat/Galvanostat 11/01/82
Omega 595 Strip Chart Recorder 06/01/84
DCR 60-30B Power Supply 01/01/79
Unitron TM-25-544 Microscope 01/01/79
Thermolyne Oven 124 01/01/79
QRD 40-75 Power Supply 01/01/79
HP 6260B Power Supply 01/01/75
Linear 595 Chart Recorder 03/01/82
Omega Chart Recorder Model 595 04/01/88
Omega Chart Recorder 09/01/86
Diarco Shear #1 01/01/79
Power Supply DCR60-45B 11/01/82
HP Mod 6433B DC Power Supply 01/01/72
Power Supply QRD 15-2 11/01/82
QRD15-2 Power Supply 01/01/79
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION ACQUISITION DATE
----------- ----------------
<S> <C>
Large Dough Mixer 01/01/79
Digital Multimeter 01/01/79
Linear 595 Chart Recorder 08/01/84
HP 6267B Power Supply 02/01/89
Model 461-2 Digital Multimeter 01/01/79
Fluke 75 Multimeter 01/01/79
Omega RD115-T AR12 Recorder 01/01/79
K-Tron Model LWF Loss In Feed 06/01/89
Kneader/Extruder w/Heat, Dies 02/01/83
Upgrade Buss Extruder 12/01/87
Dispatch Oven 01/01/79
Dispatch Oven 01/01/79
Rolling Mill 07/01/76
16" Electrode Rolling Mill 12/01/78
16" Electrode Rolling Mill 12/01/79
Revise 16" Rolling Mill to 20" 06/01/87
Control System for Rolling Mill 12/01/80
Oil Seals/Lab on Rolling Mill 02/01/80
Modify 20" Rolling Mill 01/01/90
Diarco #3 Shear 01/01/79
Linear 595 3 Pen Chart Recorder 01/01/79
Fluke 77 Multimeter 01/01/79
Weighing Scale and Scoop 02/01/76
Rolling Mill 01/01/79
Rolling Mill 01/01/79
Double Arm Sigma Blade Mixer 11/01/75
Ross Double Planetary Mixer 06/01/73
Rolling Mill 01/01/79
Rolling Mill 01/01/79
Photo Meter Digital 08/01/79
Illuminance Probe 11/01/79
DCB 40-125A Power Supply 01/01/79
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION ACQUISITION DATE
----------- ----------------
<S> <C>
Steromicroscope, Wild 01/01/79
Power Supply DCR40-13B 10/01/85
179A Trms Multimeter 01/01/79
Power Supply DCR40-13B 10/01/85
Model 177 Digital Multimeter 12/01/85
Schulz Power Supply 01/01/79
ACDC Mod EL 750 Electronic Load 01/01/79
ACDC Mod EL750 Electronic Load 01/01/79
Power Supply QRD15-2 Sorensen 11/01/82
Thelco Lab Oven Model 4 01/01/79
DCR40-13B Power Supply 01/01/79
Digital Multimeter Data Precis. 01/01/79
Fluke 8050A Digital Multimeter 01/01/79
HP DC Power Supply 09/01/84
Sorensen Power Supply DCR80-6B 02/01/85
Power Supply DCR10-170B 11/01/82
Omega Chart Recorder Model 595 04/01/88
Linear 595 Chart Recorder 03/01/82
Fluke 8050A O M M 01/01/79
Diarco #2 Hand Notcher 12/01/78
Benchmaster Press #151 08/01/78
Benchmaster Punch Press #152 01/01/79
Diarco #4 Shear 01/01/79
Gruenberg 400 C Oven 01/01/79
Stock Stand Model P-10 09/01/84
2 Ft Shear #4, Dedgro 09/01/76
Profab Corner Radius Mach #900 08/01/85
Rosenthal Variable Shelter 10/01/85
Punch Press 09/01/76
Rolling Mill 01/01/79
Crosshead Extruder for Buss 02/01/84
80-12B Power Supply 01/01/79
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION ACQUISITION DATE
----------- ----------------
<S> <C>
Continuous Piercing Machine 04/01/87
Two Roll Amil Milder Calander 01/01/72
Calander Tension Stand 02/01/86
80 Ton Press 01/01/74
J. H. Wood 80 Ton Press 12/01/77
Hydraulic Cylinder for Press 10/01/81
Vertrod Heat Sealer 12" 01/01/79
High Speed Twin Shell Blender 02/01/76
Potentiostat/Galvanostat M 273 06/01/86
HP 4328A Milliohm Meter 12/01/87
4 1/2 Digit Multimeter 09/01/76
Expansion of Government Piercer 10/01/83
HP 3476A Multimeter 01/01/79
Modify Battery Cycler 10/01/91
Chart Recorder 3 Channel 11/01/90
Grieve 5A550 Shelf Oven 03/01/91
Electrode Rinsing System 10/27/92
Pneumatic Hopper for Electrode 10/31/92
Cool Flow Refrig Recirculator 12/31/92
Cell Cycler 04/01/94
2-10 Input Hybrid Bench Recorder 06/01/95
Welder and Accessories 07/01/95
Battery Testing System 10/01/95
Display Cabinet Battery Parts 12/01/95
Battery Testing Freezer 03/01/96
Voltage Monitoring Test Stand 10/01/96
Piercing Machine and Mods 05/01/97
Champ Bench Scale 09/01/97
Arbin Test System 4 Indp Chan 09/01/97
Ultrasonic 3000 Watt Welder 05/01/97
Horn Anvil Top and Bottom Cutter 01/01/97
Arbin Test System Mod #149268 05/01/97
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION ACQUISITION DATE
----------- ----------------
<S> <C>
2 Sorensen Power Supply 0-80V 03/01/98
Solvent Pump Delivery System 03/01/98
Ph Adjustment System 03/01/98
Aluminum Welded Dry Cabinet 03/01/98
Electric Scooter and Cycle 03/01/98
25241-0045 Model 45 Vacuum Pump 06/01/98
1500 Lb Trailer/Ramps and Lights 06/01/98
Install/Access for Battery Cycler 03/01/89
4 Post Car Lift and Cement Pad 06/01/98
Power Supply 0-6V DC 06/01/95
Battery Display Cabinet 03/01/97
Replace Transmission Frnch Mil 01/01/97
Bookcase w/Glass Doors, Black 01/01/79
Side Arm Chair, Black 04/01/83
Side Arm Chair, Black 04/01/83
Steelcase 5 Drawer File Cabinet 04/01/83
Work Table, Black w/Walnut 01/01/79
Bookcase, Black 01/01/79
Bookcase, Black 01/01/79
Drafting Board 01/01/79
Executive Desk, Black w/Walnut 01/01/79
Bookcase, Walnut 04/01/88
Highback Swivel Tilt Chair 04/01/88
Executive Desk, Black w/Walnut 01/01/79
4 Drawer File Cabinet, Black 01/01/79
Bookcase, Black 01/01/79
Folding Table, Oak Top 08/01/88
4 Drawer File Cabinet, Black 01/01/79
Lab Stool, Upholstered w/Casters 01/01/86
Storage Cabinet, Grey 01/01/79
Safety Storage Cabinet, Yellow 01/01/79
Storage Cabinet, Grey 01/01/79
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION ACQUISITION DATE
----------- ----------------
<S> <C>
Storage Cabinet, Black 08/01/83
4 Drawer File Cabinet, Black 01/01/79
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Office Furniture, Battery Area 06/01/98
Office Furniture, C. Huang 06/01/98
Office Furniture, K. Bates 04/01/98
Cell Case and Cover Mold 06/01/78
Tooling for Cell Case and Cover 12/01/77
Tooling Ni-Cd Miners Battery 06/01/82
Tooling Ni-Cd Miners Battery 12/01/79
Battery Case Injection Mold 10/01/82
Battery Cover Injection Mold 10/01/82
Special Znbr Tooling at Vendor 11/01/82
Steel Rule Die 11/01/82
3 Cavity Molds/Miners Battery 02/01/84
Cavity Mold/30 AH Cell Case 07/01/83
Case Mold 07/01/77
2 Single Cavity Injection Molds 04/01/86
Steel Stamp Tool/Miners Ni-Cd 01/01/85
Tooling/Stamp Tabs Ni-Cd Battery 04/01/85
Mod/Case/Cover Mold Miners Battery 05/01/85
Single Cavity Injection Mold 04/01/86
Tooling 8000 AG Ni-Cd Tabs 12/01/86
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION ACQUISITION DATE
----------- ----------------
<S> <C>
Injection Mold/Zinc Battery 04/01/89
Compression Mold/Bipolm Plates 05/01/89
Mold/Battery Flash Arrestor Ni 01/01/89
Battery Case and Cover Mold 08/01/95
Panasonic KX-P1091 Printer 01/01/79
Personal Computer and Monitor 08/31/92
Hirez VGA and DeskJet 500C Printer 10/31/92
Gateway P5-75 09/01/95
Gateway P5-120 PC 01/01/96
Gateway 2000 P-5 133 PC 09/01/96
Gateway 300MHz PC InkJet Printer 06/01/98
Gateway GP6-300 PC 06/01/98
Monitor 08/01/98
Gateway G6-300 PC 06/01/98
Install 1 4000 Amp Trans Switch 12/01/93
Map Assist Software 09/01/91
Elec Hook Up EV Battery Test 06/01/98
Mettler Top Loading Elec Scale 04/01/98
Battery Insulation Test 04/01/98
Rosenthal Sheeting System 06/01/98
Kras VSK083 Press 06/01/98
AU50R Pneumatic Torque/Screw 06/01/98
Helium Leak Test System 06/01/98
BT2043 Computer Control Cycler 06/01/98
19 Cubic Ft Incubator 08/01/98
20KHz Titanium Bar Horn 09/01/98
Inert Atmosphere Furnace, Small 09/01/98
Two Dry Material Blenders 10/01/98
Miniflex and Portable XRD System 09/01/98
3 Gateway GP6-400MHz PCs 10/01/98
Surftest Test 10/01/98
Appro # 151102 07/01/98
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION ACQUISITION DATE
----------- ----------------
<S> <C>
Appro # 151-126 10/01/98
Appro # 151-104 08/01/98
Appro # 151106 07/01/98
Appro # 151-109 07/01/98
Appro # 151-055 10/01/98
Appro # 151-130 10/01/98
Appro # 151-096 09/01/98
Appro # 151-143 SB 151-143 10/01/98
Appro # 153-111 10/01/98
Appro # 154054 07/01/98
Two Modular Work Stations 10/01/98
</TABLE>
-8-
<PAGE>
SCHEDULE 1.01(b)
ERC CONTRACTS
Technology Transfer and License Agreement for Ni-Zn Battery Technology among
Xiamen Three Circles Co., Ltd (formerly Xiamen Daily-Used Chemicals Co.,
Ltd), Nan Ya Plastics Corporation and ERC dated February 21, 1998.
Employee Agreement by and between ERC and Allen Charkey, dated as of
December 15, 1998.
BATTERY GROUP CONFIDENTIALITY AGREEMENTS
----------------------------------------
(BY DATE)
<TABLE>
<CAPTION>
NAME EFFECTIVE DATE
- ----
<S> <C>
Proslovia Inc. 7/7/98
Talisman International of Ohio 6/6/98
Currie Technologies 5/26/98
Dukane Corp. 5/15/98
Bell Technologies 5/5/98
BM - Battery Machinw 4/30/98
G.E. Schmidt 4/16/98
Miyachi Corp 4/7/98
Audi AG 4/3/98
Electro Energy Inc. 3/31/98
Orbel Corp. 3/30/98
Texmax 3/23/98
Arbin Inc. 3/23/98
Lewis Corp. 3/18/98
Hibar Systems Limited 3/17/98
IMD Corp. 3/17/98
Charles Ross & Son 3/17/98
Despatch Industries 3/17/98
Bodine Assemble & Test System 2/23/98
Zentrum For Sonnergie-und Wasserstroff 2/16/98
Beacon Group 2/10/98
BST Systems Corp. 12/19/97
Nan Ya Plastics Co. 11/14/97
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Danstep Associates 2/11/97
Courtaulds Fibres 06/17/96
Eveready Battery Co., Inc. 11/26/96
MATEC/BEWAG, Berlin 11/25/98
MATEC/GEW, Wilhelmshaven 11/25/98
MATEC/Wilhelmshaven 11/25/98
MATEC/VASA Energy, Hamburg 11/25/98
INMETCO 11/17/98
City of Xiamen, City 11/14/98
Rechargable Battery Corp. 11/11/98
Richel Inc. 11/6/98
Electro Energy Inc. 11/6/98
Yardney Technical Products 11/2/98
Garlock Inc. 10/30/98
Jaygo Inc. 10/30/98
CELGARD LLC 10/27/98
The Guest Co. 10/22/98
Maccor Inc. 10/22/98
Mauricio Rizikow 10/22/98
Jet Puverizer 10/22/98
Firing Circuits Inc. 10/15/98
Vernay Laboratories 8/18/98
Aero Vironment Inc. 9/17/98
Computer Aided Engineering 8/13/98
Straton Industries 8/13/98
H.C. Starck Business Group 8/7/98
All Battery consultants 8/7/98
Celgard 8/6/98
Mitsubishi Bank & Trust Corp. 7/7/98
</TABLE>
-2-
<PAGE>
BATTERY TEST AGREEMENTS
-----------------------
(BY DATE)
<TABLE>
<CAPTION>
NAME EFFECTIVE DATE
- ---- --------------
<S> <C>
NEOCON Technologies Inc. 11/30/98
Honda R&D Americas 10/13/98
Center for Hydrogen & Solar Research 7/28/98
ZAP Power System 7/22/98
EV Global Motors Co. 6/15/98
Charger Electric Bicycle Co. 6/17/98
Currie Technologies 5/26/98
Cannondale Corp. 8/5/98
PIVCO 3/3/98
Bodine Assembly & Test Systems 3/3/98
Bay Resource Corporation 2/26/98
Daimler Benz AG 8/7/97
Aero Vironment Inc. 9/17/96
Toro MFG. Corp. 9/12/96
Alvin J. Salkind 4/12/95
Electric Bicycle Co. 7/25/93
</TABLE>
BATTERY SERVICE AGREEMENTS
(BY DATE)
<TABLE>
<CAPTION>
NAME EFFECTIVE DATE
- ---- --------------
<S> <C>
MATEC (Marketing and Techology Consult GmbH) 10/6/98
</TABLE>
BATTERY MEMORANDUM OF UNDERSTANDING
(BY DATE)
<TABLE>
<CAPTION>
NAME EFFECTIVE DATE
- ---- --------------
<S> <C>
TRAPOS (Transport Systemetecnic AG) 10/27/98
</TABLE>
-3-
<PAGE>
SCHEDULE 1.01(c)
EVERCEL LIABILITIES
<PAGE>
SCHEDULE 1.01(d)
ERC INTELLECTUAL PROPERTY ASSETS
U.S. PATENTS AND PENDING U.S. PATENT APPLICATIONS
<TABLE>
<CAPTION>
PATENT NO. ISSUE DATE FILE NO.
- ---------- ---------- --------
<S> <C> <C>
4,415,636 November 11, 1983 30512
4,546,058 October 8, 1985 32984
4,661,759 April 28,1987 40006
4,810,598 March 7, 1987 40067
4,976,904 December 11, 1990 40066
5,023,155 June 11, 1991 40110
5,264,305 November 23, 1993 B429-001
5,460,899 October 24, 1995 B429-010
5,556,720 September 17, 1996 B429-010 CIP
5,658,694 August 19, 1997 B429-021
</TABLE>
<TABLE>
<CAPTION>
PATENT APPLN. NO. FILING DATE FILE NO.
- ----------------- ----------- --------
<S> <C> <C>
08/722,605 September 27, 1996 B429-019
08/828,801 March 27, 1997 B429-026
09/148,451 September 4, 1998 B429-029
</TABLE>
<PAGE>
SCHEDULE 1.01(e)
EVERCEL EMPLOYEES
<TABLE>
<CAPTION>
PERMANENT EMPLOYEES TEMPORARY EMPLOYEES
- ------------------- -------------------
<S> <C>
Kathy Bates Steve Elam
Fernando Bico Maria Quiroz
Allen Charkey Jeff Gardner
William Clark Vincent Marra
Elio Ferreira George Tirado
Lieng Nguyen Elaine Vargas
Jacqueline Nguyen Estelle Barnes
John Rotondo
Glen Bowling
Olivia Saraiva
Mike Nyce
Keith Williams
Virgil Handberry
James DeCarvalho
Phil Napoli
Richard Howard
</TABLE>
<PAGE>
EXHIBITS
Exhibit A: Form of Services Agreement
Exhibit B: Form of Tax Sharing Agreement
Exhibit C: Form of License Assistance Agreement
<PAGE>
EXHIBIT A
FORM OF SERVICES AGREEMENT
<PAGE>
EXHIBIT B
FORM OF TAX SHARING AGREEMENT
<PAGE>
EXHIBIT C
FORM OF LICENSE ASSISTANCE AGREEMENT
C-2
<PAGE>
Exhibit 10.2
SERVICES AGREEMENT
This Services Agreement is made as of this ____ day of ______________, 1999
by and between ENERGY RESEARCH CORPORATION, a New York corporation ("ERC") and
EVERCEL, INC., a Delaware corporation ("Evercel").
W I T N E S S E T H:
WHEREAS, ERC has transferred and assigned all of the assets and liabilities
of ERC's battery business to Evercel, a wholly-owned subsidiary of ERC until
___________, 1999 when ERC distributed to its stockholders in a tax-free
distribution all of the issued and outstanding shares of Common Stock of
Evercel;
WHEREAS, ERC has historically provided to its battery business and to
Evercel certain management and administrative services and the use of certain
office, research and development, manufacturing and support facilities and
services;
WHEREAS, Evercel desires to continue to obtain from ERC these management
and administrative services, as well as the use of certain office, research and
development, manufacturing and support facilities and services of ERC;
WHEREAS, ERC wishes to continue to provide such assistance to Evercel under
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties hereto hereby agree as follows:
1. ENGAGEMENT
Evercel does hereby engage ERC to provide the management and administrative
services and support facilities and services described herein. ERC accepts this
engagement and agrees to furnish the services described below for the
compensation set forth below.
2. SERVICES TO BE PROVIDED BY ERC
ERC agrees to provide management and administrative services and certain
office, research and development, manufacturing and support facilities and
services necessary in the day-to-day operations of Evercel (collectively, the
"Services"). Such duties shall include the following:
(a) Providing and maintaining, at ERC's existing offices at 3 Great
Pasture Road, Danbury, Connecticut, or at such other location as ERC and Evercel
may agree, sufficient office, research and development and manufacturing space
for Evercel to carry on its business activities ("Building Services");
<PAGE>
(b) Providing Evercel with services supplied by the ERC Analytical Lab,
Microscopic Analysis, Machine Shop and Drafting (collectively, "Work Order
Services") upon submission by Evercel to ERC of an appropriate work order. Work
orders shall reflect job numbers:
Analytical Lab 6999-001
Microscopic Analysis 6999-002
Machine Shop' 6999-003
Drafting 6999-004
(c) Providing and maintaining management information systems and
secretarial and administrative support services necessary for the business
operations of Evercel;
(d) Providing and maintaining financial support services, including
bookkeeping, internal auditing and accounting services and certain other "back
office" services required by Evercel;
(e) Administering the payroll and employee benefit plans of Evercel and
providing other human resources services;
(f) Assisting in the preparation of quarterly and annual financial
statements and related disclosures in SEC and shareholder documents for Evercel
as well as all other filings required by the SEC and all reports of operations
and tax returns which are required by taxing bodies or other governmental
agencies;
(g) Providing Evercel with the part-time management services of Jerry D.
Leitman and Joseph G. Mahler and such other management employees of ERC as
Evercel may reasonably request for the purpose of conducting its business;
(h) Providing such other management, administrative and support services
and facilities and Evercel may reasonably request and ERC may agree to provide.
Any input or information needed by either party to perform or utilize the
Services pursuant to the provisions of this Agreement shall be provided by the
other party upon reasonable request. Should the failure by Evercel to provide
such input or information render the performance of the Services impossible or
unreasonably difficult, ERC may, upon reasonable notice, refuse to provide such
Services.
3. COMPENSATION
In consideration of the Services rendered pursuant to this Agreement,
Evercel shall pay to ERC the following charges:
(a) With respect to Building Services described in Paragraph 2(a), Evercel
shall pay to ERC its pro rata portion of all building related costs and
expenses, including, but not limited to, maintenance costs, maintenance
salaries, wages, and fringe benefits, depreciation, real estate
-2-
<PAGE>
taxes, utilities, communication costs, cleaning costs, and insurance premiums
(collectively, "Building Costs"). Evercel's pro rata portion of such Building
Costs shall be determined on the basis of the square footage occupied by Evercel
(currently 10%).
(b) With respect to Work Order Services described in Paragraph 2(b),
Evercel shall pay to ERC the amount of all costs and expenses incurred by ERC in
rendering such Work Order Services, including, but not limited to, labor,
overhead and general and administrative costs incurred by ERC.
(c) With respect to all other Services, Evercel shall pay to ERC its pro
rata portion of the general and administrative costs and expenses incurred by
ERC related to such Services, based upon the number of Evercel employees in
relation to ERC employees for the related quarter (currently 11%).
(d) Evercel shall also pay to ERC an amount equal to its pro rata portion
of the costs and expenses incurred by ERC in connection with Danbury purchasing
functions, based upon the number and weighted value of purchase orders issued.
The foregoing amounts shall be determined by the management of ERC
exercising its good faith judgment. In the event of any dispute regarding the
allocation of overhead charges or costs, such charges and costs shall be
determined by ERC's independent certified public accountants, whose
determination shall be binding and conclusive on all parties.
ERC shall submit to Evercel by the 10th working day of each quarter an
invoice for all charges associated with Services provided during the preceding
quarter. All invoices shall describe in reasonable detail the Services provided
and the charges associated therewith, any related adjustments and any other
amounts that are payable. Evercel shall remit payment in full for all charges
invoiced on or before the last working day of the month in which the invoice is
received.
4. LIMITATION ON EXERCISE OF POWERS; NO AGENCY
Notwithstanding anything to the contrary contained in this Agreement, ERC
shall have no right or authority, express or implied, to commit or otherwise
obligate Evercel in any manner whatsoever except to the extent specifically
provided in this Agreement. Any intention to create the relationship of
principal and agent between Evercel and ERC is disclaimed and nothing in this
Agreement shall constitute ERC as the general agent of Evercel. Notwithstanding
the foregoing, ERC is expressly authorized to execute and place purchase orders
on Evercel's behalf upon request of an approved, authorized employee of Evercel.
ERC shall not be liable for any debts or obligations of Evercel whether arising
before or after the date of this Agreement.
5. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and shall
continue thereafter until terminated as provided herein.
-3-
<PAGE>
This Agreement is terminable, without penalty, on one hundred twenty (120)
days' prior written notice, by either party to the other party. Notwithstanding
the foregoing, Evercel may from time to time terminate this Agreement with
respect to one or more of the Services upon giving at least sixty (60) days'
prior written notice to ERC, and ERC may from time to time terminate this
Agreement with respect to one or more of the Services upon giving at least one
hundred twenty (120) days' prior written notice to Evercel.
6. POTENTIAL CONFLICTS
Evercel understands that the persons employed by ERC to assist in the
performance of ERC's duties under this Agreement will not devote their full time
to such service and nothing contained in this Agreement shall be deemed to limit
or restrict the right of ERC or any affiliate of ERC to engage in and devote
time and attention to ERC's existing business or other businesses or to render
services of whatever kind or nature.
7. LIMITATION OF LIABILITY; INDEMNIFICATION
None of ERC and its directors, officers, agents and employees (each an "ERC
Indemnified Person") shall be liable, responsible or accountable in damages to
Evercel for or in connection with any of the Services rendered pursuant to this
Agreement by any ERC Indemnified Person in good faith and in a manner reasonably
believed by such ERC Indemnified Person to be within the scope of the authority
granted to ERC by this Agreement, except for acts or omissions constituting
gross negligence or willful misconduct of such ERC Indemnified Person.
Evercel agrees to indemnify and hold harmless each ERC Indemnified Person
from and against any and all claims, losses, causes of action, damages and
liabilities (including all reasonable attorneys' fees) arising out of or in
connection with Services rendered or to be rendered by any ERC Indemnified
Person pursuant to this Agreement or any act or omission performed or omitted by
any ERC Indemnified Person in good faith on behalf of Evercel and in a manner
reasonably believed by such ERC Indemnified Person to be within the scope of the
authority granted to ERC by this Agreement, except that ERC Indemnified Persons
shall not be entitled to be indemnified in respect of any loss, damage or claim
incurred by reason of gross negligence or willful misconduct of any ERC
Indemnified Person.
ERC agrees to indemnify and hold harmless Evercel and each of its
directors, officers, agents and employees from and against any and all claims,
losses, causes of action, damages and liabilities (including all reasonable
attorneys' fees) arising out of the gross negligence or willful misconduct of
any ERC Indemnified Person in connection with the Services rendered or to be
rendered pursuant to this Agreement.
-4-
<PAGE>
8. CONFIDENTIALITY
The parties each agree to hold in trust and maintain confidential, and,
except as required by law or applicable rules and regulations promulgated
thereunder or by court order or other legal process, not to disclose to others
without first obtaining the prior written approval of the other party, any
information received by it from the other party or developed or otherwise
obtained by it under this Agreement, including all information resulting from
the provision or utilization of the Services hereunder (collectively, the
"Information"). At the time of termination of this Agreement in whole or in
part, each party shall, within 90 days after the effective date of such
termination, return to each other all written information that it obtained and
shall not retain or allow any third party to retain photocopies or other
reproductions of such information, provided that (i) the parties may retain any
Information to the extent reasonably needed to comply with applicable tax,
accounting or financial reporting requirements or to resolve any legal issues
identified at the time of termination, and (ii) in the case of a partial
termination of this Agreement, the parties may retain any Information required
to perform or utilize any remaining Services covered by this Agreement.
Alternatively, each party may, upon receipt of the written consent of the other
party, destroy such Information instead of returning the same pursuant to the
foregoing sentence. The obligations set forth in this Paragraph 8 shall not
apply to any Information which is shown by either party to be or have become
knowledge generally available to the public other than through the acts or
omissions of such party.
9. MISCELLANEOUS
(a) ERC may enter into subcontracts for the performance of its duties
hereunder with qualified persons, provided, however, that ERC will in all cases
remain primarily responsible for all obligations undertaken by it in this
Agreement with respect to the scope, quality and nature of the Services provided
to Evercel.
(b) Except as provided in (a) above, this Agreement otherwise shall not be
assignable by ERC. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except as otherwise provided herein.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Connecticut without giving effect to the conflict of
law rules thereof.
(d) Notices. All notices, demands and requests required or permitted to
be given under the provisions of this Agreement shall be in writing and shall be
deemed to have been duly given when mailed, if mailed by certified mail, return
receipt requested, postage prepaid, or when delivered, if delivered personally,
to the following addresses:
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if to ERC:
Energy Research Corporation
3 Great Pasture Road
Danbury, Connecticut 06813
Attention: Chief Financial Officer
if to Evercel:
Evercel, Inc.
3 Great Pasture Road
Danbury, Connecticut 06813
Attention: Chief Financial Officer
or to such other address as either of the parties may furnish to the other from
time to time by notice pursuant to this Section.
(e) This Agreement contains all of the terms agreed upon by the parties
with respect to the subject matter hereof. This Agreement may not be amended or
modified nor may any or these provisions be waived, except by an instrument in
writing signed by each party to be bound by such amendment, or except as
otherwise herein expressly provided.
ENERGY RESEARCH CORPORATION
By:_____________________________
Name:
Title:
EVERCEL, INC.
By:______________________________
Name:
Title:
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Exhibit 10.3
LICENSE ASSISTANCE AGREEMENT
This License Assistance Agreement (this "Agreement"), dated as of
, 1999, is entered into by and between ENERGY RESEARCH CORPORATION
("ERC"), a New York corporation with its principal place of business at 3 Great
Pasture Road, Danbury, Connecticut, and EVERCEL, INC. ("Evercel"), a Delaware
corporation and wholly-owned subsidiary of ERC with its principal place of
business at 3 Great Pasture Road, Danbury, Connecticut.
WHEREAS, ERC has entered into a Cooperative Joint Venture Contract (the
"Joint Venture Contract"), and articles of association (the "Articles of
Association"), each dated as of July 7, 1998, with Xiamen Three Circles Co.,
Ltd. ("Xiamen"), which provides for the establishment of Xiamen Three
Circles-ERC Battery Corp., Ltd., a Sino-Foreign Manufacturing Joint Venture (the
"Joint Venture") to manufacture and sell nickel zinc ("Ni-Zn") batteries;
WHEREAS, the Joint Venture, Xiamen (formerly Xiamen Daily-Used Chemicals
Co., Ltd.) and ERC have entered into a Technology Transfer and License Contract
(the "License Contract"), dated as of May 29, 1998, pursuant to which ERC has
licensed certain of its Ni-Zn battery technology to the Joint Venture;
WHEREAS, the registered capital of the Joint Venture is US$6,100,000, of
which ERC has contributed US$3,080,500 in cash representing a 50.5% share of the
registered capital and cooperative conditions of the Joint Venture;
WHEREAS, Evercel is a wholly-owned subsidiary of ERC that has been formed
to develop the battery business of ERC following a spin-off of Evercel;
WHEREAS, ERC wishes to transfer to Evercel the principal assets and related
liabilities of its battery business in anticipation of the spin-off;
WHEREAS, ERC also wishes to assign its interests in the Joint Venture
Contract and the License Contract to Evercel in connection with the spin-off;
WHEREAS, such assignment of ERC's interest in the Joint Venture Contract
and the License Contract will require the consents of Xiamen and the Joint
Venture, respectively, and the approval of the appropriate examination and
approval authority of the People's Republic of China (the "PRC Approval
Authority");
WHEREAS, until such consents and approval are obtained and such assignments
are effectuated (such assignments collectively referred to herein as the
("Transfer")), ERC and Evercel desire that Evercel bear the obligations and
receive the benefits of ERC under the Joint Venture Contract and the License
Contract.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, ERC and Evercel hereby agree as follows:
1. Until the consents and approvals referred to in Section 5 and Section
6 below are obtained with respect to the Transfer and the Transfer is
completed, ERC and Evercel desire that Evercel bear the obligations
and receive the benefits of ERC under the Joint Venture Contract and
the License Contract. Therefore, to effectuate such intent, Evercel
shall provide to ERC, without charge or expense to ERC, all services
and assistance (including, without limitation, employee, technology,
machinery, equipment and materials selection, sales and marketing
assistance and financial assistance) necessary for Evercel to
effectively fulfill, on behalf of ERC, all of ERC's obligations under
the Joint Venture Contract and the License Contract. In return for
such services and assistance, ERC irrevocably agrees to pay to Evercel
an amount equal to the sum of all money, dividends, profits,
reimbursements, distributions (including liquidating distributions)
and payments actually paid to ERC in cash or in kind, or otherwise
accruing to ERC, pursuant to or in connection with the Joint Venture
Contract and the License Contract. ERC will provide to Evercel all
information that ERC receives from the Joint Venture pertaining to the
Joint Venture's annual income, losses, and operations sufficient to
enable Evercel to report on its annual U.S. federal and state tax
returns the allocable amount of taxable income, losses, deductions,
and credits to which ERC would otherwise be entitled absent this
Agreement. Further, ERC will cause and enable Evercel to have access
to all books and records of the Joint Venture or true and correct
copies thereof to which ERC is otherwise entitled.
2. Until the consents and approvals referred to in Section 5 and Section
6 below are obtained with respect to the Transfer and the Transfer is
completed, ERC agrees that, in the event of any vacancy in the Board
of Directors (the "Board") of the Joint Venture relating to a
directorship which ERC is entitled to appoint, or in the position of
Deputy General Manager of the Joint Venture, ERC will request a
nominee from Evercel to fill such vacancy. Within ten business days
of receipt of such request, Evercel will notify ERC in writing of its
nominee to fill such vacancy on the Board or as the Deputy General
Manager, as applicable. ERC will appoint Evercel's nominee to the
Board or as the Deputy General Manager, as applicable, unless ERC
raises a reasonable objection to such nominee. Upon ERC's reasonable
objection to a nominee, Evercel will notify ERC of a substitute
nominee, which substitute nominee (absent any further reasonable
objection by ERC) shall be appointed by ERC. In addition, in the
event that the Transfer has not taken place by the date that is six
months from the date hereof, upon the written request of Evercel, ERC
will replace its appointees to the Board with nominees specified by
Evercel in such notice (unless ERC raises a reasonable objection to
such nominee(s), in which case Evercel will
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<PAGE>
notify ERC of substitute nominee(s)). ERC also agrees to exercise any
residual rights and powers in the Joint Venture interest, including,
but not limited to, voting rights, in accordance with Evercel's
instructions, provided that such instructions are not materially
adverse to ERC, in ERC's reasonable discretion. In the event of any
disagreement relating to the foregoing, ERC and Evercel will attempt
to work out a mutually agreeable solution.
3. This Agreement does not constitute an agreement for a partnership or
joint venture between ERC and Evercel. All expenses and costs
incurred by Evercel in meeting Evercel's obligations under this
Agreement shall be solely those of Evercel, and ERC shall not be
liable for their payment. All expenses and costs incurrred by ERC in
meeting ERC's obligations under this Agreement shall be reimbursed in
full by Evercel, provided that ERC, to the extent practical, agrees to
notify Evercel prior to incurring any costs or expenses pursuant to
this Agreement. Neither party to this Agreement shall have authority
to make commitments with third parties, including the Joint Venture,
that are binding upon the other party hereto without the other party's
written consent, and neither party to this Agreement shall in any way
hold itself out as having that power.
4. This Agreement is personal to both ERC and Evercel, and neither party
hereto can assign any rights or duties arising hereunder to a third
party, whether by contract or by operation of law, without the prior
written consent of the other party to this Agreement; any attempt to
do so shall be void.
5. Immediately following the execution of this Agreement by both parties,
ERC shall endeavor to obtain, pursuant to a contract (the "Transfer
Contract") to be entered into by and among ERC, Evercel, and the Joint
Venture, the written consent of Xiamen to the assignment of
obligations and benefits under the Joint Venture Contract and the
License Contract and the written consent of the Joint Venture in the
form of a unanimous resolution adopted by the Board approving the
Transfer and making application to the PRC Approval Authority, the
taking of all actions necessary to effectuate such Transfer and the
Amendment of the Joint Venture Contract, Articles of Association and
the License Contract of the Joint Venture pursuant to the Transfer
Contract.
6. Immediately upon receiving the consents and following the adoption of
the unanimous resolution by the Board of Directors of the Joint
Venture as set forth in Section 5 above, the parties to this Agreement
will endeavor to assist the Joint Venture in applying to the PRC
Approval Authority and any other appropriate governmental agency of
the PRC for approval of the Transfer Contract and of the corresponding
amendments to the Joint Venture Contract, Articles of Association and
the License Agreement. In connection
3
<PAGE>
therewith, the parties to this Agreement will endeavor to provide any
documents or any assistance reasonably requested by the Joint Venture.
7. Each of the parties will use its reasonable best efforts to take all
action and to do all things necessary, proper, or advisable in order
to carry out the intent of this Agreement as set forth in the
preambles to this Agreement.
8. Unless earlier terminated by mutual agreement of the parties to this
Agreement, the term of this Agreement shall commence on the date first
written above and continue until the consents and the approval set
forth in Section 5 above are obtained, at which time this Agreement
shall terminate and be of no further force or effect. During the term
of this Agreement, ERC agrees, in connection with any of its
activities related to the Joint Venture, to act in the best interests
of Evercel at all times. In the event that such consents and approval
are not obtained, the parties hereto agree that the contractual
obligations created hereby shall continue to exist coterminous with
the Joint Venture Contract.
9. ERC agrees that, except as specifically contemplated herein, it will
not enter into any amendment or modification to the Joint Venture
Contract, Articles of Association or the License Contract without the
express written consent of Evercel.
10. For purposes of the disclosure of information under the
Confidentiality Agreement dated May 29, 1998 between ERC and Xiamen
attached to the License Contract, the parties hereto agree that
Evercel is a legally authorized agent of ERC.
11. This Agreement shall be governed by the laws of the State of
Connecticut, without regard to choice of law considerations.
IN WITNESS WHEREOF, and intending to be legally bound, the duly
authorized representatives of each party hereto have signed this Agreement as of
the date first written above.
ENERGY RESEARCH CORPORATION
By:
-----------------------------
Name/Title:
EVERCEL, INC.
By:
Name/Title
4
<PAGE>
Exhibit 10.4
FORM OF TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (the "Agreement"), dated as of ________ ___,
1998, between Energy Research Corporation, a New York corporation ("ERC"), and
Evercel, Inc., a Delaware corporation ("Evercel").
WHEREAS, ERC is the parent corporation of an affiliated group of
corporations, including Evercel, that join in filing consolidated federal Income
Tax Returns and certain consolidated, combined or unitary state Income Tax
Returns;
WHEREAS, pursuant to the Distribution Agreement (as hereinafter
defined), ERC presently intends to distribute all of the common stock, $.01 par
value per share, of Evercel to its common stockholders (the "Distribution"); and
WHEREAS, ERC and Evercel desire on behalf of themselves, their
subsidiaries and their successors to set forth their respective rights and
obligations with respect to Taxes (as hereinafter defined).
NOW THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
1. DEFINITIONS.
When used herein the following terms shall have the following meanings:
"AGREEMENT" -- shall have the meaning set forth in the introductory
paragraph hereof.
"CLOSING DATE" -- the date the Distribution is consummated pursuant to
the terms of the Distribution Agreement.
"CODE" -- The Internal Revenue Code of 1986, as amended, or any
successor thereto, as in effect for the taxable year in question.
"DISTRIBUTION" -- shall have the meaning set forth in the recitals
hereof.
"DISTRIBUTION AGREEMENT" -- The Distribution Agreement dated as of
__________ ___, 1999 between ERC and Evercel.
"ERC" -- shall have the meaning set forth in the introductory paragraph
hereof.
"ERC Group" -- for any taxable year or period, ERC and each corporation
filing a consolidated federal Income Tax Return with ERC as the parent
corporation. For any taxable year or period ending on or before the Closing
Date, such term shall include
<PAGE>
Evercel. For any taxable year or period beginning after the Closing Date, such
term shall not include Evercel.
"EVERCEL" -- shall have the meaning set forth in the introductory
paragraph hereof.
"INCOME TAX(ES)" -- with respect to any corporation or group of
corporations, any and all Taxes to the extent based upon or measured by net
income (regardless of whether denominated as an "income tax," a "franchise tax"
or otherwise) imposed by any Taxing Authority, together with any related
interest, penalties or other additions thereto.
"IRS" -- the U.S. Internal Revenue Service.
"OTHER TAXES" -- Taxes other than Income Taxes.
"OVERDUE RATE" -- a rate of interest per annum that fluctuates with the
federal short-term rate established from time to time pursuant to Code Section
6621(b).
"TAX(ES)" -- any net income, gross income, gross receipts, sales, use,
excise, franchise, transfer, payroll, premium, property or windfall profits tax,
alternative or add-on minimum tax, or other tax, fee or assessment, together
with any interest and any penalty, addition to tax or other additional amount
imposed by any Taxing Authority, whether any such tax is imposed directly or
through withholding.
"TAXING AUTHORITY" -- the IRS and any other domestic or foreign
governmental authority responsible for the administration of any Tax.
"TAX RETURN(S)" -- all returns, reports, estimates, information
statements, declarations and other filings relating to, or required to be filed
by any taxpayer in connection with, its liability for, or its payment or receipt
of any refund of, any Tax.
2. PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES
a. ERC shall prepare and timely file; or cause to be prepared and
timely filed, with the appropriate Taxing Authorities (i) all federal and state
Income and Other Tax Returns of the ERC Group and any member or members thereof
for all taxable years and periods ending on or before the Closing Date; and (ii)
all federal and state Income and Other Tax Returns of ERC for all taxable years
and periods beginning after the Closing Date. ERC shall pay, or cause to be
paid, all Taxes due with respect to Tax Returns described in this subsection
(a). ERC shall be entitled to all Tax refunds received or receivable with
respect to any and all Income and Other Taxes attributable to the ERC Group for
all taxable years and periods.
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<PAGE>
b. Evercel shall prepare and timely file, or cause to be prepared
and timely filed, with the appropriate Taxing Authorities, all federal and state
Income and Other Tax Returns of Evercel for taxable years and periods beginning
after the Closing Date. Evercel shall pay, or cause to be paid, all Taxes due
with respect to Tax Returns described in this subsection (b). Evercel shall be
entitled to all Tax refunds received or receivable with respect to any and all
Income and Other Taxes attributable to Evercel for all taxable years and periods
beginning after the Closing Date.
3. PAYMENTS.
a. METHOD. Unless the parties otherwise agree, all payments made by a
party pursuant to this Agreement shall be made by wire transfer to a bank
account designated from time to time by the other party. The paying party shall
also provide a notice of payment to the recipient.
b. INTEREST. If any payment is not timely paid, interest shall
accrue on the unpaid amount at the Overdue Rate. A payment will be deemed to be
timely paid only if actually received by the payee within seven (7) days of the
receipt of notice from the other party that such payment is due.
c. CHARACTERIZATION. Any payment (other than interest thereon)
made hereunder shall be treated by all parties for all purposes as a nontaxable
intercompany settlement of liabilities existing immediately before the
Distribution or, to the extent appropriate, as a non-taxable dividend
distribution or capital contribution.
4. CONTESTS AND AUDITS; INDEMNIFICATION.
a. NOTICE. Upon the receipt by ERC or Evercel, as the case may be,
of notice of any pending or threatened Tax audit or assessment which may affect
the liability for Taxes that are subject to indemnification hereunder, ERC or
Evercel, as the case may be, shall promptly notify the other in writing of the
receipt of such notice.
b. CONTROL AND SETTLEMENT. From and after the Closing Date, ERC
shall have full control over, and the right to represent the interests of, ERC
and all other corporations involved in or affected by any Tax audit or
administrative, judicial or other proceeding relating, in whole or in part, to
Taxes that are subject to indemnification by ERC hereunder. ERC shall have the
right to employ counsel of its choice at its expense, and shall have the
ultimate control of the contest and any settlement or other resolution thereof.
Any liability for Taxes established pursuant to such proceeding shall be
allocated and paid in accordance with Section 2 of this Agreement.
c. AMENDMENT OF TAX RETURNS. ERC shall have sole control over the
preparation and filing of any and all amendments to Tax Returns described in
Section 2(a).
3
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d. INDEMNIFICATION. ERC shall indemnify and hold harmless Evercel
against any and all Income and Other Taxes of the ERC Group for all taxable
years and periods. Evercel shall indemnify and hold harmless ERC against any and
all Income and Other Taxes specifically attributable to Evercel for all taxable
years and periods beginning after the Closing Date.
5. COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY.
a. COOPERATION. Upon reasonable request, ERC and Evercel shall
promptly provide (and shall cause their respective affiliates to provide) the
requesting party with such cooperation and assistance, documents, and other
information, without charge, as may be necessary or reasonably helpful in
connection with (i) the preparation and filing of any original or amended Tax
Return, (ii) the conduct of any audit, appeal, protest or other examination or
any judicial or administrative proceeding involving to any extent Taxes or Tax
Returns within the scope of this Agreement, or (iii) the verification by a party
of an amount payable hereunder to, or receivable hereunder from, another party.
Such cooperation and assistance shall include, without limitation: (a) the
provision on demand of books, records, Tax Returns, documentation or other
information relating to any relevant Tax Return; (b) the execution of any
document that may be necessary or reasonably helpful in connection with the
filing of any Tax Return, or in connection with any audit, appeal, protest,
proceeding, suit or action of the type generally referred to in the preceding
sentence, including, without limitation, the execution of powers of attorney and
extensions of applicable statutes of limitations; (c) the prompt and timely
filing of appropriate claims for refund; and (d) the use of reasonable best
efforts to obtain any documentation from a governmental authority or a third
party that may be necessary or helpful in connection with the foregoing. Each
party shall make its employees and facilities available on a mutually convenient
basis to facilitate such cooperation.
b. RETENTION. ERC and Evercel shall retain or cause to be retained
all Tax Returns, and all books, records, schedules, workpapers, and other
documents relating thereto, which Tax Returns and other materials are within the
scope of this Agreement, until the expiration of the later of (i) all applicable
statutes of limitations (including any waivers or extensions thereof), and (ii)
any retention period required by law or pursuant to any record retention
agreement. The parties hereto shall notify each other in writing of any waivers,
extensions or expirations of applicable statutes of limitations, and shall
provide at least thirty (30) days prior written notice of any intended
destruction of the documents referred to in the preceding sentence. A party
giving such a notification shall not dispose of any of the foregoing materials
without first allowing the other party a reasonable opportunity to copy them at
such other party's expense.
c. CONFIDENTIALITY. Except as required by law or with the prior
written consent of the other party, all Tax Returns, documents, schedules, work
papers and similar items and all information contained therein, which Tax
Returns and other materials are within the scope of this Agreement, shall be
kept confidential by the parties
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<PAGE>
hereto and their representatives, shall not be disclosed to any other person or
entity and shall be used only for the purposes provided herein.
6. MISCELLANEOUS.
a. EFFECTIVENESS. This Agreement shall be effective from and after
the Closing Date and shall survive until the expiration of all applicable
statutes of limitations with respect to taxable years and periods ending on or
before or including the Closing Date.
b. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, between the parties hereto with respect to
the subject matter hereof, so that no such external or separate agreement
relating to the subject matter of this Agreement shall have any effect or be
binding, unless the same is referred to specifically in this Agreement or is
executed by the parties after the date hereof. To the extent that the terms of
this Agreement and similar terms of the Distribution Agreement are in conflict,
this Agreement shall govern. This Agreement cancels and supersedes, as of the
Closing Date, any and all other agreements with respect to Taxes between ERC and
Evercel.
c. SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
d. AMENDMENTS; WAIVERS. No termination, cancellation,
modification, amendment, deletion, addition or other change in this Agreement,
or any provision hereof, or waiver of any right or remedy herein provided, shall
be effective for any purpose unless such change or waiver is specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy with respect to any occurrence on one occasion
shall not be deemed a waiver of such right or remedy with respect to such
occurrence on any other occasion.
e. GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed by the laws of the State of New York,
without regard to the principles of choice of law thereof, except with respect
to matters of law concerning the internal corporate affairs of any corporate
entity which is a party to or subject of this Agreement, and as to those matters
the law of the jurisdiction under which the respective entity derives its powers
shall govern.
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f. NOTICES. All notices, requests, demands, statements, bills and
other communications under this Agreement shall be delivered in accordance with
Section ____ of the Distribution Agreement.
g. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement shall not be assigned without the express
written consent of each of the parties hereto.
h. NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without this Agreement.
i. TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
j. PREDECESSORS AND SUCCESSORS. To the extent necessary to give
effect to the purposes of this Agreement, any reference to any corporation shall
also include any predecessor or successor thereto, by operation of law or
otherwise.
k. TAX ELECTIONS. Nothing in this Agreement is intended to change
or otherwise affect any previous tax election made by or on behalf of the ERC
Group, and ERC shall have sole discretion to make or change any and all
elections affecting the ERC Group or any member or members thereof for all
taxable years and periods ending on or before the Closing Date.
l. EXPENSES. Except as otherwise set forth in this Agreement, all
costs and expenses in connection with the preparation, execution, delivery and
implementation of this Agreement and with the consummation of the transactions
contemplated by this Agreement shall be charged to the party for whose benefit
the expenses are incurred, with any expenses which cannot be allocated on such
basis to be split equally between the parties.
m. DISPUTE RESOLUTION. Any dispute arising under this Agreement
shall be resolved by binding arbitration in the manner contemplated by Section
___ of the Distribution Agreement, including the attorneys fees provisions
referred to therein.
n. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
o. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship
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of principal and agent, partnership or joint venture between the parties, it
being understood and agreed that no provision contained herein, and no act of
the parties, shall be deemed to create any relationship between the parties
other than the relationship set forth herein.
p. FURTHER ACTION. Evercel and ERC each shall cooperate in good
faith and take such steps and execute such papers as may be reasonably requested
by the other party to implement the terms and provisions of this Agreement.
q. LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each party hereto
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ENERGY RESEARCH CORPORATION
By:
-------------------------------------------
Name:
Title:
EVERCEL, INC.
By:
-------------------------------------------
Name:
Title:
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Exhibit 10.5
EVERCEL, INC.
1998 EQUITY INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Evercel, Inc. 1998 Equity Incentive Plan (the "Plan") is
to attract and retain key employees, directors, advisors and consultants, to
provide an incentive for them to assist Evercel, Inc. (the "Corporation") to
achieve long-range performance goals, and to enable them to participate in the
long-term growth of the Corporation.
SECTION 2. DEFINITIONS
(a) "Affiliate" means any business entity in which the Corporation owns
directly or indirectly 50% or more of the total combined voting power or
has a significant financial interest as determined by the Committee.
(b) "Annual Meeting" means the annual meeting of shareholders or special
meeting in lieu of annual meeting of shareholders at which one or more
directors are elected.
(c) "Award" means any Option, Stock Appreciation Right or Restricted Stock
awarded under the Plan.
(d) "Board" means the Board of Directors of the Corporation.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" means the Compensation Committee of the Board, or such other
committee of not less than two members of the Board appointed by the Board
to administer the Plan, provided that the members of such Committee must be
Non-Employee Directors as defined in Rule 16b-3(b) promulgated under the
Securities Exchange Act of 1934, as amended.
(g) "Common Stock" or "Stock" means the Common Stock, par value $.01 per share,
of the Corporation.
(h) "Corporation" means Evercel, Inc.
(i) "Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Board, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
(j) "Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Board
in good faith or in the manner established by the Board from time to time.
(k) "Incentive Stock Option" means an option to purchase shares of Common
Stock, awarded to a Participant under Section 6, which is intended to meet
the requirements of Section 422 of the Code or any successor provision.
<PAGE>
(l) "Nonqualified Stock Option" means an option to purchase shares of Common
Stock, awarded to a Participant under Section 6, which is not intended to
be an Incentive Stock Option.
(m) "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
(n) "Participant" means a person selected by the Board to receive an Award
under the Plan.
(o) "Restricted Period" means the period of time selected by the Board during
which an award of Restricted Stock may be forfeited to the Corporation.
(p) "Restricted Stock" means shares of Common Stock subject to forfeiture,
awarded to a Participant under Section 8.
(q) "Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the reference price, awarded to a
Participant under Section 7.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee, which shall initially be
the Compensation Committee. The Board, including any duly authorized committee
of the Board, shall have authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation of the
Plan as it shall from time to time consider advisable, and to interpret the
provisions of the Plan. The Board's decisions shall be final and binding. To
the extent permitted by applicable law, the Board may delegate to the Committee
the power to make Awards to Participants and all determinations under the Plan
with respect thereto.
SECTION 4. ELIGIBILITY
All employees and, in the case of Awards other than Incentive Stock
Options, directors, advisors and consultants of the Corporation or any Affiliate
capable of contributing significantly to the successful performance of the
Corporation, other than a person who has irrevocably elected not to be eligible,
are eligible to be Participants in the Plan.
SECTION 5. STOCK AVAILABLE FOR AWARDS
(a) Subject to adjustment under subsection (b), Awards may be made under the
Plan covering of up to a maximum of 300,000 shares of Common Stock. If any
Award in respect of shares of Common Stock expires or is terminated
unexercised or is forfeited for any reason or settled in a manner that
results in fewer shares outstanding than were initially awarded, including
without limitation the surrender of shares in payment for the Award or any
tax obligation thereon, the shares subject to such Award or so surrendered,
as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award under the Plan,
subject, however, in the case of Incentive Stock Options, to any limitation
required under the Code. Common Stock issued through the assumption or
substitution of outstanding grants from an acquired corporation shall not
reduce the shares available for Awards under the Plan. Shares issued under
the Plan may consist in whole or in part of authorized but unissued shares
or treasury shares.
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(b) In the event that the Board determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value, or
other similar transaction affects the Common Stock such that an adjustment
is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Board, subject, in
the case of Incentive Stock Options, to any limitation required under the
Code, shall equitably adjust any or all of (i) the number and kind of
shares in respect of which Awards may be made under the Plan, (ii) the
number and kind of shares subject to outstanding Awards, and (iii) the
award, exercise or conversion price with respect to any of the foregoing,
and if considered appropriate, the Board may make provision for a cash
payment with respect to an outstanding Award, provided that the number of
shares subject to any Award shall always be a whole number.
SECTION 6. STOCK OPTIONS
(a) Subject to the provisions of the Plan, the Board may award Incentive Stock
Options and Nonqualified Stock Options and determine the number of shares
to be covered by each Option, the option price therefor and the conditions
and limitations applicable to the exercise of the Option. The terms and
conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder.
(b) The Board shall establish the option price at the time each Option is
awarded, which price shall not be less than 100% of the Fair Market Value
of the Common Stock on the date of award with respect to Incentive Stock
Options.
(c) Each Option shall be exercisable at such times and subject to such terms
and conditions as the Board may specify in the applicable Award or
thereafter. The Board may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option until
payment in full of the option price therefor is received by the
Corporation. Such payment may be made in whole or in part in cash or, to
the extent permitted by the Board at or after the award of the Option, by
delivery of a note or shares of Common Stock owned by the optionholder,
including Restricted Stock, valued at their Fair Market Value on the date
of delivery, by the reduction of the shares of Common Stock that the
optionholder would be entitled to receive upon exercise of the Option, such
shares to be valued at their Fair Market Value on the date of exercise,
less their option price (a so-called "cashless exercise"), or such other
lawful consideration as the Board may determine.
(e) The Board may provide for the automatic award of an Option upon the
delivery of shares to the Corporation in payment of an Option for up to the
number of shares so delivered.
(f) In the case of Incentive Stock Options the following additional conditions
shall apply to the extent required under Section 422 of the Code for the
options to qualify as Incentive Stock Options:
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(i) Such options shall be granted only to employees of the
Corporation, and shall not be granted to any person who owns
stock that possesses more than ten percent of the total combined
voting power of all classes of stock of the Corporation or of its
parent or subsidiary corporation (as those terms are defined in
Section 422(b) of the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder), unless, at the time
of such grant, the exercise price of such option is at least 110%
of the fair market value of the stock that is subject to such
option and the option shall not be exercisable more than five
years after the date of grant;
(ii) Such options shall, by their terms, be transferable by the
optionholder only by the laws of descent and distribution, and
shall be exercisable only by such optionholder during his
lifetime.
(iii) Such options shall not be granted more than ten years from the
effective date of this Plan or any subsequent amendment to the
Plan approved by the stockholders of the Corporation which
extends this Incentive Stock Option expiration date, and shall
not be exercisable more than ten years from the date of grant.
SECTION 7. STOCK APPRECIATION RIGHTS
Subject to the provisions of the Plan, the Board may award SARs in tandem
with an Option (at or after the award of the Option), or alone and unrelated to
an Option. SARs in tandem with an Option shall terminate to the extent that the
related Option is exercised, and the related Option shall terminate to the
extent that the tandem SARs are exercised.
SECTION 8. RESTRICTED STOCK
(a) Subject to the provisions of the Plan, the Board may award shares of
Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Corporation and the other terms and conditions of such Awards. Shares of
Restricted Stock may be issued for no cash consideration or such minimum
consideration as may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as permitted by the Board, during the
Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Board may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the
Participant and unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the
Corporation. At the expiration of the Restricted Period, the Corporation
shall deliver such certificates to the Participant or if the Participant
has died, to the Participant's Designated Beneficiary.
SECTION 9. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) DOCUMENTATION. Each Award under the Plan shall be evidenced by a written
document delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent
with the provisions of the Plan as the Board considers necessary or
advisable to achieve the purposes of the Plan or comply with applicable tax
and regulatory laws and accounting principles.
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(b) BOARD DISCRETION. Each type of Award may be made alone, in addition to or
in relation to any other type of Award. The terms of each type of Award
need not be identical, and the Board need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Board at the time
of award or at any time thereafter. Without limiting the foregoing, an
Award may be made by the Board, in its discretion, to any 401(k), savings,
pension, profit sharing or other similar plan of the Corporation in lieu of
or in addition to any cash or other property contributed or to be
contributed to such plan.
(c) SETTLEMENT. The Board shall determine whether Awards are settled in whole
or in part in cash, Common Stock, other securities of the Corporation,
Awards, other property or such other methods as the Board may deem
appropriate. The Board may permit a Participant to defer all or any
portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock. If shares of Common Stock are to be used in
payment pursuant to an Award and such shares were acquired upon the
exercise of a stock option (whether or not granted under this Plan), such
shares must have been held by the Participant for at least six months.
(d) DIVIDENDS AND CASH AWARDS. In the discretion of the Board, any Award under
the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and
(ii) cash payments in lieu of or in addition to an Award.
(e) TERMINATION OF EMPLOYMENT. The Board shall determine the effect on an
Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(f) CHANGE IN CONTROL. In order to preserve a Participant's rights under an
Award in the event of a change in control of the Corporation, the Board in
its discretion may, at the time an Award is made or at any time thereafter,
take one or more of the following actions: (i) provide for the acceleration
of any time period relating to the exercise or realization of the Award,
(ii) provide for the purchase of the Award upon the Participant's request
for an amount of cash or other property that could have been received upon
the exercise or realization of the Award had the Award been currently
exercisable or payable, (iii) adjust the terms of the Award in a manner
determined by the Board to reflect the change in control, (iv) cause the
Award to be assumed, or new rights substituted therefor, by another entity,
or (v) make such other provision as the Board may consider equitable and in
the best interests of the Corporation.
(g) WITHHOLDING. The Corporation shall have the power and the right to deduct
or withhold, or require a Participant to remit to the Corporation an amount
sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required to be withheld with respect to an
Award or any dividends or other distributions payable with respect thereto.
In the Board's discretion, such tax obligations may be paid in whole or in
part in shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value on the date
of delivery. The Corporation and its Affiliates may, to the extent
permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
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(h) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the
same or a different type, changing the date of exercise or realization and
converting an Incentive Stock Option to a Nonqualified Stock Option,
provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
(i) Except as otherwise provided by the Board, Awards under the Plan are not
transferable other than as designated by the participant by will or by the
laws of descent and distribution.
SECTION 10. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to continued employment. The Corporation
expressly reserves the right at any time to dismiss a Participant free from
any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS SHAREHOLDER. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant
to whom Common Stock is awarded shall be considered the holder of the Stock
at the time of the Award except as otherwise provided in the applicable
Award.
(c) EFFECTIVE DATE. The Plan shall be effective on September 29, 1998, the date
on which approval of the Plan by the Board and the sole shareholder of the
Corporation was obtained.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, provided that no amendment shall be made
without shareholder approval if such approval is necessary to comply with
any applicable requirement of the laws of the jurisdiction of incorporation
of the Corporation, any applicable tax requirement, any applicable rules or
regulation of the Securities and Exchange Commission, including Rule
16(b)-3 (or any successor rule thereunder), or the rules and regulations of
the American Stock Exchange or any other exchange or stock market over
which the Corporation's securities are listed.
(e) GOVERNING LAW. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the jurisdiction of
incorporation of the Corporation.
(f) INDEMNITY. Neither the Board nor the Committee, nor any members of either,
nor any employees of the Corporation or any parent, subsidiary, or other
affiliate, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with their
responsibilities with respect to this Plan, and the Corporation hereby
agrees to indemnify the members of the Board, the members of the Committee,
and the employees of the Corporation and its parent or subsidiaries in
respect of any claim, loss, damage, or expense (including reasonable
counsel fees) arising from any such act, omission, interpretation,
construction or determination to the full extent permitted by law.
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 15th day of December,
1998 between ENERGY RESEARCH CORPORATION, a New York corporation (the
"Company"), and ALLEN CHARKEY, an individual with a current mailing address at
61 Longmeadow Hill Road, Brookfield, Connecticut 06804, (the "the Employee").
Unless the context otherwise requires, the term "Company", shall include the
Company and each of its subsidiaries.
W I T N E S E T H
WHEREAS, the Company desires to employ the Employee as its Executive
Vice President and Chief Operating Officer of its Evercel, Inc. subsidiary to be
employed in such capacities in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the covenants, conditions,
undertakings and premises contained herein, the sufficiency which is hereby
acknowledged, the Company and the Employee agree follows:
ARTICLE 1
EMPLOYMENT AND DUTIES
1.1. EMPLOYMENT; DUTIES
Subject to the terms and conditions set forth herein, commencing with
the effective date of the spin-off of Evercel, Inc. (the "Commencement Date")
the Company agrees to employ the Employee and the Employee agrees to be employed
as Executive Vice President and Chief Operating Officer of Evercel, Inc. In such
position, the Employee shall perform such duties as are or may be assigned to
the Employee by the Chief Executive Officer from time to time. In connection
therewith, the Employee shall report to and be subject to the supervision of the
Chief Executive Officer. In the course of the performance of his duties
hereunder, Employee shall comply in all material respects with the Company's
regular employment policies and procedures as they may be modified from time to
time.
1.2 FULL TIME
The Employee shall devote his full working time, attention, energies,
skills and best efforts exclusively to the performance of his duties hereunder.
The Employee shall not during the term of this Agreement engage in any other
business activity whether or not such activity is pursued for gain, profit or
other pecuniary advantage, except that the Employee, on his own time, (a) may
manage his own investments, and those of his immediate family, and (b) may serve
as a member of the board of directors of other corporations subject to the
restrictions set forth in Section 5.1, so long as such activity (as described in
either clause (a) or (b) above), does not, in
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the reasonable judgment of the Company's Board of Directors, adversely affect
the performance of his duties hereunder.
1.3 BOARD MEMBER
It is expected that the Employee will be appointed to the Board of
Evercel, Inc. upon its spin-off.
ARTICLE 2
2.1 TERM
The term of the Employee's employment by the Company hereunder shall
commence on the Commencement Date and, except as otherwise provided in this
Agreement with respect to earlier termination, shall continue until terminated
by either party pursuant to Article 6.
ARTICLE 3
COMPENSATION
3.1 BASE SALARY
For all service to be rendered by the Employee under this Agreement,
and such other duties as the Chief Executive Officer may assign to him in
accordance with Section 1.1 hereof, the Company agrees to pay the Employee a
base salary of $150,000 per annum. The Employee's base salary shall be subject
to periodic review and adjustment by the Chief Executive Officer and the Board
of Directors in their sole discretion. The base salary shall be payable at such
times as is customary for employees of the Company and in accordance with the
normal payroll practices of the Company.
3.2 INCENTIVE COMPENSATION
Commencing with the Company's fiscal year beginning November 1, 1998,
the Employee shall be a participant in the Company's incentive compensation plan
generally made available to executive officers as it may be in effect and
revised from time to time. The Employee understands and agrees that the
implementation of an incentive compensation plan for the Employee and other
executive officers will be subject to the review and approval of the
Compensation Committee of the Board of Directors.
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ARTICLE 4
COMPANY BENEFITS
4.1. VACATION
The Employee shall be entitled to receive four weeks of paid vacation
per calendar year (pro rated for any partial year), which shall be taken at such
time or times as will not unreasonably hinder or interfere with the Company's
business or operations.
4.2. SEVERANCE BENEFIT
If during the Employee's employment pursuant to this Agreement, the
Employee ceases to be employed by the Company as a result of the Company's
termination of the Employee without cause pursuant to Section 7.4 (which shall
not include any termination that is otherwise within Article 7) or the
Employee's termination of his employment for good reason pursuant to Section
7.1, the Company shall pay the Employee as a severance benefit, (a) his then
base salary plus (b) an amount equal to the Employee's bonus from the Company,
if any, for the immediately preceding year. This severance benefit shall be
payable by the Company through (i) the continuation of the Employee's base
salary for a period of one year and (ii) the payment of the balance in four
equal quarterly installments, with the first such payment due three months after
the termination and the final payment due one year after the termination. The
severance obligation set forth in this Section 4.2 shall be in lieu of and not
in addition to any other severance benefits made available to other employees of
the Company.
4.3. STOCK OPTIONS
Effective on the effective date of this Agreement, the Company shall
issue to the Employee an option to purchase 33,333 shares of Evercel, Inc.
Common Stock with an exercise price of $6.00, pursuant to the Company's standard
form of Option Agreement, subject to the following provisions. The option shall
vest over a three year period with 50% after the first year (16,667 shares) and
25% (8,333 shares) per year thereafter on each anniversary date of the
Commencement Date; provided however, if the Employee's employment hereunder is
terminated without cause by the Company or for good reason by the Employee prior
to the first anniversary date of the Commencement Date, the options to purchase
the first 16,167 shares of the Company's Common Stock will automatically vest.
The options will also fully vest upon a change of control of the Company
4.4 OTHER BENEFIT PLANS
The Employee shall further be entitled to participate in and receive
benefits under any retirement, life insurance, accident, disability, health and
dental insurance, profit sharing, or similar plans generally made available to
its employees.
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4.5 INDEMNIFICATION
The Company agrees to defend and shall indemnify and hold the Employee
harmless to the fullest extent permitted by law from any and all liability,
costs, and expenses which may be assessed against the Employee by reason of the
performance of his responsibilities and duties under the terms of this
Agreement, provided such liability does not result from willful misconduct or
gross negligence of the Employee.
ARTICLE 5
RESTRICTIONS
5.1. NON-COMPETITION
(a) So long as the Employee is employed by the Company and for a period
of two years thereafter (the "Noncompetition Period"), the Employee shall not,
directly or indirectly, whether as owner, partner, shareholder, director,
consultant, agent, employee, guarantor, surety or otherwise, or through any
person, consult with or in any way aid or assist any competitor of the Company
or engage or attempt to engage in any employment, consulting or other activity
which directly or indirectly competes with the Business of the Company. For
purposes of this Agreement, the term "employment" shall include the performance
of services by Employee as an employee, consultant, agent, independent
contractor or otherwise and the term "Business" shall mean the research,
development, manufacture, sale or distribution of rechargeable alkaline
batteries or related products and any other business engaged in, planned or
under development by the Company with respect to which the Employee has had
access to Company confidential information during the Noncompetition Period. The
Employee acknowledges that his participation in the conduct of any such Business
alone or with any person other than the Company will materially impair the
Business and prospects of the Company.
(b) In addition to and without limiting the foregoing, during the
Noncompetition Period, Employee shall not knowingly do, attempt to or assist any
other person in doing or attempting to do any of the following: (i) hire any
director, officer, employee, or agent of the Company (a "Company Employee") or
encourage any such person to terminate such relationship with the Company, as
the case may be (for purposes hereof, the Employee shall be deemed to have so
encouraged a Company Employee to terminate such relationship with the Company if
the Employee hires or otherwise assists any person in hiring any such Company
Employee within six months after the Company Employee terminates his or her
relationship with the Company), (ii) encourage any customer, client, supplier or
other business relationship of the Company to terminate or alter such
relationship, whether contractual or otherwise, to the disadvantage of the
Company; (iii) encourage any prospective customer or supplier not to enter into
a business relationship with the Company; (iv) impair or attempt to impair any
relationship, contractual or otherwise, written or oral, between the Company and
any customer, supplier or other business relationship of the Company; or (v)
sell or offer to sell or assist in or in connection
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with the sale to any customer or prospective customer of the Company any
products of the type sold or rendered by the Company.
(c) Nothing in this Agreement shall preclude Employee from making
passive investments of not more than 2% of a class of securities of any business
enterprise registered under the Securities Exchange Act of 1934.
5.2 INTELLECTUAL PROPERTY
Upon execution of this Agreement, the Employee shall execute the Energy
Research Corporation Agreement for Assignment, Confidentiality and
Nonsolicitation, which agreement is hereby incorporated herein by reference.
5.3 INJUNCTIVE RELIEF
The Employee acknowledges that the restrictions contained in this
Article are reasonable in view of the nature of the business in which the
Company is engaged and his position with the Company which will provide him with
extensive knowledge of the business.
The Company and the Employee mutually agree that the Employee's
obligations under this Article are of a special and unique character which gives
them a peculiar value, and the Company cannot be reasonably or adequately be
compensated in damages in an action at law in the event the Employee breaches
such obligations. The Employee therefore expressly agrees that, in addition to
any other rights or remedies which the Company may possess, the Company shall be
entitled to injunctive and other equitable relief to prevent a breach of this
Article by the Employee, including a temporary restraining order or temporary
injunction from any court of competent jurisdiction restraining any threatened
or actual violation, and each party hereby consents to the entry of such order
and injunctive relief and waives the making of a bond as a condition for
obtaining such relief. Such rights shall be cumulative and in addition to any
other legal or equitable rights and remedies the Company may have.
5.4 SURVIVAL ENFORCEABILITY
It is expressly agreed by the parties hereto that the provisions of
this Article shall survive the termination of this Agreement.
If any one or more of the provisions contained in this Article shall
for any reason in any jurisdiction be held to be excessively broad as to the
time, duration, geographical scope, activity or subject, it shall be construed
with respect to such jurisdiction, by limiting or reducing it, so as to be
enforceable to the extent compatible with the applicable law of such
jurisdiction as it shall then appear.
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ARTICLE 6
DEATH; DISABILITY
6.1. DEATH
If the Employee dies while employed under this Agreement, this
Agreement shall terminate immediately. The Company will pay to the Employee's
estate his base salary under Section 3.1 through the last day of the calendar
month in which he dies, plus any incentive compensation awarded to the Employee
under the Incentive Compensation Plan, but not yet paid, and such death benefits
as may be provided pursuant to Section 4.4.
6.2 DISABILITY
If the Employee fails to perform his duties under this Agreement due to
"Disability", as defined below, the Company may terminate this Agreement upon 30
days written notice to him. In that event, the Company shall pay the Employee
his base salary under Section 3.1 through the date of termination; PROVIDED,
HOWEVER, that to the extent the Employee is receiving disability benefits
pursuant to the Company's disability insurance policy, the amount of such
benefits shall be credited against the Employee's base salary during the period
prior to the date of termination. In addition, upon any termination based upon
Disability, the Company shall pay to the Employee any incentive compensation
awarded to the Employee under the Incentive Compensation Plan but not yet paid.
The term "Disability" shall mean the inability of the Employee to perform for
the Company the duties specified in Section 1.1 by reason of any medically
determinable physical or mental impairment for (i) a period of three consecutive
months, (ii) for shorter periods aggregating three months in any 12-month period
or (iii) if the Board of Directors determines that it is probable that the
Disability will continue for a length of time so as to constitute a Disability
under clauses (i) or (ii) above. The determination of whether the Employee is
Disabled shall be made by the Board of Directors on the basis of written medical
evidence reasonably satisfactory to it. Notwithstanding anything to the contrary
in the foregoing, in the event of a termination of the Employee pursuant to
clause (iii), the Company will pay the Employee a minimum of four months base
salary following such termination; PROVIDED, HOWEVER, that to the extent the
Employee is receiving disability benefits pursuant to the Company's disability
insurance policy, the amount of such benefits shall be credited against the
Employee's base salary.
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ARTICLE 7
TERMINATION
7.1. TERMINATION BY THE EMPLOYEE FOR GOOD REASON
The Employee may terminate this Agreement for good reason upon ninety
(90) days written notice to the Company setting forth with specificity the
grounds for termination upon the occurrence of any of the following: (a) the
failure of the Company to observe or comply with any of its material obligations
under this Agreement, if such failure has not been cured within 30 days after
written notice thereof has been given by the Employee to the Company; (b) the
dissolution of the Company; or (c) any merger in which the Company is not the
surviving corporation and in which the stockholders of the Company own less than
50% of the voting securities of the merged entity upon the effectiveness of the
merger, or any consolidation, sale of substantially all of the assets of the
Company or change of control of the Company, provided the Employee has not
approved the transaction by voting for it either as a director or shareholder.
For purposes of clause (a) a material breach by the Company shall include a
material change in the reporting responsibilities of the Employee such that the
Employee is no longer reporting directly to the Chief Executive Officer of the
Company, provided however that a material change in the authority, duties or
responsibilities of the Employee shall not constitute a material breach
hereunder, a material reduction in benefits or other perquisites of office such
that the Employee is not receiving the benefits set forth herein or the benefits
and other perquisites generally granted for executive positions within the
Company. For purposes of clause (c) above, a "change of control" shall be
presumed to have occurred if within any 12-month period a single person or
entity, or related group of persons or entities, acquires 50% or more of the
outstanding voting stock of the Company. In the event of a termination for good
reason under this Section, the Company shall pay the Employee (i) his base
salary as then in effect under Section 3.1 through the date of termination, (ii)
any incentive compensation awarded to the Employee under the Incentive
Compensation Plan, but not yet paid, and (iii) the severance benefit set forth
in Section 4.2.
7.2 TERMINATION BY THE COMPANY FOR CAUSE
The Company may terminate this Agreement for cause in the manner set
forth below. For purposes of this Section, "cause" shall mean (a) a material
breach by the Employee of the terms of this Agreement, including without
limitation failure by the Employee to perform a material portion of his duties
hereunder (not otherwise excused by the disability of the Employee) (b) criminal
misconduct or unethical conduct, whether or not in relation to the Company's
affairs or business, which reflects adversely upon Employee's honesty or
integrity in the performance of his duties as an employee of the Company, or
which otherwise is materially detrimental to the interests of the Company; (c)
if the Employee is found guilty or pleads nolo contendere to the commission of a
crime classified as a felony under any Federal, state or local law; and (d)
commission by the Employee of an act of gross incompetence in the course of his
employment hereunder. The term "cause" as used in the preceding sentence does
not include the Employee's erroneous judgment or judgments of a technical,
scientific, financial, legal and/or
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environmental nature which were, although erroneous, nevertheless reasonable at
the time and under the circumstances in which they were made. In the event of
termination under this Section, the Company shall pay to the Employee his base
salary under Section 3.1 through the date of termination stated in the notice
plus any incentive compensation awarded to the Employee under the Incentive
Compensation Plan but not yet paid, and the Employee shall, if so requested by
the Chief Executive Officer, perform his duties under Article 1 through the date
of termination stated in the notice.
7.3 TERMINATION BY THE COMPANY OR THE EMPLOYEE WITHOUT CAUSE
Either the Company or the Employee may terminate this Agreement for
reasons other than as set forth above in Section 7.1 or Section 7.2 and which
are not otherwise within Article 6 upon 30 days written notice. Upon such
termination, the Company shall pay the Employee his base salary under Section
3.1 through the date of termination (provided, however, that the Employee
continues to be available to perform the services required under Section 1.1
through the date of termination), plus any incentive compensation awarded to the
Employee under the Incentive Compensation Plan, but not yet paid, and any
accrued vacation. In addition, upon the Company's termination of the Employee
without cause, the Company shall be required to pay the Employee the severance
benefit set forth in Section 4.2. Nothing herein shall prohibit the Company from
relieving the Employee of any or all of his duties hereunder pending the
expiration of the 30-day notice period.
7.4 TERMINATION OF DUTIES
Notwithstanding anything to the contrary set forth herein, at any time
on or after delivery of written notice to the Employee, the Company may relieve
the Employee of all of his duties and responsibilities hereunder and may relieve
the Employee of authority to act on behalf of, or legally bind, the Company;
provided, however, that any such action by the Company shall not relieve the
Company of its obligation to pay to the Employee all compensation and benefits
otherwise provided for in this Agreement.
ARTICLE 8
MISCELLANEOUS
8.1. NO CONFLICTING AGREEMENTS.
The Employee represents and warrants to the Company, that the Employee
is not under any obligation to any person or entity which is inconsistent with
or in conflict with any of the terms of this Agreement or which would prevent,
limit or impair in any way the Employee's performance of all the terms of this
Agreement and the Employee agrees not to enter into any agreement, either
written or oral, in conflict herewith.
8.2 ENTIRE AGREEMENT
-8-
<PAGE>
This Agreement contains the entire understanding and agreement between
the Company and the Employee and cannot be amended, modified, or supplemented in
any respect except by subsequent written agreement entered into by both parties.
8.3 SUCCESSORS OF THE COMPANY
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including, without limitation, any person,
firm, corporation or other entity which may acquire all or substantially all of
the Company's assets and business, or with or into which the Company may be
consolidated or merged, and this provision shall apply in the event of any
subsequent merger, consolidation or transfer. In every respect, this Agreement
shall inure to the benefit of and be binding upon the Employee, his heirs,
executors and personal representatives and, being personal in nature, shall not
be assignable by the Employee.
8.4 EFFECT OF WAIVER
The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach.
8.5 NOTICES
Any notice, request, demand or other communication in connection with
this Agreement must be in writing and shall be deemed to have been given and
received three days after a certified or registered letter containing such
notice, properly addressed, with postage prepaid, is deposited in the United
States mail; and, if given otherwise than by registered or certified mail, it
shall not be deemed to have been given until actually delivered to and received
by the party to whom it is addressed.
A. Notice to the Company shall be given at its principal mailing
address, which at the time of execution of this Agreement is 3
Great Pasture Road, Danbury, Connecticut, 06813, Attention: Chief
Executive Officer, or at such other address as it may designate.
B. Notice to the Employee shall be given at his home address, which
at the time of execution of this Agreement is the address set
forth in the heading of this Agreement, or at such other address
as he may designate.
8.6 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
8.7 SEVERABILITY
-9-
<PAGE>
If, in any jurisdiction, any provision of this Agreement or its
application to any party or circumstances is restricted, prohibited or
unenforceable, such provision shall, as to such jurisdiction, be ineffective
only to the extent of such restriction, prohibition or unenforceability without
invalidating the remaining provisions hereof and without affecting the validity
or enforceability of such provision in any other jurisdiction or its application
to other parties or circumstances.
8.8 SURVIVAL
Each of the terms and provision of this Agreement which are expressly
or impliedly so intended shall survive the termination of this Agreement.
8.9 APPLICABLE LAW
This Agreement shall be governed by and construed according to the laws
of the State of Connecticut.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first stated above.
ENERGY RESEARCH CORPORATION
By:
---------------------------------
Jerry Leitman
Chief Executive Officer
---------------------------------
Allen Charkey
-10-
<PAGE>
Exhibit 10.10
LINE OF CREDIT NOTE
$3,450,000.00 Danbury, Connecticut
February 5, 1999
FOR VALUE RECEIVED, the undersigned EVERCEL, INC., a Delaware corporation
("Maker"), hereby promises to pay to the order of ENERGY RESEARCH CORPORATION, a
Delaware corporation, at its place of business at 3 Great Pasture Road, Danbury,
Connecticut 06813 ("Lender"), the sum of THREE MILLION FOUR HUNDRED FIFTY
THOUSAND DOLLARS ($3,450,000.00), or so much as may have been advanced to Maker
as provided in that certain Loan Agreement (the "Loan Agreement") dated as of
the date hereof between Maker and Lender, together with interest on the unpaid
principal amount from time to time outstanding prior to demand or maturity at a
floating rate per annum equal to the LIBOR Rate plus 150 basis points. Interest
shall be payable in arrears on the first day of each month, beginning with the
first such day to occur after the date hereof.
All outstanding principal and interest shall be due and payable in full on the
earlier of: (i) an Event of Default; and (ii) the end of the Commitment Period,
as defined in the Loan Agreement.
After the occurrence and during the continuance of an Event of Default, (a)
principal outstanding hereunder shall bear interest at a floating rate per annum
equal to the interest rate applicable hereunder plus three percent (3%) per
annum (the "Default Rate of Interest"), and (b) the Lender shall be entitled to
accelerate all outstanding principal and interest due hereunder and demand
immediate payment in full of the same.
Interest and fees shall be calculated on the basis of a 360-day year times the
actual number of days elapsed. "LIBOR Rate", as used herein, shall mean for any
day: (i) the "LIBOR Rate" as determined under Lender's loan arrangement with
First Union; or (ii) if there exists no such loan arrangement, then the London
Interbank Offered Rates (LIBOR) for one month as published in THE WALL STREET
JOURNAL under the heading "Money Rates" on such day (or on the next day on which
THE WALL STREET JOURNAL is published). Any change in rate resulting from a
change in LIBOR Rate shall become effective as of the day on which such change
in the LIBOR Rate becomes effective. In no event shall interest payable
hereunder exceed the highest rate permitted by applicable law. To the extent any
interest received by Lender exceeds the maximum amount permitted, such payment
shall be credited to principal, and any excess remaining after full payment of
principal shall be refunded to Maker. This Note evidences borrowings under the
Loan Agreement and is secured by and entitled to the benefits of the provisions
of the Loan Agreement and any other instruments or documents executed in
connection therewith. The principal of this Note is subject to prepayment in
full or in part at any time without premium or penalty.
Maker and all guarantors and endorsers hereby waive presentment, demand, notice,
protest, and all other demands and notices in connection with the delivery,
acceptance, performance and
<PAGE>
enforcement of this Note, and assent to extensions of the time of payment or
forbearance or other indulgence without notice. No delay or omission of Lender
in exercising any right or remedy hereunder shall constitute a waiver of any
such right or remedy. Acceptance by Lender of any payment after demand shall not
be deemed a waiver of such demand. A waiver on one occasion shall not operate as
a bar to or waiver of any such right or remedy on any future occasion.
Executed as an instrument under seal as of the date first above written.
WITNESS: EVERCEL, INC.
By:
- --------------------------- -----------------------------------------
Name:
Title:
-2-
<PAGE>
Exhibit 10.11
SECURITY AGREEMENT
SECURITY AGREEMENT made by EVERCEL, INC. (the "Debtor") in favor of
ENERGY RESEARCH CORPORATION (the "Secured Party"). In consideration of the
agreement of Secured Party to extend credit or other financial accommodations to
the Debtor, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Debtor hereby agrees for the
benefit of Secured Party as follows:
1. GRANT OF SECURITY INTEREST. As collateral security for the payment
and performance when due of the Obligations (defined below), the Debtor hereby
collaterally assigns, mortgages, and pledges to Secured Party, and hereby grants
to Secured Party a security interest in, all of the Debtor's right, title and
interest in, to and under the Collateral (defined below).
"Collateral" means all the Debtor's present and future right, title and
interest in and to any of the following property, wherever located and
whether now owned or hereafter acquired: All of the Debtor's tangible
and intangible personal property, including without limitation, all
inventory, equipment and other goods, all accounts receivable, notes,
drafts, acceptances, instruments and documents, chattel paper, general
intangibles, deposit accounts, books and records, and all cash and
non-cash proceeds of the foregoing in whatever form received, including
without limitation insurance proceeds, but excluding rights (other than
payment rights) under agreements to the extent that the inclusion of
such rights would cause a default by the Borrower under the terms of
any agreement. Any of the foregoing terms which are specifically
defined in the Uniform Commercial Code as in effect in the State of
Connecticut shall have the meanings given therein.
"Obligations" means any and all payment and performance obligations of
the Debtor to Secured Party, now existing or hereafter arising, direct
or indirect, absolute or contingent, due or to become due, liquidated
or unliquidated, arising under that certain Loan Agreement between
Debtor and Secured Party dated as of the date hereof (the "Loan
Agreement"), and that certain $3,450,000.00 Line of Credit Note
executed by Debtor to the order of Secured Party in connection
therewith, and each other document executed and delivered to secure
such obligations.
2. SECURED PARTY'S RIGHTS AND OBLIGATIONS. Debtor shall remain liable
under all accounts receivable, instruments and documents and general
intangibles. Secured Party shall not have any obligation or liability under any
accounts receivable, instruments and documents or general intangibles by reason
of this Security Agreement or the exercise of Secured Party's rights and
remedies hereunder, nor shall Secured Party be required to perform the Debtor's
obligations pursuant thereto. Secured Party shall have no obligation to inquire
as to the sufficiency of any payment received by it on account of any of
Debtor's accounts receivable or to take any action to collect or enforce the
payment of any account receivable.
<PAGE>
3. FURTHER ASSURANCES. Debtor will join with Secured Party in executing
such UCC financing statements as Secured Party may reasonably request. At
Secured Party's request from time to time, the Debtor will execute and deliver
any and all such further instruments and documents and take such further actions
as Secured Party may reasonably deem desirable in obtaining the full benefits of
this Security Agreement. The Debtor also hereby authorizes Secured Party to
execute on behalf of the Debtor and file UCC financing or continuation
statements with appropriate jurisdictions in order to perfect the security
interests granted herein.
4. EVENTS OF DEFAULT. The occurrence of any Event of Default as defined
in the Loan Agreement shall constitute an Event of Default hereunder.
5. REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of any Event of Default, and subject to the terms of the Loan
Agreement:
(a) Secured Party may declare all Obligations secured hereby
immediately due and payable and shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as now in effect in the State of
Connecticut or under other applicable law.
(b) Secured Party may notify Debtor's account or contract debtors (or
other obligors whose obligations to Debtor secure this agreement) of Secured
Party's security interest and that such account or contract debtors are to make
payments directly to Secured Party. Secured Party may send this notice in
Debtor's name or in Secured Party's name, and at Secured Party's request Debtor
will join in Secured Party's notice, provide written confirmation of Secured
Party's security interest and request that payment be sent to Secured Party.
Secured Party may enforce this obligation by specific performance. Secured Party
may collect all amounts due on the accounts and accounts receivable. Upon and
after notification by Secured Party to Debtor, Debtor shall hold any proceeds
and collections of any of the collateral in trust for Secured Party and shall
not commingle such proceeds or collections with any other of Debtor's funds, and
Debtor shall deliver all such proceeds to Secured Party immediately upon
Debtor's receipt thereof in the identical form received and duly endorsed or
assigned to Secured Party.
(c) At the request of Secured Party, the Debtor shall cause the
Collateral, or such portion of the Collateral as Secured Party may direct, to be
assembled for Secured Party at such location (including, without limitation,
Debtor's business address) as Secured Party may request. Secured Party will give
to the Debtor reasonable notice of the time and place of any public sale of
Collateral or of the time after which any private sale or other intended
disposition thereof is to be made. Such requirement of reasonable notice shall
be met if such notice is delivered to the address of the Debtor set forth in
this Agreement at least ten (10) days before the time of the proposed sale or
disposition. Any such sale may take place from Debtor's location or such other
location as Secured Party may designate. Debtor shall remain liable for any
deficiency in payment of the Obligations after any such sale.
Debtor hereby irrevocably appoints Secured Party as its true and lawful
attorney-in-fact with full power of substitution to take any of the foregoing
actions in the name of the Debtor or Secured Party to carry out the terms of
this Agreement and to protect, enforce, preserve or perfect
-2-
<PAGE>
Secured Party's rights hereunder. Such power of attorney is irrevocable and
shall be deemed to be coupled with an interest.
6. MISCELLANEOUS. Expenses of enforcing Secured Party's rights
hereunder after and during the continuance of an Event of Default including, but
not limited to, preparation for sale, selling or the like and Secured Party's
reasonable attorneys' fees and other expenses shall be payable by Debtor and
shall be secured hereby. None of the terms or provisions of this Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by Secured Party and Debtor. Secured Party's rights and remedies
hereunder or under any other agreement or instrument shall be cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law. This Agreement shall be binding on and inure to the
benefit of the respective successors and assigns of the Debtor and Secured
Party. This Agreement shall be governed by the laws of the State of Connecticut.
EXECUTED an instrument under seal as of February ___, 1999.
EVERCEL, INC.
By:
---------------------------------
Name:
Title:
-3-
<PAGE>
Exhibit 10.12
TRADEMARK SECURITY AGREEMENT
AGREEMENT dated as of February ___, 1999 made by EVERCEL, INC., a
Delaware corporation with chief executive office at 3 Great Pasture Road,
Danbury, Connecticut 06813 ("Borrower"), in favor of ENERGY RESEARCH
CORPORATION, a New York corporation with a place of business at 3 Great Pasture
Road, Danbury, Connecticut 06813 ("Secured Party").
W I T N E S S E T H:
WHEREAS, Borrower and Secured Party are parties to a Loan Agreement,
dated as of the date hereof (the "Loan Agreement"), and certain supplements,
agreements and instruments entered into pursuant thereto as such may be amended,
modified or supplemented from time to time (collectively, with the Loan
Agreement, the "Loan Documents"), pursuant to which Secured Party may make
certain loans to Borrower; and
WHEREAS, Secured Party's willingness to enter into the Loan Documents
and make the loans and credit accommodations available thereunder is subject to
the condition, among others, that Borrower execute and deliver this Trademark
Security Agreement;
NOW, THEREFORE, in consideration of the premises and for one dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in addition to, and not in limitation of,
any rights of the Secured Party under the Loan Documents, Borrower hereby agrees
for the benefit of Secured Party as follows:
1. DEFINITIONS.
1.1 All capitalized terms used herein shall have the respective
meanings provided therefor in the Loan Documents. In addition, the following
terms shall have the meanings set forth in this Section 1 or elsewhere in this
Security Agreement referred to below:
"PROCEEDS" shall mean any consideration received from the
sale, exchange, license, lease or other transfer or disposition of any right,
interest, asset or property which constitutes Trademark Collateral, any value
received as a consequence of the ownership, possession, or use of any Trademark
Collateral, and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft or other involuntary conversion of
whatever nature of any right, interest, asset or property which constitutes
Trademark Collateral.
"PTO" shall mean the United States Patent and Trademark
Office.
"TRADEMARKS" shall mean all of the trademarks, service marks,
designs, logos, indicia, trade names, corporate names, company names, business
names, fictitious business names, trade styles, elements of package or trade
dress, and/or other source and/or product or service identifiers, and general
intangibles of like nature, used or associated with or appurtenant to the
products, services and business of the Borrower, which (i) are set forth on
-1-
<PAGE>
SCHEDULE A attached hereto, or (ii) have been adopted, acquired, owned, held or
used by the Borrower and are now owned, held or used by the Borrower, in the
Borrower's business, or with the Borrower's products and services, or in which
the Borrower has any right, title or interest, or (iii) are in the future
adopted, acquired, owned, held and/or used by the Borrower in the Borrower's
business or with the Borrower's products and services, or in which the Borrower
in the future acquires any right, title or interest.
"TRADEMARK COLLATERAL" shall mean all of the Borrower's
right, title and interest (to the extent Borrower has any such right, title or
interest) in and to all of the Trademarks, the Trademark Registrations, the
Trademark Rights, and all additions, improvements and accessions to,
substitutions for, replacements of, and all products and Proceeds (including
insurance proceeds) of any and all of the foregoing PROVIDED, however, that
Trademark Collateral shall exclude all rights of Borrower (except payment
rights) to the extent that the inclusion of such rights would cause a default by
Borrower under the terms of any agreement.
"TRADEMARK REGISTRATIONS" shall mean all past, present or
future federal, state, local and foreign registrations of the Trademarks (and
all renewals and extensions of such registrations), all past, present and future
applications for any such registrations of the Trademarks (and any such
registrations thereof upon approval of such applications), together with the
right (but not the obligation) to apply for such registrations (and prosecute
such applications), and to take any and all actions necessary or appropriate to
maintain such registrations in effect and/or renew and extend such
registrations.
"TRADEMARK RIGHTS" shall mean any and all past, present or
future rights in, to and associated with the Trademarks throughout the world,
whether arising under federal law, state law, common law, foreign law or
otherwise, including but not limited to the following: all such rights arising
out of or associated with the Trademark Registrations; the right (but not the
obligation) to register claims under any state, federal or foreign trademark law
or regulation; the right (but not the obligation) to sue or bring opposition or
cancellation proceedings for any and all past, present and future infringements
or dilution of or any other damages or injury to the Trademarks, the Trademark
Rights, and the rights to damages or profits due or accrued arising out of or in
connection with any such past, present or future infringement, dilution, damage
or injury.
"USE" of any Trademark shall include all uses of such
Trademark by, for or in connection with the Borrower or its business or for the
direct or indirect benefit of the Borrower or its business, including but not
limited to all such uses by the Borrower itself, by any of the affiliates of the
Borrower, or by any licensee or contractor of the Borrower.
-2-
<PAGE>
2. GRANT OF SECURITY; COLLATERAL ASSIGNMENT.
2.1 GRANT OF SECURITY INTEREST. As collateral security for the
complete and timely payment, performance and satisfaction of all Obligations (as
defined in the Security Agreement from Borrower to Secured Party dated the date
hereof), the Borrower hereby unconditionally grants to the Secured Party, a
continuing security interest in and lien on the Trademark Collateral, and
pledges, mortgages and hypothecates (but does not transfer title to) the
Trademark Collateral to the Secured Party.
2.2 SUPPLEMENTAL TO LOAN DOCUMENTS. The parties expressly
acknowledge and agree that the Borrower has delivered the Loan Documents
pursuant to which the Borrower unconditionally granted to the Secured Party a
continuing security interest in and lien on the Collateral (including the
Trademark Collateral). In no event shall this Security Agreement, or the
recordation of this Security Agreement (or any document hereunder) with the PTO,
adversely affect or impair, in any way or to any extent, the Loan Documents, the
security interest of the Secured Party in the Collateral (including the
Trademark Collateral) pursuant to the Loan Documents, the attachment and
perfection of such security interest under the Code (as defined herein), or the
present or future rights and interests of the Secured Party in and to the
Collateral under or in connection with the Loan Documents, this Security
Agreement and/or the Code. Any and all rights and interests of the Secured Party
in and to the Trademark Collateral (and any and all obligations of the Borrower
with respect to the Trademark Collateral) provided herein, or arising hereunder
or in connection herewith, shall only supplement and be cumulative and in
addition to the rights and interests of the Secured Party (and the obligations
of the Borrower) in, to or with respect to the Collateral (including the
Trademark Collateral) provided in or arising under or in connection with the
other Loan Documents.
3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to, and covenants and agrees with, Secured Party, as follows:
3.1 TITLE. The Borrower will subject to its reasonable business
judgment, take all actions as it shall determine to defend its right, title and
interests in and to the Trademarks and the Trademark Collateral against claims
of any third parties.
3.2 MAINTENANCE OF TRADEMARK COLLATERAL. The Borrower shall take
such actions (including but not limited to institution and maintenance of suits,
proceedings or actions) as it determines to be appropriate to maintain, protect,
preserve, care properly for and enforce the Trademarks and the Trademark
Registrations, Trademark Rights and to preserve the Borrower's rights in the
Trademarks.
3.3 NO INFRINGEMENTS. To the best of the Borrower's knowledge and
belief, there is at present no material infringement or unauthorized or improper
use of the Trademarks or the Trademark Registrations or the Trademark Rights
related thereto. In the event any such infringement or unauthorized or improper
use by any third party has been reasonably established by the Borrower, the
Borrower shall promptly notify the Secured Party and shall have the right to sue
and recover therefor and to retain any and all damage so recovered or obtained.
-3-
<PAGE>
4. RIGHTS OF AND LIMITATIONS ON SECURED PARTY.
4.1 BORROWER TO REMAIN LIABLE. It is expressly agreed by Borrower
that Borrower shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by it relating to the Trademark
Collateral. Secured Party shall not have any obligation or liability under or in
relation to the Trademark Collateral by reason of the execution and delivery of
this Security Agreement and Secured Party's rights hereunder, or the grant of a
security interest by Borrower to Secured Party of, or the receipt in accordance
with this Agreement by Secured Party of, any payment relating to any Trademarks,
nor shall Secured Party be required or obligated in any manner to perform or
fulfill any of the obligations of Borrower relating to the Trademark Collateral
or be liable to any party on account of Borrower's use of the Trademark
Collateral.
4.2 SPECIFIC ENFORCEMENT. Due to the unique nature of the
Trademark Collateral, and in order to preserve its value, the Borrower agrees
that the Borrower's agreements, duties and obligations under this Security
Agreement shall be subject to specific enforcement and other appropriate
equitable orders and remedies.
5. REMEDIES UPON AN EVENT OF DEFAULT. During the continuance of an
Event of Default:
(a) Secured Party may declare all Obligations secured hereby
immediately due and payable and shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as now in effect in the State of
Connecticut ("Code") or under other applicable law.
(b) Secured Party may notify any obligors with respect to the
Trademark Collateral of Secured Party's security interest and that such obligors
are to make payments directly to Secured Party. Secured Party may send this
notice in Borrower's name or in Secured Party's name, and at Secured Party's
request Borrower will join in Secured Party's notice, provide written
confirmation of Secured Party's security interest and request that payment be
sent to Secured Party. Secured Party may enforce this obligation by specific
performance. Secured Party may collect all amounts due from such obligors. Upon
and after notification by Secured Party to Borrower, Borrower shall hold any
proceeds and collections of any of the Trademark Collateral in trust for Secured
Party and shall not commingle such proceeds or collections with any other of
Borrower's funds, and Borrower shall deliver all such proceeds to Secured Party
immediately upon Borrower's receipt thereof in the identical form received and
duly endorsed or assigned to Secured Party.
(c) Secured Party will give to the Borrower reasonable notice of the
time and place of any public sale of Trademark Collateral or of the time after
which any private sale or other intended disposition thereof is to be made. Such
requirement of reasonable notice shall be met if such notice is delivered to the
address of the Borrower set forth in this Agreement at least ten (10) days
before the time of the proposed sale or disposition. Any such sale may take
place from
-4-
<PAGE>
Borrower's location or such other location as Secured Party may designate.
Borrower shall remain liable for any deficiency in payment of the Obligations
after any such sale.
Borrower hereby irrevocably appoints Secured Party as its true and
lawful attorney-in-fact with full power of substitution to take any of the
foregoing actions in the name of the Borrower or Secured Party to carry out the
terms of this Agreement and to protect, enforce, preserve or perfect Secured
Party's rights hereunder. Such power of attorney is irrevocable and shall be
deemed to be coupled with an interest.
6. GENERAL PROVISIONS. This Security Agreement is supplemental to the
Loan Agreement, the terms of which, including, without limitation, the notice
and governing law provisions, consent to service of process and jurisdiction and
prohibitions on non-written waivers, the Borrower expressly accepts, confirms
and acknowledges are incorporated herein by reference. In the event of any
irreconcilable conflict between the provisions of this Security Agreement and
the Loan Agreement, the provisions of the Loan Agreement shall govern.
-5-
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Security Agreement to be
executed by its duly authorized officer as of the date first written above.
WITNESS: EVERCEL, INC.
- ----------------------------- By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
STATE OF CONNECTICUT:
COUNTY: , 1999
--------------------
Then personally appeared the above-named ______________ and stated that
he is a duly authorized _______________ of Evercel, Inc. (the "Corporation") and
acknowledged the foregoing instrument to be his free act and deed, and the free
act and deed of said Corporation, before me,
--------------------------
Notary Public
My Commission Expires:
-6-
<PAGE>
SCHEDULE A TO
TRADEMARK COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
TRADEMARKS, TRADEMARK REGISTRATION,
SERVICE MARKS
[TO BE COMPLETED]
<TABLE>
<S> <C>
1.
2.
3.
4.
5.
</TABLE>
-7-
<PAGE>
Exhibit 10.13
PATENT SECURITY AGREEMENT
AGREEMENT dated as of February ___, 1999 made by EVERCEL, INC., a
Delaware corporation with its chief executive office located at 3 Great Pasture
Road, Danbury, Connecticut 06813 ("Borrower"), in favor of ENERGY RESEARCH
CORPORATION, a New York corporation with a place of business at 3 Great Pasture
Road, Danbury, Connecticut 06813 ("Secured Party").
W I T N E S S E T H:
WHEREAS, Borrower and Secured Party are parties to a Loan Agreement,
dated as of the date hereof (the "Loan Agreement"), and certain agreements,
documents and instruments entered into pursuant thereto, (collectively, with the
Loan Agreement, the "Loan Documents"), pursuant to which Secured Party has
agreed to make certain loans to Borrower; and
WHEREAS, Secured Party's willingness to enter into the Loan Documents
and make the loans and credit accommodations available thereunder is subject to
the condition, among others, that Borrower execute and deliver this Patent
Security Agreement;
NOW, THEREFORE, in consideration of the premises and for one dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in addition to, and not in limitation of,
any rights of the Secured Party under the Loan Documents, Borrower hereby agrees
for the benefit of Secured Party as follows:
1. DEFINITIONS.
1.1 All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided therefore in the Loan Agreement. In
addition, the following terms shall have the meanings set forth in this Section
1 or elsewhere in this Security Agreement referred to below:
"PTO" shall mean the United States Patent and Trademark Office.
"PATENTS" shall mean all of the following now or hereafter owned by the
Borrower:
(a) all letters patent of the United States or any other country,
and all applications for letters patent of the United States or any other
country;
(b) all re-issues, continuations, divisions,
continuations-in-part, renewals or extensions thereof;
(c) the inventions disclosed or claimed therein, including the
right to make, use, practice and/or sell (or license or otherwise transfer or
dispose of) the inventions disclosed or claimed therein; and
1
<PAGE>
(d) the right (but not the obligation) to make and prosecute
applications for such Patents.
Patents shall include but not be limited to those set forth on SCHEDULE
A attached hereto.
"PATENT COLLATERAL" shall mean all of the Borrower's right, title and
interest in and to all of the Patents, the Patent License Rights, and the Patent
Rights, and all additions, improvements, and accessions to, all substitutions
for and replacements of, and all products and Proceeds (including insurance
proceeds) of any and all of the foregoing, and all books and records and
technical information and data describing or used in connection with any and all
such rights, interests, assets or property.
"PATENT LICENSE RIGHTS" shall mean any and all past, present or future
rights and interests of the Borrower pursuant to any and all past, present and
future licensing agreements in favor of the Borrower, or to which the Borrower
is a party, pertaining to any Patents or Patent Rights, owned or used by third
parties in the past, present or future, including the right to enforce, sue and
recover for, any past, present or future breach or violation of any such
agreements but only to the extent that the inclusion thereof in this Agreement
does not and will not cause a default under the terms of any agreement (except
that all payment rights of Borrower shall be included in this Agreement).
"PATENT RIGHTS" shall mean any and all past, present or future rights
in, to and associated with the Patents throughout the world, whether arising
under federal law, state law, common law, foreign law, or otherwise, including
but not limited to the following: all such rights arising out of or associated
with the Patents; the right (but not the obligation) to register claims under
any federal, state or foreign patent law or regulation; the right (but not the
obligation) to sue or bring opposition or bring cancellation proceedings for any
and all past, present and future infringements of or any other damages or injury
to the Patents or the Patent Rights, and the rights to damages or profits due or
accrued arising out of or in connection with any such past, present or future
infringement, damage or injury; and the Patent License Rights.
"PROCEEDS" shall mean any consideration received from the sale,
exchange, license, lease or other disposition or transfer of any right,
interest, asset or property which constitutes Patent Collateral, any value
received as a consequence of the ownership, possession, use or practice of any
Patent Collateral, and any payment received from any insurer or other person or
entity as a result of the destruction or the loss, theft or other involuntary
conversion, of whatever nature, of any right, interest, asset or property which
constitutes Patent Collateral.
2
<PAGE>
2. GRANT OF SECURITY; COLLATERAL ASSIGNMENT.
2.1 GRANT OF SECURITY INTEREST. As collateral security for the
complete and timely performance and satisfaction of all Obligations (as defined
in the Security Agreement from Borrower to Secured Party dated the date hereof),
the Borrower hereby unconditionally grants to Secured Party, a continuing
security interest in and lien on the Patent Collateral, and pledges, mortgages
and hypothecates the Patent Collateral to Secured Party.
2.2 SUPPLEMENTAL TO LOAN DOCUMENTS. The parties expressly acknowledge
and agree that they have executed and delivered the Loan Documents pursuant to
which the Borrower unconditionally granted to Secured Party, a continuing
security interest in and lien on the Collateral (including the Patent
Collateral). In no event shall this Security Agreement, or the recordation of
this Security Agreement (or any document hereunder) with the PTO, or any other
governmental or public office or agency, adversely affect or impair, in any way
or to any extent, the other Loan Documents, the security interest of Secured
Party in the Collateral (including the Patent Collateral) pursuant to the other
Loan Documents, the attachment and perfection of such security interest under
the Code (as defined herein), or the present or future rights and interests of
Secured Party in and to the Collateral under or in connection with this Security
Agreement, the other Loan Documents, and/or the Code. Any and all rights and
interests of Secured Party in and to the Patent Collateral (and any and all
obligations of the Borrower with respect to the Patent Collateral) provided
herein, or arising hereunder or in connection herewith, shall only supplement
and be cumulative and in addition to the rights and interests of Secured Party
(and the obligations of the Borrower) in, to or with respect to the Collateral
(including the Patent Collateral) provided in or arising under or in connection
with the other Loan Documents.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. The
Borrower represents and warrants to, and covenants and agrees with, Secured
Party, as follows:
3.1 TITLE. The Borrower will, subject to its reasonable business
judgment, take all actions as it shall determine to defend its right, title and
interests in and to the Patents and the Patent Collateral against claims of any
third parties.
3.2 MAINTENANCE OF PATENT COLLATERAL. The Borrower shall take such
actions (including but not limited to institution and maintenance of suits,
proceedings or actions) it determines to be appropriate to maintain, protect,
preserve, care for and enforce the Patent Collateral.
3.3 NO INFRINGEMENTS. The Borrower shall use reasonable efforts
consistent with past practices to protect against any infringement or
unauthorized or improper use of the Patents. In the event any such infringement
or unauthorized or improper use by any third party has been reasonably
established by the Borrower, the Borrower shall promptly notify Secured Party.
3
<PAGE>
3.4 FILING FOR PERFECTION OF INTEREST. Borrower acknowledges that
Secured Party may cause this Security Agreement to be recorded with the PTO.
4. REMEDIES UPON AN EVENT OF DEFAULT. During the continuance of an
Event of Default:
(a) Secured Party may declare all Obligations secured hereby
immediately due and payable and shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as now in effect in the State of
Connecticut ("Code") or under other applicable law.
(b) Secured Party may notify any obligors with respect to the Patent
Collateral of Secured Party's security interest and that such obligors are to
make payments directly to Secured Party. Secured Party may send this notice in
Borrower's name or in Secured Party's name, and at Secured Party's request
Borrower will join in Secured Party's notice, provide written confirmation of
Secured Party's security interest and request that payment be sent to Secured
Party. Secured Party may enforce this obligation by specific performance.
Secured Party may collect all amounts due from such obligors. Upon and after
notification by Secured Party to Borrower, Borrower shall hold any proceeds and
collections of any of the Patent Collateral in trust for Secured Party and shall
not commingle such proceeds or collections with any other of Borrower's funds,
and Borrower shall deliver all such proceeds to Secured Party immediately upon
Borrower's receipt thereof in the identical form received and duly endorsed or
assigned to Secured Party.
(c) Secured Party will give to the Borrower reasonable notice of the
time and place of any public sale of Patent Collateral or of the time after
which any private sale or other intended disposition thereof is to be made. Such
requirement of reasonable notice shall be met if such notice is delivered to the
address of the Borrower set forth in this Agreement at least ten (10) days
before the time of the proposed sale or disposition. Any such sale may take
place from Borrower's location or such other location as Secured Party may
designate. Borrower shall remain liable for any deficiency in payment of the
Obligations after any such sale.
Borrower hereby irrevocably appoints Secured Party as its true and
lawful attorney-in-fact with full power of substitution to take any of the
foregoing actions in the name of the Borrower or Secured Party to carry out the
terms of this Agreement and to protect, enforce, preserve or perfect Secured
Party's rights hereunder. Such power of attorney is irrevocable and shall be
deemed to be coupled with an interest.
(d) NO OBLIGATION OF SECURED PARTY. Nothing herein shall be construed
as obligating Secured Party to take any of the foregoing actions at any time.
5. LIABILITIES, INDEMNITY AND COSTS.
5.1 LIABILITY FOR USES OF PATENT COLLATERAL. The Borrower shall be
liable for any and all uses or misuses of and the practice, manufacture, sales
(or other transfers or dispositions) of
4
<PAGE>
any of the Patent Collateral by the Borrower and its affiliates. The Borrower
shall also be exclusively liable for any claim, suit, loss, damage, expense or
liability arising out of or in connection with the fault, negligence, acts or
omissions of the Borrower (regardless of whether such fault, negligence, acts or
omissions occurred or occur prior to or after such license termination).
5.2 LICENSE AGREEMENT OBLIGATIONS. Nothing in this Security Agreement
shall relieve the Borrower from any performance of any covenant, agreement or
obligation of the Borrower under any license agreement now or hereafter in
effect licensing any part of the Patent Collateral, or from any liability to any
licensee or licensor under any such license agreement or to any other party, or
shall impose any liability on Secured Party for any act or omission of the
Borrower in connection with any such license agreement.
6. POWER OF ATTORNEY. The provisions of this Section 6 shall be
subject in all events to the terms and conditions of the Loan Agreement.
6.1 GRANT. The Borrower hereby grants to Secured Party, and any
officer or agent of Secured Party as Secured Party may designate in its sole
discretion, a power of attorney, thereby constituting and appointing Secured
Party (and Secured Party's designee) its true and lawful attorney-in-law and
attorney-in-fact, effective upon the occurrence and during the continuation of
an Event of Default, for the purpose of assigning, selling, licensing or
otherwise transferring or disposing of all right, title and interest of the
Borrower in and to any of the Patent Collateral in accordance with the terms
hereof. The Borrower hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof.
6.2 IRREVOCABLE. The foregoing power of attorney is coupled with an
interest and is irrevocable until this Security Agreement shall terminate.
7. GENERAL PROVISIONS.
7.1 LOAN AGREEMENT CONTROLS. This Security Agreement is supplemental
to the Loan Agreement, the terms of which, including, without limitation, the
notice and governing law provisions, consent to service of process and
jurisdiction and prohibition on non-written waivers, the Borrower expressly
accepts, confirms and acknowledges are incorporated herein by reference. In the
event of any irreconcilable conflict between the provisions of this Security
Agreement and the Loan Agreement the provisions of the Loan Agreement shall
control.
7.2 SPECIFIC ENFORCEMENT. Due to the unique nature of the Patent
Collateral, and in order to preserve its value, the Borrower agrees that the
Borrower's agreements, duties and obligations under this Security Agreement
shall be subject to specific enforcement and other appropriate equitable orders
and remedies.
5
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Security Agreement to be
executed by its duly authorized officer as of the date first written above.
WITNESS: EVERCEL, INC.
By:
------------------------------
Name:
------------------------
Title:
------------------------
STATE OF CONNECTICUT
COUNTY: , 1999
----------------
Then personally appeared the above-named ______________ and stated that
he is a duly authorized _______________ of Evercel, Inc. (the "Corporation") and
acknowledged the foregoing instrument to be his free act and deed, and the free
act and deed of said Corporation, before me,
---------------------------
Notary Public
My Commission Expires:
<PAGE>
SCHEDULE A TO
PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
PATENTS
<TABLE>
<CAPTION>
A. PATENTS
<S> <C> <C>
Patent No. Issue Date File No.
4,415,636 November 11, 1983 30512
4,546,058 October 8, 1985 32984
4,661,759 April 28, 1987 40006
4,810,598 March 7, 1987 40067
4,976,904 December 11, 1990 40066
5,023,155 June 11, 1991 40110
5,264,305 November 23, 1993 B429-001
5,460,899 October 24, 1995 B429-010
5,556,720 September 17, 1996 B429-010 CIP
5,658,694 August 19, 1997 B429-021
B. PATENT APPLICATIONS
Patent Application No. Filing Date File No.
08/722,605 September 27, 1996 B429-019
08/828,801 March 27, 1997 B429-026
09/148,451 September 4, 1998 B429-029
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
C. LICENSES
1. Technology Transfer and License Contract for Nickel Zinc Battery
Technology among Xiamen ERC Battery Corporation Ltd., Xiamen Three
Circles Company Ltd. (formerly known as Xiamen Daily-Use Chemical
Company), and Energy Research Corporation dated, May 29, 1998.
2. Technology Transfer and License Contract for Nickel Zinc Battery
Technology between Xiamen Three Circles Company Ltd. (formerly known as
Xiamen Daily-Use Chemical Company), Nan Ya Plastics Corporation, and
Energy Research Corporation, dated February 21, 1998.
</TABLE>
8
<PAGE>
Exhibit 10.14
LOAN AGREEMENT
LOAN AGREEMENT dated as of February 5, 1999 entered into by and between
Energy Research Corporation, a New York corporation having a place of business
at 3 Great Pasture Road, Danbury, Connecticut 06813 ("Lender") and Evercel,
Inc., a Delaware corporation having a place of business in 3 Great Pasture Road,
Danbury, Connecticut 06813 ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender make available to Borrower
a line of credit in the amount of up to $3,450,000.00 to finance Borrower's
working capital needs;
WHEREAS, Lender is willing to do so, but only on the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and
Lender agree as follows.
1. CERTAIN DEFINITIONS. As used herein the terms set forth on
SCHEDULE I hereto shall have the meanings set forth thereon.
2. THE LOANS.
(a) At any time after the date hereof through the earlier to occur of:
(i) the Termination Date; and (ii) the date eighteen (18) months after the date
hereof (the "Commitment Period"), Lender shall, from time to time, at Borrower's
request, make loan advances to Borrower (the "Loans"), subject to the terms and
conditions contained in this Agreement. Loans advanced hereunder may be repaid
and reborrowed and shall be due and payable as set forth in the Line of Credit
Note. Except in Lender's sole discretion, the aggregate principal amount of
Loans advanced hereunder shall not exceed the lesser of $3,450,000.00 or the
Borrowing Base.
(b) The Loans shall be evidenced by the Line of Credit Note in the
form of EXHIBIT A hereto. The Loans shall bear interest and be payable as set
forth in the Line of Credit Note. Without limitation, in the event the
outstanding principal balance of Loans exceeds, at any time, the lesser of
$3,450,000.00 or the Borrowing Base, Borrower shall immediately repay to the
Lender such excess.
(c) Proceeds of the Loans shall be used by Borrower to finance
Borrower's working capital needs.
(d) Lender shall make the Loans available to Borrower by wire transfer
or otherwise as Borrower requests in its requests for advances (PROVIDED that
Borrower shall reimburse Lender
<PAGE>
for any administrative expense (wire transfer fees and the like) incurred by
Lender in connection with such advance methods, except for an advance by bank or
certified check).
(e) Any and all proceeds of the Rights Offering shall be used first to
pay off the First Union Line of Credit and then to satisfy all outstanding
amounts on account of the Loans.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
(and at the time of each Loan hereunder shall be deemed to represent and
warrant) to Lender that:
(a) CORPORATE EXISTENCE. It is a corporation duly organized and
validly existing in good standing under the laws of the state of Delaware and is
duly qualified to do business and is in good standing in every other state in
which such qualification may be necessary by reason of nature or location of
Borrower's assets or operations where the failure so to qualify would have a
material adverse effect on Borrower's business, property or condition (financial
or otherwise).
(b) NAME. Its exact legal name is as set forth in the preamble to this
Agreement and Borrower is not generally known by or using any fictitious or
other name or trade name or style.
(c) POWER AND AUTHORITY. The execution, delivery and performance
hereof are within its corporate powers and have been duly authorized by all
necessary corporate action.
(d) DUE EXECUTION. This Agreement has been duly executed and delivered
by and constitutes a valid and binding agreement of Borrower, enforceable
against it in accordance with its terms, except as the enforceability hereof may
be limited by any applicable bankruptcy, insolvency or other laws affecting
creditors' rights generally or by general principles of equity, regardless of
whether such enforceability is considered in equity or at law.
(e) CHIEF EXECUTIVE OFFICE. Its chief executive office and the office
where it keeps its books and records concerning its assets is that shown in the
preamble to this Agreement.
4. AFFIRMATIVE COVENANTS. Borrower agrees that it will:
(a) INSURANCE. (i) Keep its properties insured against fire and other
hazards (so called "All Risk" coverage) in amounts and with companies
satisfactory to Lender to the same extent and covering such risks as is
customary in the same or a similar business, but in no event in an amount less
than the full insurable value thereof, which policies shall name Lender as loss
payee as its interest may appear, (ii) maintain public liability coverage
against claims for personal injuries or death, and (iii) maintain all worker's
compensation, employment or similar insurance as may be required by applicable
law. Such All Risk property insurance coverage shall provide for a minimum of
twenty (20) days' written cancellation notice to Lender and shall contain a
so-called lender's loss payable endorsement providing that Lender's interest
therein shall not be invalidated by the acts or omissions of any person other
than Lender. Borrower agrees to deliver copies of all of the aforesaid insurance
policies to Lender. In the event of any loss or damage to any of its assets,
including any collateral securing any advance or the Loans, Borrower shall give
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<PAGE>
immediate written notice to Lender and to Borrower's insurers of such loss or
damage and shall promptly file proofs of loss with said insurers;
(b) CORPORATE EXISTENCE; COMPLIANCE WITH LAWS. Maintain its corporate
existence in good standing, and its qualification to do business in good
standing in every state in which such qualification is necessary;
(c) TAXES. Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or property including
without limitation taxes, assessments, charges or levies relating to real and
personal property, franchises, income, unemployment, old age benefits,
withholding, or sales or use, prior to the date on which penalties attach
thereto, and all lawful claims (whether for any of the foregoing or otherwise)
which, if unpaid, might give rise to a lien upon any property of Borrower,
except any of the foregoing which is being contested in good faith and by
appropriate proceedings, for which Borrower has established and is maintaining
adequate reserves, and as to which no lien having priority over Lender's liens
arises.
(d) CHANGE OF ADDRESS, NAME; LOCATION. Borrower will notify Lender, at
least thirty (30) days prior to any such event, of any change in Borrower's
exact legal name, any change in its place of business or location as set forth
in the preamble to this Agreement, or its establishment of any new place of
business or location.
5. EVENTS OF DEFAULT; REMEDIES.
Upon the occurrence and during the continuance of an Event of Default
(as defined on Schedule I hereto), (a) the Borrower shall have no further right
to request any Loans hereunder, (b) the Loans shall bear interest at the Default
Rate of Interest, as defined in the Line of Credit Note, (c) the Lender may by
notice to Borrower accelerate the payment of the Loans and all other obligations
of Borrower hereunder and demand payment thereof; and (d) Lender may proceed to
enforce payment of any of the foregoing and shall have and may exercise any and
all rights under the Uniform Commercial Code or which are afforded to Lender
herein, in the Security Agreement and other collateral documents executed in
connection herewith, or otherwise.
6. EXPENSES. Borrower agrees to pay Lender on demand any and all
reasonable out-of-pocket costs and expenses of any nature (including without
limitation reasonable attorneys' fees and disbursements) which may be incurred
by Lender in connection with exercise of Lender's rights against the Borrower
after an Event of Default; any exercise of Lender's right of acceleration; any
enforcement, collection or other proceedings with respect to the Loans; or any
bankruptcy, insolvency or other similar proceedings of the Borrower.
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<PAGE>
7. CONDITIONS PRECEDENT.
Borrower acknowledges and agrees that Lender will not make any Loans
hereunder, nor will Lender entertain any request from Borrower for Loans
hereunder, unless and until all of the following conditions have been satisfied
and remain satisfied (whether as of the Closing Date or on any subsequent date
when Borrower requests a Loan):
(a) REPRESENTATIONS AND WARRANTIES. Borrower's representations and
warranties contained herein shall be correct and complete in all material
respects;
(b) COVENANTS. Borrower shall be in compliance in all material
respects with all covenants and agreements contained herein;
(c) NO EVENTS OF DEFAULT. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default;
(d) DELIVERY OF DOCUMENTS. Borrower shall have delivered, or caused to
be delivered, to Lender the documents listed on SCHEDULE II, duly executed by
the Borrower, and in form and substance reasonably satisfactory to Lender;
(e) PERFECTION OF SECURITY INTERESTS. Borrower shall have taken, or
caused to be taken, all action that Lender requests in order to create and
perfect Lender's Liens in the Collateral in all jurisdictions designated by
Lender;
(f) FIRST UNION LINE OF CREDIT. The Borrower must first have drawn
down the full amount available to it under the First Union Line of Credit and
any other available credit facilities; and
(g) FUNDS ARE NECESSARY. Lender is satisfied, in its sole discretion,
that Borrower needs the proceeds of the Loan to fund Borrower's working capital
needs.
8. MISCELLANEOUS PROVISIONS.
(a) NOTICES. Unless otherwise specified herein, all other notices
hereunder shall be in writing directed to the addresses shown at the end of this
Agreement. Written notices and communications shall be effective and shall be
deemed received on the day when delivered by hand or by facsimile transmission;
on the next business day, if by commercial overnight courier; and on the third
business day, if by registered or certified mail, postage prepaid.
(b) NO WAIVER. No failure to exercise and no delay in exercising, on
the part of Lender, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right or remedy. Waiver by
Lender of any right or remedy on any one occasion shall not be construed as a
bar to or waiver thereof or of any other right or remedy on any future occasion.
Lender's rights and remedies hereunder, under any agreement or instrument
supplemental hereto
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<PAGE>
or under any other agreement or instrument shall be cumulative, may be exercised
singly or concurrently and are not exclusive of any rights or remedies provided
by law.
(c) ASSIGNMENT. This Agreement shall be binding upon and shall inure
to the benefit of Borrower and Lender and their respective successors and
assigns; PROVIDED THAT Borrower may not assign or transfer any rights or
obligations hereunder without Lender's prior written consent.
(d) GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
the laws of the State of Connecticut (other than its laws relating to conflicts
of laws).
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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<PAGE>
[SIGNATURE PAGE TO LOAN AGREEMENT]
Executed as an instrument under seal on the date set forth above.
EVERCEL, INC.
By:
----------------------------
Name:
Title:
ADDRESS:
3 Great Pasture Road
Danbury, Connecticut 06813
ENERGY RESEARCH CORPORATION
By:
----------------------------
Name:
Title:
ADDRESS:
3 Great Pasture Road
Danbury, Connecticut 06813
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<PAGE>
EXHIBIT A
[LINE OF CREDIT NOTE]
-7-
<PAGE>
SCHEDULE I
DEFINITIONS
"BORROWING BASE" means $3,450,000.00 minus the sum of: (i) outstanding advances
under the First Union Line of Credit; (ii) any amounts Lender has paid on
account of the Lease Guaranty; (iii) the net proceeds received on account of any
sale or issuance of any equity securities by Borrower, including under the
Rights Offering; and (iv) the amount of any loans (excluding the First Union
Line of Credit) obtained by Borrower after the date of this Agreement, whether
for general working capital needs or to finance the acquisition of equipment or
other fixed assets, including the present value of Borrower's lease obligations
under the leases which are or should be, under generally accepted accounting
principles, recorded as leases.
"EVENT OF DEFAULT" means any one or more of the following events:
(a) failure by Borrower to pay any principal, interest or other amount
due hereunder or on account of the Loans, within five (5) days of the date
when due;
(b) failure by Borrower to perform or discharge, observe or comply with
any of its covenants or agreements set forth herein or in the Line of Credit
Note and any Security Agreement execution in connection herewith;
(c) any representation, warranty of Borrower to Lender set forth herein
is found to have been false or misleading in any material respect as of the
time when made;
(d) Borrower's liquidation, termination, dissolution or ceasing to
carry on any substantial part of its current business;
(e) commencement by Borrower of a voluntary proceeding seeking relief
with respect to itself or its debts under any bankruptcy, insolvency or
other similar law, or seeking appointment of a trustee, receiver, liquidator
or other similar official for it or any substantial part of its assets; or
its consent to any of the foregoing in an involuntary proceeding against it;
or Borrower shall generally not be paying its debts as they become due or
admit in writing its inability to do so; or an assignment for the benefit
of, or the offering to or entering into by Borrower of any composition,
extension, reorganization or other agreement or arrangement with, its
creditors; or
(f) commencement of an involuntary proceeding against Borrower seeking
relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law, or seeking appointment of a trustee, receiver, liquidator
or other similar official for it or any substantial part of its assets,
which proceeding is not dismissed or stayed within sixty (60) days.
-8-
<PAGE>
"FIRST UNION LINE OF CREDIT" means the line of credit provided to Borrower by
First Union providing for loans up to $1,000,000 (with the right to increase
such amount to $2,000,000), scheduled to terminate on or about June 30, 1999.
"LEASE GUARANTY" means the guaranty of lease, dated January 15, 1999, Lender has
provided to Shelter Lee, LLC, in connection with a lease between Borrower and
Shelter Lee, LLC.
"LINE OF CREDIT NOTE" means the note executed and delivered by Borrower to
Lender in the form of Exhibit A hereof, made to evidence the Loans.
"LOAN" or "LOANS" has the meaning given in Section 2(a) hereof.
"RIGHTS OFFERING" means Borrower's Rights Offering as reflected in the Form SB-2
Registration Statement under the Securities Act of 1933 filed with the
Securities and Exchange Commission on or about September 30, 1998.
"TERMINATION DATE" means the date on which Borrower has received net proceeds
from items (iii) and (iv) above in the definition of Borrowing Base equal to at
least $3,450,000.00.
Capitalized terms not defined herein shall have the meaning given to such term
in the related agreements and documents executed in connection herewith.
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<PAGE>
SCHEDULE II
CLOSING AGENDA
$3,450,000.00 Line of Credit Loan
from Energy Research Corporation
to Evercel, Inc.
Closing Date: February __, 1999
<TABLE>
<CAPTION>
RESPONSIBLE
DOCUMENT PARTY
-------- -----
<S> <C>
1. Loan Agreement BRF&G
2. Line of Credit Note BRF&G
3. Security Agreement BRF&G
4. Patent Collateral Assignment and Security Agreement BRF&G
5. Trademark Collateral Assignment and Security Agreement BRF&G
6. UCC financing statements BRF&G
7. Casualty and Liability Insurance Certificates, showing Lender as
loss payee and additional insured Borrower
8. Authorizing Resolutions:
(a) Energy Research Corporation
(b) Evercel, Inc.
</TABLE>
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<PAGE>
Exhibit 10.15
L E A S E
THIS INDENTURE, made by and between SHELTER LEE, LLC a Connecticut limited
liability company with an office and principal place of business at 29 Federal
Road, Danbury, Connecticut (hereinafter referred to as "Landlord") and EVERCEL,
INC. a Delaware corporation with an principal place of business at 2 Lee Mac
Avenue, Danbury, Connecticut (hereinafter referred to as "Tenant").
W I T N E S S E T H :
1. PREMISES: Landlord has leased and does hereby lease to Tenant the
following described premises situated in Danbury, Connecticut, to wit: Premises
known as 2 Lee Mac Avenue (containing +/- 28,500 square feet and shown on the
attached Site Plan) and being known as the "Leased Premises"; Together with the
right to park in common with others all as shown on the attached site plan.
2. TERM: The term of this Agreement shall be for five (5) years,
commencing January 1, 1999 and terminating December 31, 2004, except as set
forth in Paragraph 3 of this Lease.
3. START OF CONSTRUCTION AND COMMENCEMENT DATE: This Lease is drawn for
a building located at 2 Lee Mac Avenue in Danbury, Connecticut. Landlord agrees
to complete the work in Landlords work letter attached hereto. If such
construction is not completed on or before March 1, 1999 the Tenant shall have
as its sole remedy the option, for fifteen (15) days thereafter, of canceling
this Lease in writing; provided, however, that said non-compliance is not caused
by strikes, acts of God, war emergencies, or other causes beyond the Landlord's
control which shall extend the above-mentioned date. If the construction
required in connection with the Leased Premises is not completed on the date
aforementioned, the Landlord shall have the option to cancel this Lease. If
Tenant or Landlord shall cancel this Lease, as in this Paragraph 3 provided,
Landlord shall return the security deposit identified in Section 5 to Tenant,
and both parties shall thereafter be relieved of and from any further liability
hereunder. Notwithstanding the commencement and expiration dates as above set
forth, the term shall commence on the delivery of the Certificate of Occupancy
issued by the City of Danbury or Tenant occupying the Leased Premises, whichever
shall first occur, (hereinafter called "Commencement Date"), and the term shall
expire on the last day of the month five (5) years after the aforementioned
Commencement Date. If the Commencement Date is not on the first day of a
calendar month, rent for the period between Commencement Date and the first day
of the following month shall be apportioned at the annual rate hereinafter
provided (based on a 360 day annual basis) and shall be due and payable on the
Commencement Date. As soon as Commencement Date has been determined, memoranda
will be signed by Landlord and Tenant setting forth the actual commencement and
expiration dates of the term of this Lease and certifying that Tenant is in
occupancy and this Lease is in full force and effect.
<PAGE>
4. RENT: Tenant shall pay to the Landlord, without demand, an annual
rent during the term of this Lease as follows:
Years Annual Rent Monthly Rent
----- ----------- ------------
1-3 $171,000.00 $14,250.00
4 $178,125.00 $14,843.75
5 $185,250.00 $15,437.50
payable in equal monthly installments on the first day of each month, in
advance.
5. SECURITY DEPOSIT: Tenant has deposited with the Landlord the sum of
Fourteen Thousand Two Hundred and Fifty ($14,250.00), as security for the
performance by Tenant of the terms of this Lease. The Landlord may use, apply
or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or other sum as to
which Tenant is in default or for any sum which the Landlord may expend or may
be required to expend by reason of Tenant's default in respect of any of the
terms of this Lease, including, but not limited to, any damages or deficiency in
the reletting of the leased property, whether such damages or deficiency
occurred before or after summary proceedings or other re-entry by the Landlord.
In the event that the Tenant shall comply with all of the terms of this Lease,
the security shall be returned to it after the date fixed as the end of the
lease and after delivery of possession of the leased property to the Landlord.
In the event of a sale of the premises of which the leased property forms a
part, the Landlord shall have the right to transfer the security to the buyer
for the benefit of Tenant and the Landlord shall thereupon be released from all
liability for the return of such security. Landlord agrees to notify the Tenant
of such transfer in writing. The Tenant shall look solely to the vendee for the
return of such security. Landlord shall not assign or encumber the money
deposited as security, and neither the Tenant nor its successors or assigns
shall be bound by any such assignment or encumbrance. The Tenant shall not be
entitled to any interest on said security deposit.
6. UTILITIES: Tenant shall, at its own cost and expense pay all charges
when due for water, gas, electricity, heat, sewer and water rentals or charges
and any other utility charges incurred in the use of the Leased Premises.
Tenant shall be responsible for its own garbage removal.
7. USE OF PREMISES: Tenant agrees to use the Leased Premises for offices
and development, testing and manufacturing of batteries and related products.
Any other unrelated use is prohibited without the written approval of the
Landlord. Tenant will not store any material or debris outside the Leased
Premises.
8. CONDITION OF PREMISES, ORDINANCES AND VIOLATIONS: (a) The Tenant
shall make no alteration, addition or improvement in the premises without the
prior written consent of Landlord and then only by contractors or mechanics
approved by Landlord, which consent and/or approval shall not be unreasonably
delayed or withheld provided, however,
<PAGE>
Tenant shall be permitted to make alterations which cost less than Five-Thousand
($5,000.00) Dollars, without Landlord's consent.
(b) Throughout the term of this Lease Landlord agrees to make
structural repairs to the premises which shall be deemed to mean repairs to the
structural frame, exterior of the premises, to the roof and to utilities and
facilities servicing the premises to the extent that they are located outside of
the Leased Premises. All such repairs shall be at Landlord's expense unless
such repairs are necessitated by the act of Tenant or any of its employees or
business invitees. All other repairs shall be done by the Tenant at Tenant's
expense. All repairs and replacements shall be at least equal in quality of
workmanship and materials to that existing in the Leased Premises at the
commencement of this Lease. Tenant shall indemnify the Landlord against all
costs, expenses, liabilities, losses, damages, suits, fines, penalties, claims
and demands, including reasonable attorney's fees, because of Tenant's failure
to comply with the foregoing covenant. The Landlord shall in no event be
required to make any repair, alteration or improvement to the Leased Premises
except as set forth above. Tenant agrees to replace all broken glass in the
Leased Premises. Tenant shall be responsible for parking lot cleaning and
maintenance, snow removal, lawn and shrub maintenance.
(c) The necessity for and adequacy of repairs and replacements to the
Leased Premises shall be measured by the standard which is appropriate for
improvements of similar construction and class, provided that Tenant shall in
any event make all repairs necessary to comply with the building, health and
fire codes of Danbury, Connecticut.
(d) Tenant shall: suffer no waste or injury to Leased Premises; give
prompt notice to the Landlord of any damage that may occur; execute and comply
with all laws, rules, orders, ordinances and regulations at any time issued or
in force, applicable to the Leased Premises or to the Tenant's use and occupancy
thereof, of the Municipal, City, County, State and Federal Governments and
Landlord, and of each and every department, bureau and official thereof, and of
the Board of Fire Underwriters having jurisdiction thereof.
9. ASSIGNMENT: The Tenant shall not assign, mortgage, or encumber this
Lease in whole or in part, or subject all or any part of the Leased Premises to
a sublease without the prior written consent of the Landlord, which consent
shall not be unreasonably delayed or withheld. The consent by Landlord to any
assignment or subletting shall not constitute a waiver of the necessity for such
consent to any subsequent assignment or subletting. This prohibition against
assigning or subletting shall be construed to include a prohibition against
assigning or subletting by operation of law. If this Lease be assigned or if
the Leased Premises or any part thereof be occupied by anybody other than the
Tenant, Landlord may collect rent from the assignee, or occupant and apply the
net amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this provision
or the acceptance of the assignee, undertenant or occupant as lessee, or as a
release of Tenant from the further performance by it of the provisions on its
part to be observed or performed herein. Notwithstanding any assignment or
sublease, Tenant shall remain fully liable and shall not be released from
performing any of the terms of this Lease during the original term of this
Lease.
<PAGE>
10. FIRE AND OTHER CASUALTY:
(a) If the Leased Premises are totally destroyed by fire or other
casualty during the term herein, then and in that event, by virtue of its
express stipulation, the Lease shall cease and terminate. In the event that the
premises are partially destroyed by fire or other casualty during the term
herein, which partial casualty affects the enjoyment and occupancy of the Leased
Premises, then and in that event, the Tenant shall give immediate written notice
to the Landlord. If said partial destruction or casualty shall amount to less
than twenty-five percent (25%) of the Leased Premises, Landlord shall cause the
Leased Premises to be repaired as speedily as possible but in any event within
180 days of such casualty. The Tenant's obligation to pay rent shall abate in
direct proportion to that portion of the premises destroyed as related to the
whole of the Leased Premises.
(b) In the event that the partial destruction or casualty to the
Leased Premises is more than twenty-five percent (25%), the Landlord in its sole
discretion shall determine whether or not to repair the Leased Premises. In the
event that the Landlord decides not to repair the Leased Premises (which
election shall be made within 60 days of said destruction), then and in that
event, this Lease shall cease and be terminated.
11. INDEMNITY AND INSURANCE: From and after the commencement of this
Lease, Tenant will indemnify and hold Landlord harmless absolutely from and
against any and all claims, suits, actions, damages, costs, expenses or
judgment, by reason of any actual or claimed injury to person and/or property or
loss of life sustained in or about the Leased Premises during the term hereof
except for claims arising from the negligence of Landlord, its employees or
agents. If Landlord is made party to any litigation instituted against Tenant,
to which the foregoing indemnity may relate, Tenant will pay all expenses,
costs, damages, judgments and reasonable fees for counsel incurred by or imposed
on Landlord in connection therewith or as a result thereof, provided that
Landlord shall be liable for all such expenses and claims arising from the
negligence of Landlord, its employees or agents.
Without limiting the foregoing and other indemnification provisions
herein contained, Tenant agrees, at Tenant's sole cost and expense, throughout
the term of this Lease, but for the mutual benefit of Landlord and Tenant, to
maintain general public liability insurance against claims for bodily injury or
death, or injury to property, occurring upon or in the Leased Premises, such
insurance to afford protection to the limit of not less than $3,000,000.00 in
respect of bodily injury or death to any one person, and to the limit of not
less than $3,000,000.00 in respect of any one accident, and not less than
$300,000.00 in respect to property damage.
All insurance provided for in this paragraph shall name Landlord as
owner and additional insured, to the extent of the indemnification provided
herein, and Tenant as insured, as their respective interests may appear, and
shall be effected under valid and enforceable policies issued by insurers
licensed to do business in the State of Connecticut. Tenant may carry the
insurance required under this paragraph under a blanket policy. Upon the
commencement of the term of this Lease and prior to the expiration dates of the
expiring policies theretofore furnished
<PAGE>
pursuant to this paragraph, originals of the policies or certificates thereof
issued by the respective insurers shall be delivered by Tenant to Landlord.
Tenant agrees to pay the cost of any such insurance and to furnish Landlord, if
requested, with evidence satisfactory to Landlord of such payment. All such
policies shall, to the extent obtainable, contain an agreement by the insurers
that such policies shall not be canceled without at least thirty (30) days prior
written notice to Landlord.
Tenant agrees that if it shall at any time fail to take out, pay for,
maintain or deliver any of the insurance policies as provided for in this
paragraph, or to make any other payment or perform any other act on the part of
Tenant to be made or performed, then Landlord may, but shall not be obligated to
do so, and on not less than fifteen (15) days' notice to or demand upon Tenant
(and unless Tenant shall comply with such fifteen (15) day period), and without
waiving or releasing Tenant from any obligations of Tenant in this Lease
contained, (i) take out, pay for, maintain or deliver any of the insurance
policies provided for in this paragraph, or (ii) make any other payment or
perform any other act on Tenant's part to be made or performed as in this Lease
provided. All sums so paid by Landlord and all necessary incidental costs and
expenses in connection with the performance of any such act by Landlord,
together with interest thereon at the prime rate plus two percent (2%) per annum
from the date of the making of such expenditure by Landlord, at the option of
Landlord, shall be payable to Landlord on demand or shall be added to any rent
then due or thereafter becoming due under this Lease, and Tenant agrees to pay
any such sum or sums with interest as aforesaid. All sums which may become
payable to Landlord by Tenant, as in this paragraph provided, and all sums
payable by Tenant pursuant to any other provision of this Lease, shall be deemed
obligations of Tenant hereunder and Landlord shall have (in addition to any
other right or remedy) the same rights and remedies in the event of non-payment
of any such sums by Tenant as in the case of default by Tenant in the payment of
rent. The notice provided for herein shall not in any way affect the other
provisions of this Lease.
12. INCREASED FIRE INSURANCE RATE. Tenant shall not do, suffer to be
done, or keep, or suffer to be kept anything in, upon or about the Leased
Premises which will contravene Landlord's policies insuring against loss or
damage by fire or other hazards, including but not limited to public liability
or which will prevent Landlord from procuring such policies in companies
acceptable to Landlord. If anything be done, omitted to be done or suffered to
be done by Tenant or kept or suffered by Tenant to be kept in, upon or about the
premises that shall cause the rate of fire or other insurance on the premises of
Landlord in companies acceptable to Landlord to go beyond the minimum rate from
time to time applicable to the Leased Premises for use for the purposes
permitted under this Lease, Tenant will pay the amount of such increase promptly
upon Landlord's demand as additional rent.
13. PROPERTY LOSS OR DAMAGE: Landlord or its agents shall not be liable
for any damage to property of Tenant or of others entrusted to employees of
Tenant nor the loss or damage to any property of Tenant by theft or otherwise
unless caused by the negligence of Landlord, its agents, servants or employees.
The Landlord or its agents shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow, or leaks from any part of said building or
from the pipes,
<PAGE>
appliances or plumbing works or from the roof, street or sub-surface or from any
other place or by dampness or by any other cause of whatsoever nature, unless
caused by or due to the negligence of Landlord, its agents, servants or
employees. Landlord or its agents shall not be liable for any such damage
caused by other tenants or persons in said building or caused by operations in
construction of any private, public or quasi-public work. Tenant shall give
immediate notice to Landlord in case of fire or accidents in the Leased Premises
or in the building, or of defects therein or in any building fixtures or
equipment. If Tenant shall move any safe, machinery, equipment, freight, bulky
matter or fixtures which require special handling, Tenant agrees to employ only
persons holding a license to do said work and all work in connection therewith
shall comply with any regulations, law or ordinance affecting such work. Tenant
shall indemnify Landlord for, and hold Landlord harmless and free from damages
sustained by person or property for any damages or monies paid out by Landlord
in settlement of any claims or judgments, as well as for all expenses and
reasonable attorney fees incurred in connection therewith and all costs incurred
in repairing any damage to the building or appurtenances, except however, Tenant
shall not be liable for damages, expenses and attorney fees if injury, claim or
judgment was caused by the negligence of the Landlord, its agents, servants, or
employees.
14. ACCESS: The Landlord, its servants and agents, including
representatives of the insurance company or companies carrying insurance on the
building containing the Leased Premises, shall have the right to enter upon the
said premises during regular business hours and with reasonable advance notice
(except for emergencies, then at any time) for inspection of the Premises or for
repairs to building or equipment or in an emergency or to take preventive
measures to protect and preserve the property of the Landlord.
Landlord shall have the right to enter the Premises at any time during
business hours and with reasonable advance notice for purposes of showing the
Premises to any prospective mortgagee or purchaser of the Premises or during the
last six (6) months of the Lease for purposes of reletting the Premises.
15. CONDEMNATION: In the event of a condemnation of the Leased Premises,
which shall include a taking of all or a substantial part of the building on the
premises, this Lease shall, at the option of either party, terminate upon the
completion of such taking. The rent shall be apportioned as of that date. The
condemnation award shall belong solely to the Landlord. Tenant shall be
entitled to relocation costs and reimbursement for a taking of its property, if
any, provided said costs may be separately determined as an element of the award
and not included in the determination of the value of the interest of the
Landlord in the Leased Premises. In the event of a partial taking of the
premises in such manner that the Tenant is able to continue without substantial
modification, the operation then being conducted on the Leased Premises, then
this Lease shall remain in full force and effect. Any award for partial taking
shall belong solely to the Landlord. Nothing herein shall be construed to
deprive Tenant of its rights upon condemnation as set forth in the Connecticut
General Statutes.
16. SUBORDINATION. This Lease is subject and subordinate to all mortgages
which may now or hereafter affect such leases or the real property of which the
Leased Premises
<PAGE>
form a part, and to all renewals, modifications, consolidations, replacements
and extensions thereof. This clause shall be self-operative and no further
instrument of subordination shall be required by any mortgage. In confirmation
of such subordination, Tenant shall execute promptly any certificate that
Landlord may request. Landlord, however, covenants and agrees that it will use
its best efforts to obtain from all future mortgagees holding a mortgage on the
premises written assurance that so long as the Tenant is not in default under
the terms and conditions of this Lease, Tenant's use, occupation and possession
of the premises and all rights of Tenant under this Lease shall not be affected
or disturbed by the bringing of any action to foreclose or otherwise enforce any
such mortgage.
17. DEFAULT.
(a) The occurrence of any of the following shall constitute an event
of default:
(1) Delinquency in the payment of any rent or additional rent
payable under this Lease if such rent is not paid within ten (10) days of Tenant
receiving written notice from Landlord that such rent is due and payable.
(2) Delinquency by the Tenant in the performance of or
compliance with any of the conditions contained in this Lease other than those
referred to in the foregoing subparagraph (1), for a period of thirty (30) days
after written notice thereof from the Landlord to the Tenant, except for any
default not susceptible of being cured within such thirty (30) day period, in
which event the time permitted to the Tenant to cure such default shall be
extended for as long as shall be necessary to cure such default, provided the
Tenant commences promptly and proceeds diligently to cure such default, and
provided further that such period of time shall not be so extended as to
jeopardize the interest of the Landlord in this Lease or so as to subject the
Landlord or the Tenant to any civil or criminal liabilities.
(3) Filing by the Tenant in any court pursuant to any statute,
either of the United States or any state, of a petition in bankruptcy or
insolvency, or for reorganization, or for the appointment of a receiver or
trustee of all or a portion of the Tenant's property, or an assignment by the
Tenant for the benefit of creditors.
(4) Filing against the Tenant in any court pursuant to any
statute, either of the United States or of any state, of a petition in
bankruptcy or insolvency, or for reorganization or for appointment of a receiver
or trustee of all or a portion of the Tenant's property, if within ninety (90)
days after the commencement of any such proceeding against the Tenant such
petition shall not have been dismissed.
(b) Upon the occurrence of an event of default, and provided Tenant
has not cured such defaults as set forth in subsection (a) above, the Landlord
at any time thereafter may give written notice to the Tenant specifying such
event of default and stating that this Lease shall expire on the date specified
in such notice, which shall be at least twenty (20) days after the giving of
such notice, and upon the date specified in such notice this Lease and all
rights of the Tenant hereunder shall terminate.
<PAGE>
(c) Upon the expiration of this Lease pursuant to sub-paragraph 15(b)
above, the Tenant shall peacefully surrender the leased property to the Landlord
and the Landlord, upon or at any time after any such expiration, may without
further notice reenter the leased property and repossess it by force, summary
proceedings, ejectment, or otherwise, and may dispossess the Tenant and remove
the Tenant and all other persons and property from the leased property and may
have, hold, and enjoy the leased property and the right to receive all rental
income therefrom.
(d) At any time after such expiration, the Landlord may relet the
leased property or any part thereof for such term and on such conditions as the
Landlord, in its uncontrolled discretion, may determine and may collect and
receive the rent therefor. The Landlord shall in no way be responsible or
liable for any failure to relet the leased property or any part thereof, or for
any failure to collect any rent due upon any such reletting. The Landlord
agrees to use reasonable efforts to relet the Leased Premises or a portion
thereof, in its sole discretion, to mitigate Tenant's damages.
(e) No such expiration of this Lease shall relieve the Tenant of its
liability and obligations under this Lease, and such liability and obligations
shall survive any such expiration. In the event of any such expiration, whether
or not the leased property or any part thereof shall have been relet, the Tenant
shall pay to the Landlord the rent and additional rent required to be paid by
the Tenant up to the time of such expiration, and thereafter the Tenant, until
the end of what would have been the term of this Lease in the absence of such
expiration, shall be liable to the Landlord for, and shall pay to the Landlord,
as and for liquidated and agreed current damages for the Tenant's default:
(1) the equivalent of the amount of the rent and additional rent
would be payable under this Lease by the Tenant if this Lease were still in
effect, less
(2) the net proceeds of any reletting effected pursuant to the
provisions of subparagraph 15(d) above, after deducting all the Landlord's
expenses in connection with such reletting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, reasonable attorney's
fees, alteration costs and expenses of preparation for such reletting.
(f) The Tenant hereby expressly waives, so far as permitted by law,
the service of any notice of intention to reenter provided for in any statute,
or of the institution of legal proceedings to that end. The Tenant, for and on
behalf of itself and all persons claiming through or under the Tenant, also
waives any right of redemption or reentry or repossession or to restore the
operation of this Lease in case the Tenant shall be dispossessed by a judgment
or by warrant of any court or judge or in case of reentry or repossession by the
Landlord. In case of any expiration of this Lease, the Landlord and the Tenant,
so far as permitted by law, waive trial by jury in any action, proceeding, or
counterclaim brought by either of the parties hereto against the other on any
matter arising out of or in any way connected with this Lease, the relationship
of landlord and tenant, the Tenant's use or occupancy of the leased property, or
any claim of injury
<PAGE>
or damage. The terms "enter", "reenter", "entry", or "reentry", as used in this
Lease are not restricted to their technical legal meaning.
18. COSTS AFTER DEFAULT: The Tenant shall pay and indemnify the Landlord
against all legal costs and charges, including reasonable counsel fees lawfully
and reasonably incurred, in obtaining possession of the Leased Premises after a
default of the Tenant or after the Tenant's default in surrendering possession
upon the expiration or earlier termination of the term of the Lease or enforcing
any covenant of the Tenant herein contained.
19. SIGNS: The Tenant's identification sign will be in such location as
designated by Landlord. The Tenant shall not erect any other signage, including
signage on any windows, without prior written approval of the Landlord, which
approval shall not be unreasonably withheld.
20. NOTICES: Notices and demands required herein or permitted to be sent
to those listed hereunder shall be sent either by first class mail, postage
prepaid, Federal Express or other reputable overnight courier service, or shall
be hand delivered and shall be deemed to have given upon the date the same is
postmarked if sent by mail or the day deposited with Federal Express or such
other reputable overnight courier service and shall be deemed received when
received. All notices shall be sent or hand delivered to the following
addresses:
LANDLORD: SHELTER LEE, LLC
c/o Anthony M. Rizzo, Sr.
29 Federal Road
Danbury, CT 06810
TENANT: EVERCEL, INC.
2 Lee Mac Avenue
Danbury, CT 06810
and to: R. Levine
Manager, Contracts
ENERGY RESEARCH CORPORATION
3 Great Pasture Road
Danbury, CT 06813
or as such other addresses requested, in writing, by either party upon 15 days
notice to the other party.
21. CHANGE OF ADDRESS: The persons and places to which notices are to be
mailed may be changed from time to time by Landlord or Tenant upon written
notice to the other.
<PAGE>
22. SHORT FORM: Either party may request the other to execute a
memorandum of lease suitable for recording containing information required by
Section 47-19 of the Connecticut General Statutes (Rev. 1958) but specifically
excepting the rental provisions hereof.
23. INTERPRETATION: In construing this Lease, the singular shall include
the plural and the plural the singular, and the neuter gender shall include the
masculine and feminine genders, and vice versa, as the context may require.
24. CAPTIONS: The captions of this Agreement are inserted for convenience
in reference only and do not constitute a part of this Agreement and shall not
be construed as defining or limiting in any way the scope or intent of the
provisions hereof.
25. SUCCESSORS: This Lease shall be binding upon the parties hereto, and
the respective successors, assigns, heirs, and legal representatives of the
parties hereto.
26. MODIFICATION: This Lease contains the entire agreement between the
parties and shall not be modified in any manner except by an instrument in
writing executed by the parties. If any term or provision of this Lease or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease shall not be invalid and
be enforced to the fullest extent permitted by law.
27. NO WAIVER BY LANDLORD: The failure of Landlord to insist upon a
strict performance of any of the terms, conditions and covenants herein shall
not be deemed a waiver of any rights or remedies that Landlord may have, and
shall not be deemed a waiver of any subsequent breach or default in the terms,
conditions and covenants herein contained. This instrument may not be changed
modified, discharged or terminated orally.
28. ADDITIONAL RENT - INSURANCE: The Tenant agrees it will pay to the
Landlord as and when bills are rendered therefor, the cost of all risk coverage
insurance covering the replacement value of the building. Landlord may maintain
any insurance provided for herein under Blanket Policies of insurance.
29. WAIVERS OF LIEN: Landlord herein reserves the right to request from
the Tenant Waivers of Lien in the event Tenant shall commence to do interior
repairs to said premises. In the event the Landlord requests such Waivers of
Lien, Landlord shall supply the same to the Tenant and the Tenant shall have the
same executed by all suppliers of material and labor to said Leased Premises
prior to the commencement of said work.
30. ADDITIONAL RENT - REAL ESTATE TAXES: Tenant agrees to pay as
additional rent all real estate taxes and other municipal assessments assessed
against the land and building when due and before delinquent. If the assessment
for the land is part of an assessment for a larger parcel of land then Tenant
will pay its proportionate share of the taxes for the land based upon that
amount allocated to Tenant's use as a percentage of the entire land assessment.
Tenant will receive a credit for any reduction in real estate taxes paid by
Tenant.
<PAGE>
31. ADDITIONAL RENT - WATER AND SEWER USE: Tenant agrees to pay as
additional rent all water and sewer use charges assessed against the building
when due and before delinquent.
32. INTENTIONALLY OMITTED.
33. BROKER: The parties hereto agree that Tower Realty Corp. brought said
premises to the Tenant's attention and Tenant agrees to indemnify and hold
harmless the Landlord against the claim by any other agent or broker for a
commission due by reason of this Lease where it is alleged that said broker or
agent called the premises to the Tenant's attention, said indemnity to include
all costs of defending any such claim.
34. PAYMENT OF ADDITIONAL RENT: Notwithstanding any other paragraph to
the contrary, the Landlord may bill the Tenant its Additional Rent as determined
by paragraphs 28, 30 and 31 as set forth in this Lease on a monthly basis, in
advance, and the Tenant agrees to pay, in addition to its rent as set forth in
Paragraph 3, an additional amount as determined by the Landlord to be its
monthly share of Additional Rent. On January 1st of each year, the Landlord
will compute any over-payment or under-payment of said Additional Rent and shall
bill the Tenant accordingly or shall credit the Tenant accordingly. Tenant
shall be entitled to audit Landlord's calculation of Additional Rent, upon
request.
35. LATE CHARGE: Tenant shall pay to Landlord a late charge of five (5%)
percent of the monthly rental payment for each monthly rental payment that
Landlord receives after the tenth (10th) day of the month.
36. ESTOPPEL CERTIFICATES: The Landlord and the Tenant shall, without
charge, at any time, and from time to time, as the same shall be reasonably
requested, within ten (10) days after a written request by the other, certify by
a written instrument to the other, or any person, firm or corporation specified
by the other:
(a) That there is no default under this Lease, that this Lease is
unmodified and in full force and effect , or if there have been any
modifications, that the same is in full force and effect as modified and stating
the modifications.
(b) Whether or not there are then existing any setoffs or defenses against
the enforcement of any of the agreements, terms, covenants, or conditions
contained herein and any modifications hereof upon the part of the Tenant to be
performed or complied with, and if so, specifying the same.
(c) The date, if any, to which the rent and other charges hereunder have
been paid.
(d) That prior to the date of issuance of the certificate required hereby,
to the best of the knowledge of the signer thereof, there has been no violation
or breach which would constitute a default under this Lease.
<PAGE>
37. HAZARDOUS WASTE. The Tenant agrees that it will not store any
Hazardous Waste or petroleum product materials on said Premises in violation of
any laws. The Tenant further agrees that it shall be responsible for all costs,
damages, or liability that may be incurred in connection with any hazardous
waste discharge, spillage, or any other violation of any law in the event Tenant
stores or uses hazardous waste materials or petroleum products on said Premises.
Tenant further agrees to notify Landlord within twenty-four (24) hours of any
hazardous waste or petroleum products discharge or violation of this paragraph.
Tenant shall dispose of any hazardous waste material strictly in compliance with
all rules and regulations governing the same. Tenant shall retain any bills of
lading or similar receipts for off-site disposal of hazardous materials and
shall make the same available to Landlord for a period of Three (3) Years after
termination of this Lease. No hazardous waste material shall be discharged in
any drains or in the soils.
The Tenant agrees that it shall be responsible for the clean-up of any
discharge or spillage caused by Tenant. In the event of Tenant's hazardous
waste discharge or spillage, if necessary, the Tenant shall immediately have
said soil tested by a firm specializing in said work and enter into a contract
for the removal of said soils and replacing of soils with clean fill and for the
replacing of any areas disturbed because of said discharge or spillage. All of
said work shall take place within one hundred twenty (120) days of knowledge of
said discharge or spillage.
In the event Tenant fails to perform said work as set forth in this
paragraph, then, in such event, the Landlord may cause the same to be completed
and the Tenant shall be responsible for the payment of same within ten (10) days
after presentation of bill to Tenant for the work performed, together with all
reasonable costs incurred by Landlord in the performance of said work and
repairing any damage to the entire premises and including any reasonable
attorneys' fees incurred. Any monies paid by Landlord in connection herewith
shall be repaid to Landlord together with interest at the prime rate plus two
percent (2%) per annum until paid. The Landlord recognizes that Tenant will be
a Generator of hazardous waste as defined by the Resource Conservation and
Recovery Act.
38. SURRENDER OF PREMISES. Notwithstanding anything to the contrary in
this Lease on the last day of the term hereof, or on any sooner termination,
Tenant shall surrender the Premises to Landlord in the same condition as
received, clean and free of debris, but obsolescence, ordinary wear and tear and
damage by fire or the elements excepted. Tenant shall repair any damage to the
Premises occasioned by the installation or removal of its trade fixtures,
furnishings and equipment.
39. HOLDING OVER. If Tenant, with Landlord's consent, remains in
possession of the Premises or any part thereof after the expiration of the term
hereof, such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Tenant (except,
however, the monthly base rental shall be 125% of the monthly rent for the last
month of the Lease), but all options and rights of first refusal, if any,
granted under the terms of this Lease shall be deemed terminated and be of no
further effect during said month to month tenancy.
<PAGE>
40. LANDLORD'S WORK. The Landlord agrees to complete the Leased Premises
in accordance with attached work letter.
41. MAINTENANCE OF HVAC SYSTEM. Tenant agrees to maintain during the term
of this Lease and any renewals or extensions thereof, a service or maintenance
agreement in connection with the HVAC system with a company acceptable to the
Landlord for at least a semi-annual servicing of said equipment.
42. QUIET ENJOYMENT. The Landlord covenants to the Tenant, subject to the
conditions and covenants herein contained on paying the rent and performing the
covenants aforesaid, it shall and may peaceably and quietly have, hold and enjoy
the Leased Premises for the term aforesaid.
43. OPTION TO RENEW. Provided (i) that at the time of the exercise of
this privilege, or at the time of the commencement of the option to extend or
renew hereunder, Tenant shall not be in default under the terms, covenants and
provisions of this Lease beyond the applicable grace period; (ii) that Tenant
shall notify Landlord in writing not later than 360 days prior to the expiration
of the Lease that Tenant desires an extension of this Lease; (iii) that such
extension shall be upon the same terms, covenants and provisions as are
contained in the Lease as then extended, except for the option set forth herein,
and except as modified by the provisions of this paragraph, Landlord hereby
grants the Tenant the privilege of extending the term of this Lease for a period
of five (5) years, from January 1, 2004 to December 31, 2009. It is understood
and agreed that the provisions (i) and (ii) above are conditions precedent to
the extension of this Lease and in the event that Tenant fails to comply with
them at the time Tenant exercises this extension, this privilege shall have no
force or effect. The minimum guaranteed annual rental, exclusive of additional
rent, shall be increased annually, as follows:
Years Annual Rent Monthly Rent
----------------------------------------------------
6 $185,250.00 $15,437.50
7-8 $192,375.00 $16,031.25
9-10 $199,500.00 $16,625.00
44. TENANT'S WORK: Notwithstanding anything to the contrary, Tenant
agrees to allow Landlord to bid on any interior improvements or maintenance to
be performed by the Tenant. Tenant agrees to award any such work to Landlord,
provided Landlord's bid is competitive with those of other contractors.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals and to a duplicate of the same tenor and date, this 15th day of Jan.,
1999.
LANDLORD
SHELTER LEE, LLC
By: /s/ Anthony M. Rizzo, Sr.
--------------------------------
Anthony M. Rizzo, Sr. Managing Member
TENANT
EVERCEL, INC.
By: /s/ Allen Charkey
--------------------------------
Allen Charkey
Executive Vice President & Chief Operations
Officer
<PAGE>
GUARANTY
FOR VALUE RECEIVED, the undersigned ENERGY RESEARCH CORPORATION, a
Connecticut corporation with an address at 3 Great Pasture Road, Danbury,
Connecticut (hereinafter designated as "Guarantor") hereby unconditionally
guarantees to Landlord, its successors and assigns, the full and prompt
performance and observance by Tenant and its successors or assigns of all the
terms and conditions in the Lease dated 1/15, 1999, between SHELTER LEE, LLC,
as Landlord, and EVERCEL, INC., as Tenant (hereinafter the "Lease"), on the part
of the Tenant thereunder to be performed or observed thereunder, and if at any
time default shall be made by said Tenant or its successors or assigns in the
full and prompt performance or observance of any of the terms or conditions of
said Lease on Tenant's part to be performed or observed, Guarantor will
thereupon perform and observe the same, as the case may be, in place and stead
of Tenant, without demand or notice. Without limiting the generality of the
foregoing, in the event Landlord is for any reason unable to exercise any right
of acceleration contained in the Lease as against the Tenant, notwithstanding
that Landlord's right to accelerate has accrued pursuant to the Lease, Landlord
may exercise such right of acceleration as to Guarantor and Guarantor shall be
bound thereby. No waiver, modification, amendment, extension of time,
indulgence, forbearance, release or discharge granted or permitted by landlord
as to any of the terms or conditions of said Lease shall release or modify the
obligations of Guarantor hereunder, nor shall Landlord be required to give any
notice thereof to Guarantor.
The obligations of Guarantor hereunder shall not be released by Landlord's
receipt, application or release of any security given for the performance and
observance of any terms and/or conditions in said Lease on Tenant's part to be
performed or observed.
The liability and obligation of the Guarantor hereunder to Landlord and its
successors and assigns shall not be diminished, released or in any way affected
by (a) the release or discharge of Tenant in any creditor's, receivership,
bankruptcy, insolvency, or other proceedings; (b) the impairment, limitation or
modification of the liability of Tenant or its estate in bankruptcy; (c) any
payment made by Tenant, to the extent such payment shall be surrendered by
Landlord as a preference or otherwise, voluntarily or by Court order, to Tenant
or its trustee, receiver, creditor or other representative in any proceedings
subject to any bankruptcy or insolvency law or rule of the United States or of
any state; (d) the existence or exercise of any remedy for enforcement of
Tenant's liability under the Lease; (e) the limitation or discharge of Tenant's
liability under the Lease by reason of the operation of any present or future
provision of any bankruptcy Statute of the United States of America or any Rules
with respect thereto or any state law and/or statute or any decision of any
court, and/or the rejection or disaffirmance of the Lease in any such
proceedings; (f) any assignment or transfer of the Lease by Tenant; (g) any
disability or other defense of Tenant; or (h) the release from any cause
whatsoever of the liability of Tenant under the Lease.
Until all the covenants and conditions of the Lease on Tenant's part to be
performed and observed are fully performed and observed, Guarantor: (a) shall
have no right of subrogation against Tenant by reason of any payments or
performance by Guarantor as to or under this
<PAGE>
Guaranty; (b) waives any right to enforce any remedy which it now or hereafter
has against Tenant by reason of any payment or performance by Guarantor
hereunder; and (c) subordinates any liability or indebtedness of Tenant now or
hereafter held by Guarantor to the obligations of Tenant to Landlord under said
Lease.
This Guaranty shall apply to the said Lease and to any and all renewals or
extensions thereof.
This instrument may not be changed, modified, discharged or terminated
orally or in any manner other than by an agreement in writing signed by
Guarantor and the Landlord.
Notwithstanding the above, the liability of the Guarantor shall be limited
to the following amounts:
During the First Lease Year: $ 500,000.00
During the Second Lease Year: $ 400,000.00
During the Third Lease Year: $ 300,000.00
During the Fourth Lease Year: $ 200,000.00
During the Fifth Lease Year: $ 100,000.00
Thereafter, this Guaranty shall terminate.
"Notwithstanding the foregoing, provided Tenant is not in default and one
year after the Commencement Date this Guaranty shall immediately terminate upon
Tenant's net worth, as reported in its certified, periodic public filings
commonly known as 10K and 10Q reports, exceeding three million dollars
($3,000,000.00) ("Required Net Worth"). Upon Tenant's release of a certified
public filing showing that Tenant has exceeded the Required Net Worth, Guarantor
shall notify Landlord in writing and shall provide Landlord with a copy of said
public filing. Upon receipt of such notice by Landlord, this Guaranty shall
terminate and the Guarantor shall be released from all its obligations
hereunder."
IN WITNESS WHEREOF, the Guarantor has executed this instrument or caused
this instrument to be executed by its duly authorized officer this 15th day of
January, 1999
ENERGY RESEARCH CORPORATION
WITNESS:
/s/ Michelle Reichert By /s/ Ross M. Levine
- ---------------------------- ----------------------------------
Michelle Reichert Ross M. Levine
Manager, Contracts & Assistant Secretary
/s/ Ana Venancio
- ----------------------------
Ana Venancio
<PAGE>
STATE OF CONNECTICUT )
)ss: Danbury, CT 1/15/99
COUNTY OF FAIRFIELD )
On this 15th day of Jan., 1999 personally appeared Ross M. Levine , as
Mgr., Contracts & Ass't. Sec. of Energy Research Corp., signer and sealer of
the foregoing instrument, and acknowledged the same to be free act and deed and
the free act and deed of said corporation, before me.
/s/ Rena Cherry
----------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires 03/31/2003
<PAGE>
Exhibit 10.16
PROMISSORY NOTE
$1,000,000.00 December 22, 1998
EVERCEL, INC
3 GREAT PASTURE ROAD
DANBURY CONNECTICUT 06813
(Individually and collectively, "Borrower")
FIRST UNION NATIONAL BANK
300 MAIN STREET
STAMFORD, CONNECTICUT 06904
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of One Million Dollars And No Cents ($1,000,000.00) or such sum
as may be advanced and outstanding from time to time with interest on the unpaid
principal balance at the rate and on the terms provided in this Promissory Note
(including all renewals, extensions or modifications hereof, this "Note").
INTEREST RATE. Interest shall accrue on the unpaid principal balance of this
Note from the date hereof at the LIBOR Market Index Rate plus 1.50% as that rate
may change from day to day in accordance with changes in the LIBOR Market Index
Rate ("Interest Rate"). "LIBOR Market Index Rate", for any day, is the rate for
1 month in U.S. dollar deposits as reported on [ILLEGIBLE] page 3750 as of
11:00 a.m., London time, on such day, or if such day is not a London business
day, then the immediately preceding London business day (or if not so reported,
then as determined by Bank from another recognized source or interbank
quotation).
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus 3 1/4
("Default Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST AND FEE(S) COMPUTATION (ACTUAL/360). Interest and fees, if any, shall
be computed on the basis of a 360-day year for the actual number of days in the
applicable period ("Actual/360 Computation"). The Actual/360 Computation
determines the annual effective interest yield by taking the stated (nominal)
rate for a year's period and then dividing said rate by 360 to determine the
daily periodic rate to be applied for each day in the applicable period.
Application of the Actual/360 Computation produces an annualized effective rate
exceeding that of the nominal rate.
REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only commencing on February 1, 1999, and on the 1st
day of each month thereafter until fully paid. In any event, all principal and
accrued interest shall be due and payable on June 30, 1999.
Scheduled Payments Adjustment. At Bank's option and with notice to Borrower, the
scheduled payment amount will increase as is necessary (i) to pay all accruals
of interest for the period and previous periods and (ii) to maintain principal
repayment according to the amortization that would have occurred if the Interest
Rate in effect on the Date of this Note has remained constant. The increased
payment amount shall remain in effect for as long as the original scheduled
payment amount is insufficient to pay accrued interest and principal and shall
be further adjusted upward or downward to reflect changes in the variable
interest rate. The scheduled payment amount will not be reduced below the
original scheduled payment amount.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal. If a Default occurs, monies may be applies to the Obligations in
any manner or order deemed appropriate by Bank.
Page 1 of 5 CNOTE
<PAGE>
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and any prior notes which evidence all or any
portion of the loan evidenced by this Note, and may include, without limitation,
a commitment letter that survives closing, a loan agreement, this Note, guaranty
agreements, security agreements, security instruments, financing statements,
mortgage instruments, letters of credit and any renewals or modifications,
whenever any of the foregoing are executed, but does not include swap agreements
(as defined in 11 U.S.C. ss. 101).
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations under any other loan
Document(s), and all obligations under any swap agreements as defined in 11
U.S.C. ss. 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to five percent (5%) of each payment past due for ten
(10) or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note and the late charge shall be the highest amount allowable under such
laws. If no amount is stated thereunder, the late charge shall be five percent
(5%) of each payment past due for ten (10) or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provisions of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to, and shall be, such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents. False Warranty. A warranty or representation made deemed or made in
the Loan Documents or furnished Bank in connection with the loan evidenced by
this Note proves materially false, or if of a continuing nature, becomes
materially false. Cross Default. At Bank's option, any default in payment or
performance of any obligation under any other loans, contracts or agreements of
Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the
holder(s) of the majority ownership interests of Borrower with Bank or its
affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. ss. 101,
except that the term "debtor" therein shall be substituted by the term
"Borrower" herein; "Subsidiary" shall mean any corporation of which more than
50% of the issued or outstanding voting stock is owned directly or indirectly by
Borrower). [ILLEGIBLE]; Bankruptcy. The death of, appointment of guardian for,
dissolution of, termination of existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of creditors of, or
commencement of any bankruptcy or insolvency proceeding by or against Borrower,
its Subsidiaries or Affiliates, if any, or any general partner of or the
holder(s) of the majority ownership interests of Borrower, or any party to the
Loan Documents. Material Capital Structure or Business Alteration. Without prior
written consent of Bank, (i) a material alteration in the kind or type of
Borrower's business or that of Borrower's Subsidiaries or Affiliates, if any;
(ii) the sale of substantially all of the business or assets of Borrower, any of
Borrower's Subsidiaries or Affiliates or any guarantor, or a material portion
(10% or more) of such business or assets if such a sale is outside the ordinary
course of business of Borrower, or any of Borrower's Subsidiaries or Affiliates
or any guarantor, or more than 50% of the outstanding stock or voting power of
or in a single transaction or a series of transactions; (iii) the acquisition of
substantially all of the business or assets or more than 50% of the outstanding
stock or
Page 2 of 5 CNOTE
<PAGE>
voting power of any other entity; or (iv) should any Borrower, or any of
Borrower's Subsidiaries or Affiliates, or any guarantor enter into any merger or
consolidation.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: Bank
Lien. Foreclose its security interest or lien against Borrower's accounts
without notice. Acceleration Upon Default. Accelerate the maturity of this Note
and all other of the Obligations shall be immediately due and payable.
Cumulative. Exercise any rights and remedies as provided under the Note and
other Loan Documents, or as provided by law or equity.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to assure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000
compatibility.
WAIVER AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future occasion. Neither the failure nor any
delay on the part of Bank in exercising any right, power, or remedy under this
Note and other Loan Documents shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
Each Borrower or any other person liable under this Note waives presentment,
protest, notice of dishonor, demand for payment, notice of intention to
accelerate maturity, notice of acceleration of maturity, notice of sale and all
other notices of any kind. Further, each agrees that Bank may extend, modify or
renew this Note or make a [ILLEGIBLE] of the loan evidenced by this Note for any
period and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any other Borrower or any
person liable under this Note or other Loan Documents, all without notice to or
consent of each Borrower or each person who may be liable under this Note or
other Loan Documents and without affecting the liability of Borrower or any
person who may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. Assignment. This Note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. In addition, nothing in this Note or any of the Loan
Documents shall prohibit Bank from pledging or assigning this Note or any of the
Loan Documents or any interest therein to any Federal Reserve Bank. Borrower
shall not assign its rights and interest hereunder without the prior written
consent of Bank, and any attempts by Borrower to assign without Bank's prior
written consent is null and void. Any assignment shall not release Borrower from
the Obligations. Applicable Law; Conflict Between Documents. This Note and other
Loan Documents shall be governed by and construed under the laws of the state
named in Bank's address shown above without regard to that state's conflict of
laws principles. If the terms of this Note should conflict with the terms of the
Loan Agreement or any commitment letter that survives closing, the terms of this
Note shall control. Borrower's Accounts. Except as prohibited by law, Borrower
grants Bank a security interest in all of Borrower's accounts with Bank and any
of its affiliates. Jurisdiction. Borrower irrevocably agrees to non-exclusive
personal jurisdiction in the state named in Bank's address shown above.
Severability. If any provision of this Note or of the other Loan Documents shall
be prohibited or invalid under applicable law, such provision shall be
ineffective but only to the extent such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note or other such document. Notices. Any notices to Borrower shall be
sufficiently given, if in writing and mailed or delivered to the Borrower's
address shown above or such other address as provided hereunder, and to Bank, if
in writing and mailed or delivered to Bank's office address shown above or such
other address as Bank may specify in writing from time to time. In the event
that Borrower changes Borrower's address at any time prior to the date the
Obligations are paid in full, Borrower agrees to promptly give written notice of
said change of address by registered or certified mail, return receipt
requested, all charges prepaid. Plural; Captions. All references in the Loan
Documents to Borrower, guarantor, person, document or other nouns of reference
mean both the singular and plural form, as the case may be, and the term
"person" shall mean any individual, person or entity. The captions contained in
the Loan Documents are inserted for convenience only and shall not affect the
meaning or interpretation of the Loan Documents. Binding Contract. Borrower by
execution of and Bank by acceptance of this Note agree that each party is
Page 3 of 5 CNOTE
<PAGE>
bound to all terms and provisions of this Note. Advances. Bank in its sole
discretion may make other Advances under this Note pursuant herein. Posting of
Payments. All payments received during normal banking hours after 2:00 p.m.
local time at the office of Bank first shown above shall be deemed received at
the opening of the next banking day. Joint and Several Obligations. Borrower is
jointly and severally obligated under this note. Fees and Taxes. Borrowers shall
promptly pay all documentary, intangible recordation and/or similar taxes on
this transaction whether assessed at closing or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of,
or relating to the Loan Documents between the parties hereto (a "Dispute") shall
be resolved by binding arbitration conducted and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions, or
claims arising from documents executed in the future. A judgment upon the award
may be entered in any court having jurisdiction. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
SPECIAL RULES. All arbitration hearings shall be conducted in the city in which
the office of Bank first stated above is located. A hearing shall begin within
90 days of demand for arbitration and all hearings shall be concluded within 120
days of demand for arbitration. These time limitations may not be extended
unless a party shows cause for extension and then for no more than a total of 60
days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators
shall be licensed attorneys selected from the Commercial Financial Dispute
Arbitration Panel of the AAA. The parties do not waive applicable Federal or
state substantive law except as provided herein.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, the parties agree to preserve, without diminution,
certain remedies that any party may exercise before or after an arbitration
proceeding is brought. The parties shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any real or
personal property or other security by exercising a power of sale or under
applicable law by judicial foreclosure including a proceeding to confirm the
sale; (ii) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment. Any claim or controversy with regard to
party's entitlement to such remedies is a Dispute. Each party agrees that it
shall not have a remedy of punitive and exemplary damages against the other in
any Dispute and hereby waive any right or claim to punitive or exemplary damages
they have now or which may arise in the future in connection with any Dispute,
whether the Dispute is resolved by arbitration or judicially.
WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING
ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL
WITH REGARD TO A DISPUTE.
CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS NOTE ARE COMMERCIAL TRANSACTIONS AND HEREBY
VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON
PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR
OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THE COMPLIANT SHALL SET FORTH A COPY OF THIS WAIVER.
Page 4 of 5 CNOTE
<PAGE>
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
EVERCEL, INC.
Corporate By: /s/ Joseph G. Mahler
Seal ---------------------------------------
Joseph G. Mahler, Chief Financial Officer
37857
TAXPAYER IDENTIFICATION NUMBER(S)
EVERCEL, INC. 06-1528142
<PAGE>
Exhibit 10.17
UNCONDITIONAL GUARANTY
December 22, 1998
EVERCEL, INC.
3 GREAT PASTURE ROAD
DANBURY, CT 06813
(Individually and collectively "Borrower")
ENERGY RESEARCH CORPORATION
3 GREAT PASTURE RD
DANBURY, CT 06813
(Individually and collectively "Guarantor")
FIRST UNION NATIONAL BANK
300 MAIN STREET
STAMFORD, CONNECTICUT 06904
(Hereinafter referred to as the "Bank")
To induce Bank to make, extend or renew loans, advances, credit, or other
financial accommodations to or for the benefit of the Borrower, and in
consideration of loans, advances, credit, or other financial accommodations
made, extended or renewed to or for the benefit of the Borrower, Guarantor
hereby absolutely, irrevocably and unconditionally guarantees to Bank and its
successors, assigns and affiliates the timely payment and performances of all
liabilities and obligations of Borrower to Bank and its affiliates, including,
but not limited to, all obligations under any notes, loan agreements, security
agreements, letters of credit, swap agreements (as defined in 11 U.S.C. ss.
101), instruments, accounts receivable, contracts, drafts, leases, chattel
paper, indemnities, acceptances, repurchase agreements, overdrafts, and the Loan
Documents defined below, however and whenever incurred or evidenced, whether
primary, secondary, direct, indirect, absolute, contingent, due or to become
due, now existing or hereafter contracted or acquired, and all modification,
extensions or renewals thereof, including without limitation, all amounts of
principal, interest, charges, and costs and expenses incurred thereunder
(including attorneys' fees and other costs of collection incurred, regardless of
whether suit is commenced) (collectively, the "Guaranteed Obligations").
The maximum liability of Guarantor shall be limited to the sum of (a) all
interest, charges, and costs and expenses incurred by Bank with respect to the
Guaranteed Obligations, and (b) 100.0000% of the aggregate principal amount of
the Guaranteed Obligations outstanding at the time of demand under this
Guaranty. For the purpose of determining the liability of the Guarantor, the
calculation of the aggregate principal amount of the Guaranteed Obligations
shall not be reduced by the collateral held as security for the Guaranteed
Obligations or by payments received or to be received with respect to the
Guaranteed Obligations from persons or entities other than Borrower.
Guarantor further covenants and agrees:
GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional guaranty
of payment and performance and not of collection. The parties to this Guaranty
are jointly and severally obligated hereunder. This Guaranty does not impose any
obligation on Bank to extend or continue to extend credit or otherwise deal with
Borrower at any subsequent time. This Guaranty shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of the Guaranteed
Obligations is rescinded, avoided or for any other reason must be returned by
Bank, and the returned payment shall remain payable as part of the Guaranteed
Obligations, all as though such payment had not been made. Except to the extent
the provisions of this Guaranty give the Bank additional rights, this Guaranty
shall not be deemed to supersede or replace any other guaranties given to Bank
by Guarantor, and the obligations guaranteed hereby shall be in addition to any
other obligations guaranteed by Guarantor pursuant to any other agreement of
guaranty given to Bank and other guaranties of the Guaranteed Obligations.
Page 1 of 5
<PAGE>
TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by written notice
delivered personally to or received by certified or registered United States
Mail, by an authorized officer of the Bank at the address for notices provided
herein. Such termination shall be effective with respect to Guaranteed
Obligations arising more than 15 days after the date such written notice is
received by said Bank Officer. Guarantor may not terminate this Guaranty as to
Guaranteed Obligations (including any subsequent extensions, modifications or
compromises of the Guaranteed Obligations) then existing, or to Guaranteed
Obligations arising subsequent to receipt by Bank of said notice if such
Guaranteed Obligations are a result of Bank's obligation to make advances
pursuant to a commitment entered into prior to expiration of the 15 day notice
period, or are a result of advances which are necessary for Bank to protect its
collateral or otherwise preserve its interests. Termination of this Guaranty by
any single Guarantor will not affect the existing and continuing obligations of
any other Guarantor hereunder.
APPLICATION OF PAYMENTS, BANK LIEN AND SET-OFF. Monies received from any source
by Bank for application toward payment of the Guaranteed Obligations may be
applied to such Guaranteed Obligations in any manner or order deemed appropriate
by Bank. Except as prohibited by law, Guarantor grants Bank a security interest
in all of Guarantor's account maintained with Bank and any of its affiliates
(collectively, the "Accounts"). If a Default occurs, Bank is authorized to
exercise its right of set-off or to foreclose its lien against any obligation of
Bank to Guarantor including, without limitation, all Accounts or any other debt
of any maturity, without notice.
CONSENT TO MODIFICATIONS. Guarantor comments and agrees that Bank may from time
to time, in its sole discretion, without affecting, impairing, lessening or
releasing the obligations of the Guarantor hereunder: (a) extend or modify the
time, manner, place or terms of payment or performance and/or otherwise change
or modify the credit terms of the Guaranteed Obligations; (b) increase, renew,
or enter into a novation of the Guaranteed Obligations; (c) waive or consent
to the departure from terms of the Guaranteed Obligations; (d) permit any change
in the business or other dealings and relations of Borrower or any other
guarantor with Bank; (e) proceed against, exchange, release, realize upon or
otherwise deal with in any manner any collateral that is or may be held by Bank
in connection with the Guaranteed Obligations or any liabilities or obligations
of Guarantor; and (f) proceed against, settle, release, or compromise with the
Borrower, any insurance carrier, or any other person or entity liable as to any
part of the Guaranteed Obligations, and/or subordinate the payment of any part
of the Guaranteed Obligations to the payment of any other obligations, which may
at any time be due or owing to Bank; all in such manner and upon such terms as
Bank may deem appropriate, and without notice to or further consent from
Guarantor. No invalidity, irregularity, discharge or unenforceability of, or
action or omission by Bank relating to any part of, the Guaranteed Obligations
or any security therefor shall affect or impair this Guaranty.
WAIVER AND ACKNOWLEDGEMENTS. Guarantor waives and releases the following rights,
demands, and defenses Guarantor may have with respect to Bank and collection of
the Guaranteed Obligations: (a) promptness and diligence in collection of any of
the Guaranteed Obligations from the Borrower or any other person liable thereon,
and in foreclosure of any security interest and sale of any property serving as
collateral for the Guaranteed Obligations; (b) any law or statute that requires
that Bank make demand upon, assert claims against, or collect from Borrower or
other persons or entities, foreclose any security interest, sell collateral,
exhaust any remedies, or take any other action against Borrower or other persons
or entities prior to making demand upon, collecting from or taking action
against Guarantor with respect to the Guaranteed Obligations, including any such
rights Guarantor might otherwise have had under U.S. Code ss.ss. 49-25 and 49-26
et seq., N.C.G.S. ss.ss. 26-7 et seq., Tenn. Code [illegible] ss. 47-12-101,
O.C.G.A. ss. 10-7-24 (and any successor statute) and any other applicable law;
(c) any law or statute that requires that Borrower or any other person be joined
in, notified of or made part of any action against Guarantor; (d) that Bank
preserve, insure or perfect any security interest in collateral or sell or
dispose of collateral in a particular manner or at a particular time; (e) notice
of extensions, modifications, renewals, or novations of the Guaranteed
Obligations, of any new transactions or other relationships between Bank,
Borrower and/or any guarantor, and of changes in the financial condition of,
ownership of, or business structure of the Borrower or any other guarantor; (f)
presentment, protest, notice of dishonor, notice of default, demand for payment,
notice of intention to accelerate maturity, notice of acceleration of maturity,
notice of sale, and all other notices of any kind whatsoever, (g) the right to
assert against Bank any defense (legal or equitable), set-off, counterclaim, or
claim that Guarantor may have at any time against Borrower or any other party
liable to Bank; (h) all defenses relating to invalidity, insufficiency,
unenforceability, enforcement, release or impairments of Bank's lien on any
collateral, of the Loan Documents, or of any other guaranties held by Bank; (i)
any claim or defense that acceleration of maturity of the Guaranteed Obligations
is stayed against Guarantor because of the stay of assertion or of acceleration
of claims against any other person or entity for any reason including the
bankruptcy or insolvency of that person or entity; and (j) the benefit of any
exemption claimed by Guarantor. Guarantor acknowledges and represents that it
has relied upon its own due diligence in
Page 2 of 5
<PAGE>
making its own independent appraisal of Borrower, Borrower's business affairs
and financial condition, and any collateral; Guarantor will continue to be
responsible for making its own independent appraisal of such matters; and
Guarantor has not relied upon and will not hereafter rely upon Bank for
information regarding the Borrower or any collateral.
FINANCIAL CONDITION. Guarantor warrants, represents and covenants to Bank that
on and after the date hereof: (a) the fair salable value of Guarantor's assets
exceeds its liabilities, Guarantor is meeting its current liabilities as they
mature, and Guarantor is and shall remain solvent; (b) all financial statements
of Guarantor furnished to Bank are correct and accurately reflect the financial
condition of Guarantor as of the respective dates thereof; (c) since the date of
such financial statements, there has not occurred a material adverse change in
the financial condition of Guarantor; (d) there are not now pending any court or
administrative proceedings or undischarged judgments against Guarantor, no
federal or state tax liens have been filed or threatened against Guarantor, and
Guarantor is not in default or claimed default under any agreement; and (e) at
such reasonable times as Bank requests, Guarantor will furnish Bank with such
other financial information as Bank may reasonably request.
INTEREST. Regardless of any other provision of this Guaranty or other Loan
Documents, if for any reason the effective interest on any of the Guaranteed
Obligations should exceed the maximum lawful interest, the effective interest
shall be deemed reduced to and shall be such maximum lawful interest, and any
sums of interest which have been collected in excess of such maximum lawful
interest shall be applied as a credit against the unpaid principal balance of
the Guaranteed Obligations.
DEFAULT. If any of the following events occur, a default ("Default") under this
Guaranty shall exist: (a) Failure of timely payment or performance of the
Guaranteed Obligations or a default under any Loan Document; (b) A breach of any
agreement or representation contained or referred to in the Guaranty, any of the
Loan Documents, or contained in any other contract or agreement of Guarantor
with Bank or its affiliates, whether now existing or hereafter arising; (c) The
death of, appointment of a guardian for, dissolution of, termination of
existence of, loss of good standing status by, appointment of a receiver for,
assignment for the benefit of creditors of, or the commencement of any
insolvency or bankruptcy proceeding by or against, Guarantor or any general
partner of or the holder(s) of the majority ownership interests of Guarantor;
and/or (d) The entry of any monetary judgment or the assessment against, the
filing of any tax lien against, or the issuance of any writ of garnishment or
attachment against any property of or debts due Guarantor.
If a Default occurs, the Guaranteed Obligations shall be due immediately and
payable without notice. Guarantor shall pay interest on the Guaranteed
Obligations from such Default at the highest rate of interest charged on any of
the Guaranteed Obligations.
ATTORNEYS' FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all of Bank's
reasonable expenses and costs incurred to enforce or collect any of the
Guaranteed Obligations, including, without limitation, reasonable arbitration,
paralegals', attorneys' and experts' fees and expenses, whether incurred without
the commencement of a suit, in any suit, arbitration or administrative
proceeding, or in any appellate or bankruptcy proceeding.
SUBORDINATION OF OTHER DEBTS. Guarantor agrees: (a) to subordinate the
obligations now or hereafter owed by Borrower to Guarantor ("Subordinated Debt")
to any and all obligations of Borrower to Bank now or hereafter existing while
this Guaranty is in effect, provided however that Guarantor may receive
regularly scheduled principal and interest payments on the Subordinated Debt so
long as (i) all sums due and payable by Borrower to Bank have been paid in full
on or prior to such date, and (ii) no event or condition which constitutes or
which with notice or the lapse of time would constitute an event of default with
respect to the Guaranteed Obligations, shall be continuing on or as of the
payment date; (b) Guarantor will place a legend indicating such subordination on
every note, ledger page or other document evidencing any part of the
Subordinated Debt; and (c) except as permitted by this paragraph, Guarantor will
not request or accept payment of or any security for any part of the
Subordinated Debt, and any proceeds of the Subordinated Debt paid to Guarantor,
through error or otherwise, shall immediately be forwarded to Bank by Guarantor,
properly endorsed to the order of Bank to apply to the Guaranteed Obligations.
MISCELLANEOUS. (a) Assignment. This Guaranty and other Loan Documents shall
inure to the benefit of an be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Guaranty and other Loan Documents are freely assignable, in
whole or in part, by Bank. Any assignment shall not release
Page 3 of 5
<PAGE>
Guarantor from the Guaranteed Obligations. (b) Applicable Law; Conflict Between
Documents. This Guaranty and other Loan Documents shall be governed by and
construed under the laws of the state named in the Bank's address shown above
without regard to that state's conflict of laws principles. If the terms of this
Guaranty should conflict with the terms of any commitment letter that survives
closing, the terms of this Guaranty shall control. (c) Jurisdiction. Guarantor
irrevocably agrees to non-exclusive personal jurisdiction in the state named
Bank's address shown above. (d) Severability. If any provision of this Guaranty
or of the other Loan Documents shall be prohibited or invalid under applicable
law, such provision shall be ineffective but only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Guaranty or other document. (e) Notices. Any
notices to Guarantor shall be sufficiently given, if in writing and mailed or
delivered to Guarantor's address shown above or such other address as provided
hereunder; and to Bank, if in writing and mailed or delivered to Bank's office
address shown above or such other address as Bank may specify in writing from
time to time. In the event that Guarantor changes Guarantor's address at any
time prior to the date the Guaranteed Obligations are paid in full, Guarantor
agrees to promptly give written notice of said change of address by registered
or certified mail, return receipt requested, all charges prepaid. (f) Plural;
Captions. All references in the Loan Documents to borrower, guarantor, person,
document or other nouns of reference mean both the singular and the plural form,
as the case may be, and the term "person" shall mean any individual, person or
entity. The captions contained in the Loan Documents are inserted for
convenience only and shall not affect the meaning or interpretation of the Loan
Documents. (g) Binding Contract. Guarantor by execution of and Bank by
acceptance of this Guaranty agree that each party is bound to all terms and
provisions of this Guaranty. (h) Amendments, Waivers and Remedies. No waivers,
amendments or modifications of this Guaranty and other Loan Documents shall be
valid unless in writing and signed by an officer of Bank. No waiver by Bank of
any Default shall operate as a waiver of any other Default or the same Default
on a future occasion. Neither the failure nor any delay on the part of Bank in
exercising any right, power, or privilege granted pursuant to this Guaranty and
other Loan Documents shall operate as waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise or the exercise
of any other right, power, or privilege. All remedies available to Bank with
respect to this Guaranty and other Loan Documents and remedies available at law
or in equity shall be cumulative and may be pursued concurrently or
successively. (i) Partnerships. If Guarantor is a partnership, the obligations,
liabilities and agreements on the part of the Guarantor shall remain in full
force and effect and fully applicable notwithstanding any changes in the
individuals comprising the partnership. The term "Guarantor" includes any
aborted or successive partnerships, and predecessor partnership(s) and the
partners shall not be released from any obligations or liabilities hereunder.
(j) Loan Documents. The term "Loan Documents" refers to all document executed in
connection with the Guaranteed Obligations and may include, without limitation,
commitment letters that survive closing, loan agreements, other guaranty
agreements, security agreements, instruments, financing statements, mortgages,
deeds of trust, deeds to secure debt, letters of credit, and any amendments or
supplements (excluding swap agreements as defined in 11 U.S.C. ss. 101).
PREJUDGMENT REMEDY WAIVER. EACH GUARANTOR ACKNOWLEDGES THAT THE TRANSACTIONS
GUARANTEED BY THIS GUARANTY ARE COMMERCIAL TRANSACTIONS AND HEREBY VOLUNTARILY
AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON PREJUDGMENT REMEDIES
UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES OR OTHER STATUTES
AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S ATTORNEY TO ISSUE A
WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL
SET FORTH A COPY OF THIS WAIVER.
FINANCIAL AND OTHER INFORMATION. Guarantor shall deliver to Bank such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Guarantor's
financial condition. Such information shall be true, complete, and accurate.
FINANCIAL REPORTS. Guarantor agrees to the following provision(s) from the date
of this Guaranty and until final payment in full of the Guaranteed Obligations,
unless Bank shall otherwise consent in writing:
NEGATIVE COVENANTS. Guarantor agrees that from the date of this Guaranty and
until final payment in full of the Guaranteed Obligations, unless Bank shall
otherwise consent in writing: Default on Other Contracts of Obligations.
Guarantor shall not default on any material contract with or obligations due to
a third party or default in the performance of any obligation to a third party
incurred for money borrowed. Judgment Entered. Guarantor shall not permit the
entry of any
Page 4 of 5
<PAGE>
monetary judgment or the assessment against, the filing of any tax lien against,
or the issuance of any writ of garnishment or attachment against any property of
or debts due Guarantor.
SECURITY. Guarantor has granted Bank a security interest in the collateral
described in the Loan Documents, including but not limited to personal property
collateral described in that certain Pledge and Assignment of even date
herewith.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of,
or relating to the Loan Documents between the parties hereto (a "Dispute") shall
be resolved by binding arbitration conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and the Federal Arbitration Act.
Disputes may include, without limitation, tort claims, counterclaims, disputes
as to whether a matter is subject to arbitration, claims brought as class
actions, or claims arising from documents executed in the future. A judgment
upon this award may be entered in any court having jurisdiction. Notwithstanding
the foregoing, this arbitration provision does not apply to disputes under or
related to swap agreements.
SPECIAL RULES. All arbitration hearings shall be conducted in the city in which
the office of Bank first stated above is located. A hearing shall begin within
90 days or demand for arbitration and all hearings shall be concluded with 120
days of demand for arbitration. These time limitations may not be extended
unless a party shows cause for extension and then for no more than a total of 60
days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators
shall be licensed attorneys selected from the Commercial Financial Dispute
Arbitration Panel of the AAA. The parties do not waive applicable Federal or
state substantive law except as provided herein.
PRESERVATION AND LIMITATIONS OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, the parties agree to preserve, without diminution,
certain remedies that any party may exercise before or after an arbitration
proceeding is brought. The parties shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any real or
personal property or other security by exercising a power of sale or under
applicable law by judicial foreclosure including a proceeding to confirm the
sale; (ii) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment. Any claim or controversy with regard to any
party's entitlement to such remedies is a Dispute.
Each party agrees that it shall not have a remedy of punitive or exemplary
damages against the other in any Dispute and hereby waive any right or claim to
punitive or exemplary damages they have now or which may arise in the future in
connection with any Dispute, whether the Dispute is resolved by arbitration or
judicially.
WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING
ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL
WITH REGARD TO A DISPUTE.
IN WITNESS WHEREOF, Guarantor, on the day and year first written above, has
caused this Unconditional Guaranty to be executed under seal.
ENERGY RESEARCH CORPORATION
Corporate By: /s/ Joseph G. Mahler
Seal ----------------------------------------
Joseph G. Mahler, Chief Financial Officer
TAXPAYER IDENTIFICATION NUMBER:
ENERGY RESEARCH CORPORATION 06-0851043
CUGTY/12-16-1998/B964046/B964046/001/EVERCEL, INC.
Page 5 of 5
<PAGE>
Exhibit 10.18
FIRST
UNION
PLEDGE AND ASSIGNMENT AGREEMENT
December 22, 1998
Energy Research Corporation
3 Great Pesture Road
Danbury, Connecticut 06810
(Individually and collectively "Debtor")
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
For value received and in order to secure payment and performance of the
obligations under the Unconditional Guaranty dated December 12, 1998, given by
Energy Research Corporation ("Guarantor") to Bank guaranteeing obligations of
Evercel, Inc. ("Borrower") to Bank, its successors and assigns (the "Guaranty"),
and all other Obligations (as defined herein) Debtor hereby executes and
delivers this Pledge and Assignment Agreement (the "Assignment") and sells,
pledges, assigns, transfers and grants to Bank a continuing security interest in
the Collateral (as defined herein), as security for the Obligations.
Debtor further covenants and agrees:
Collateral: "Collateral" means and all of the investment property, financial
assets, (which includes cash), securities, mutual funds, security entitlements,
evidence of indebtedness of governmental agencies and otherwise, evidence of
equity interests, instruments, and/or general intangibles, which are held in or
credited to an account with First Union National Bank, Capital Markets, who is a
Securities Intermediary (as defined herein) as of the Debtor (the "Account"),
and the Account itself, described as follows: Account No. 13133202; all
investment property, financial assets, security entitlements, money,
instruments, certificates of deposit, securities, documents, chattel paper,
credits, claims, demands and all other property and assets of the Debtor now or
hereafter in the possession, custody or control of Bank or any Affiliate, or in
any account of Debtor in which Bank has a security interest, and all dividends,
stock rights, subscription rights, warrants, interest, cash, instruments, new
securities, security entitlements and all other property to which the Debtor now
or hereafter becomes entitled by reason of its interest in any of the previously
described Collateral; all substitutions, additions, replacements, rollovers,
splits, products and accessions for, of and/or to any of the foregoing; and all
cash and non-cash proceeds or all of the foregoing.
Obligations: "Obligations" means the Guaranty and any and all other liabilities
and obligations of the Guarantor and/or Debtor, whether joint, several or joint
and several, to Bank or to any Affiliates, and any extensions, renewals, or
modifications thereof, currently existing or arising in the future, however
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now existing or hereafter acquired, including swap agreements (as
defined in 11 U.S.C. ss. 101), future advances, and all costs and expenses,
including all reasonable attorneys fees, incurred by Bank to obtain, preserve,
perfect and enforce the security interest granted herein and to maintain,
preserve and collect the property subject to the security interest.
Power of Attorney. Debtor irrevocably constitute and appoints Bank as its true
and lawful attorney-in-fact, with full power and authority in the place and name
of Debtor, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or desirable to accomplish the
purpose and carry out the terms of this Assignment, including without
limitation, completion, execution, and delivery of the Account Control
Agreement(s) by Bank, Debtor and Third Party(s) (as defined herein) required in
connection herewith (individually and collectively) the "Account Control
Agreement"), instructions to Third Party regarding, among other things, control
and dispersion of any Collateral, endorsements desirable for transfer or
delivery of
<PAGE>
any Collateral, registration of any Collateral under applicable laws, retitling
any Collateral, receipt, endorsement and/or collection of all checks and other
orders for payment of money payable to Debtor with respect to Collateral, and
the filing of financing statements, or a copy of this Assignment as such. This
power of attorney is coupled with an interest and shall be irrevocable. Neither
Bank nor anyone acting on its behalf shall be liable for acts, omissions, errors
in judgement, or mistakes in fact in such capacity as attorney-in-fact. The
Debtor ratifies all acts of Bank as its attorney-in-fact.
Debtor's Representations, Warranties and Agreements. Debtor represents, warrants
and agrees: (i) Debtor is the owner of the Collateral free and clear of any
liens, security interests, and claims, and has full power and authority to use
and encumber the same as Collateral, and as long as any of the Obligations
remain outstanding, Debtor will not grant a security interest or lien in, or
otherwise encumber, sell, transfer or assign, the Collateral to any other
person, and will keep the Collateral free from all adverse claims or
encumbrances; will otherwise preserve and protect by whatever means necessary
the respective rights of the Debtor and Bank in the Collateral, and will
promptly notify Bank of any claims against or notices asserting an interest in
the Collateral. All securities and security entitlements pledged as Collateral
are fully paid and non-assessable and if certificated, have been delivered to
Bank with unrestricted endorsements, (ii) All income, dividends, earnings and
profits with respect to the Collateral shall be reported for state and federal
income tax purposes as attributable to the Debtor and not Bank, and Third Party,
Bank or any other person authorized to report income distributions, are
authorized to issue IRS Forms 1099 indicating Debtor as the recipient of such
income, earnings and profits, (iii) If Debtor fails to pay any tax or assessment
relating to the Collateral or this Assignment as required to do so, (iv) Debtor
shall reimburse Bank immediately upon demand for and indemnify and hold it
harmless from and against all claims, liabilities, losses, costs and expenses,
including reasonable attorneys' fees and disbursements, incurred or suffered by
the Bank in connection with the Collateral, this Assignment or any Account
Control Agreement; such claims, liabilities, losses, costs and expenses shall
include, but not be limited to, all those in connection with the exercise of any
right or remedy granted hereunder, any claim and the prosecution or defense
thereof arising out of or in any way connected with this Assignment, the
collection of enforcement of the Obligations, the sale or purchase or attempted
sale or purchase of any part of the Collateral and any payments for whatever
reason made to Third Party. All amounts payable by Debtor under this subsection
shall be a part of the Obligations and secured by the Collateral, (v) Debtor's
principal place of business and/or residence is the address set forth herein:
Debtor maintains its books and records at such location, and if Debtor changes
such address it will give Bank at least 60 days prior written notice of the
intended change.
Collateral Value. The Fair Market Value of the Collateral shall at all times
exceed $2,000,000.00. If at any time the Fair Market Value of the Collateral
falls below this amount, Debtor shall, within three (3) business days, deliver
additional Collateral to Bank in an amount sufficient to restore the Fair Market
Value to the required amount. "Fair Market Value" means the value of the
Collateral based on the price per share or unit of any of the securities, debt
instruments, mutual funds, financial assets or other investment property which
is a part of the Collateral as set forth on the New York Stock Exchange, other
exchanges or asset value listings where such securities, debt instruments,
mutual funds, financial assets, or other investment property may be traded or
the value quoted as stated in The Wall Street Journal, or other customary
publication of such information if not available in The Wall Street Journal, at
the close of the business day, plus the amount of any certificates of deposit,
cash, or other financial assets compromising the Collateral. If any of the
Collateral is not subject to determination of a verifiable Fair Market Value
according to the procedures outlined in this paragraph than such Collateral
shall have at all times a value as determined by Bank in its sole discretion.
Page 2
<PAGE>
Trading of Collateral. Until a Default occurs, if Collateral is held in the
Account, Debtor shall have the right to vote the Collateral, to exchange it or
any part thereof for other easily marketable investment property or cash of at
least equivalent value which property or cash shall be placed or paid into the
Account ("Trade"), to collect and receive all cash dividends and interest
distributed periodically in the ordinary course by the obligor or issuer of the
Collateral or part thereof, and unless otherwise restricted by this Assignment,
to exercise other rights with respect to the Collateral. However, without the
prior written consent of Bank, Debtor may not transfer any Collateral from the
Account, unless in connection with a Trade, or collect or receive any interest,
dividends (cash or non-cash), distributions or proceeds paid in connection with
any sale. Trade, liquidation, or redemption of the Collateral, unless such
proceeds or distributions are paid into the Accounts, and any such distributions
or proceeds received by the Debtor, shall be held in trust for, and immediately
delivered to Bank. Any consent pursuant to this paragraph shall be in Bank's
sole discretion.
Third Party Acknowledgment. Debtor authorizes and directs Third Party to comply
with the terms of this Assignment, to enter into a Account Control Agreement, to
mark its records to show the security interest of and/or the transfer to Bank of
the Collateral and to mail monthly statements to the Bank, in addition to
Debtor, to the address provided herein.
Collateral Duties. Debtor agrees that Bank shall be under no duty to: (i) sell,
realize upon, collect or protect the Collateral or give any notice with respect
thereto; (ii) preserve the rights of the Debtor with respect to the Collateral
against third parties; (iii) seek payment from any particular source; or (iv)
perform or fulfill any obligation of Debtor hereunder or under any other
agreement, including any agreement, between the Debtor and Third Party. Without
limiting the generality of the foregoing, Bank shall not be obligated to
ascertain, notify Debtor of, or take any action in connection with any
conversion, call, redemption, retirement or any other event relating to any of
the Collateral. Debtor acknowledges Bank is not an investment advisor or insurer
with respect to the Collateral; and Bank has no duty to advise the Debtor of any
actual or anticipated changes in the value of the Collateral.
Default. A default ("Default") under this Assignment occurs upon; (i) the
failure of timely payment or performance of any of the Obligations; (ii) any
default under, or any breach of any representation or agreement contained or
referred to in this Assignment or in any other Loan Document; (iii) any default
or breach of any representation or agreement of a Third Party contained in any
Account Control Agreement executed with respect to any of the Collateral; (iv)
any attempt to terminate, revoke, rescind, modify or violate the terms of this
Assignment without the prior written consent of Bank; or (v) the making of any
law, seizure or attachment upon any Collateral; and/or (vi) the death of,
appointment of a guardian for, dissolution of, termination of existence of, loss
of good standing status by, appointment of a receiver for, assignment for the
benefit of creditors of, or commencement of any insolvency or bankruptcy
proceeding by or against, an Debtor.
Right and Remedies. Upon the occurrence of a Default, and while such Default
continues:
Bank may deal with any and all of the Collateral as in deems fit, and/or may
liquidate all or a portion of the Collateral, applying the proceeds to the
Obligations in any manner it deems appropriate. Such rights include, but are not
limited to, the right, at Bank's option and without prior written notice to
Debtor or any obligor under the Obligations, to: (i) notify Third Party to
terminate immediately any trading, other rights or entitlements with respect to
the Collateral and any distributions from the Collateral; (ii) transfer into
Bank's name or the name of its nominee, all or any part of the Collateral; (iii)
receive all interest, dividends, and other proceeds of the Collateral; (iv)
notify any person obligated on any Collateral of the security interest of Bank
therein and require such person to make payment directly to Bank; (v) demand,
sue for, collect or receive the Collateral and any proceeds thereof, and/or make
any settlements or compromise as Banks deems desirable
Page 3
<PAGE>
with respect to any Collateral; and (vi) exercise any voting, conversion,
registration, purchase or other rights of an owner, holder or entitlement holder
of the Collateral. Debtor agrees that Bank may exercise its rights under this
Assignment without regard for the actual or potential tax consequences to Debtor
under federal or state law and without regard to any instructions or directives
given Bank by Debtor.
Debtor acknowledges that some of the Collateral is subject to rapid decline in
value and is customarily sold in recognized markets, and Bank may dispose of
such Collateral in its recognized market without providing notice of sale. Bank
shall have all of the rights and remedies of a secured party under the
applicable law. Notwithstanding anything herein, in the Loan Documents, or in
the applicable law to the contrary, Debtor waives any an all requirements that
the Bank sell or dispose of all or part of the Collateral at any particular
time, regardless of whether Debtor has requested such sale or disposition.
Upon Bank's request, Debtor will, at its own expense: (i) do all things
determined by Bank to be desirable to register such Collateral or qualify for an
exemption from registration, under the provisions of all applicable securities
laws, and (ii) otherwise do or cause to be done all other acts and things as may
be necessary to make the sale of the Collateral valid, binding and in compliance
with applicable law.
Remedies are Cumulative. No failure on the part of Bank to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank or any right,
power, or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law or in equity.
Discharge. All rights of the Bank and security interests hereunder, and all
obligations of the Debtor hereunder, shall be absolute and unconditional, not
discharged or impaired irrespective of: (i) any lack of validity or
enforceability of any Loan Document; (ii) any change in the time, manner or
place of payment or performance, or in any term, of all or any of the
Obligations or the Loan Documents or any other amendment of waiver of or any
consent to any departure from any Loan Document; (iii) any exchange, release or
non-perfection of any collateral, or any release of or modifications of the
obligations of any guarantor or other obligor; (iv) any amendment or waiver of
or consent to departure from any guaranty or other agreement. To the extent
permitted by law, the Debtor hereby waives any rights under any valuation, stay,
appraisement, extension or redemption laws now existing or which may hereafter
exist and which, but for this provision, might be applicable to any sale or
disposition of the Collateral by the Bank; and any other circumstance which
might otherwise constitute a defense available to, or a discharge of, the
Borrower, any guarantor, other obligor or the Debtor in respect of the
Obligations.
Definitions. The terms set forth below shall be defined as follows: "Affiliate"
means First Union Corporation and any of its direct and indirect affiliates and
subsidiaries; "Issuer" means a person who creates a share, participation or
other interest in its property or in an enterprise, or undertakes an obligation
that is an uncertified security, including a mutual fund or who directly or
indirectly creates a fractional interest in its rights or property which is
represented by a security certificate; "Loan Documents" means all documents
executed in connection with any of the Obligations and may include, without
limitation, notes, guaranty agreements, security agreements, security
instruments, financing statements, mortgage instruments, letter of credit
agreements, a commitment letter that survives closing and any modifications or
renewals, but, however, does not include swap agreements as defined in 11 U.S.C.
ss. 101 whenever executed; "Securities Intermediary" means any bank, custodian,
broker or other person that in the ordinary course of its business maintains
accounts similar to the Account described herein or securities accounts for
others and is acting in that capacity; "Third Party" means each and every issuer
or
Page 4
<PAGE>
Securities Intermediary having, holding, issuing, or otherwise owing some or all
of the Collateral to the Debtor. Certain terms used herein, including,
"financial asset," "investment property," and "securities entitlements," shall
have the meanings ascribed thereto in the 1994 revisions to Article 8 and
Article 9 of the Uniform Commercial Code proposed by the American Law Institute
and the National Conference of Commissioners on Uniform State Laws.
Miscellaneous Provisions. Assignment. This Assignment and other Loan Documents
shall insure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Bank's
interests in and rights under this Assignment and other Loan Documents are
freely assignable, in whole or in part, by Bank. Any attempt by Debtor to assign
its interests and obligations hereunder without Bank's prior written consent is
null and void. Applicable Law: Conflict Between Documents. This Assignment and
other Loan Documents shall be governed by and construed under the laws of the
state named in Bank's address shown above without regard to that state's
conflict of laws principles. Jurisdiction. Debtor irrevocably agrees to a
non-exclusive personal jurisdiction in the state named in Bank's address shown
above. Severability. If any provision of this Assignment or of the other Loan
Documents shall be prohibited or invalid under applicable law, such provision
shall be ineffective but only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Assignment or other such document. Notices. Any notices to Debtor shall
be sufficiently given, if in writing and mailed or delivered to the Debtor's
address shown above or such other address as provided hereunder, and to Bank, if
in writing and mailed or delivered to Bank's office address shown above or such
other address as Bank may specify in writing from time to time. In the event
that Debtor changes Debtor's address at any time prior to the date the
Obligations are paid in full, Debtor agrees to promptly give written notice of
said change of address by registered or certified mail, return receipt
requested, all charges prepaid. Plural Captions. All references in the Loan
Documents to Debtor, guarantor, person, document or other nouns of reference
mean both the singular and plural form, as the case may be, and terms "Debtor"
or "person" shall mean any individual, person or entity, and if more than one
shall be joint and several. The captions contained in the Loan Documents are
inserted for convenience only and shall not affect the meaning or interpretation
of the Loan Documents. Binding Contract. Debtor by execution and Bank by
acceptance of this Assignment agree that each party is bound to all terms and
provisions of this Assignment.
IN WITNESS WHEREOF, the Debtor has caused this Assignment to be duly executed as
of the day and year first above written.
DEBTOR:
Energy Research Corporation
CORPORATE By: /s/ Joseph G. Mahler
SEAL -----------------------------------------
Joseph G. Mahler, Chief Financial Officer
ACCEPTED BY:
/s/ Kristin H. Murphy
-----------------------------------------
Kristin H. Murphy, Senior Vice President
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
Page 5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Evercel, Inc. and
Energy Research Corporation:
We consent to the use of our reports included herein and to the references
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
----------------------------------------------------------------------
KPMG LLP
Stamford, Connecticut
February 5, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 00
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99
ENERGY RESEARCH CORPORATION EVERCEL, INC.
February , 1999
Dear Shareholder:
Energy Research Corporation ("ERC") and Evercel, Inc. ("Evercel") are
pleased to be sending you the enclosed Prospectus in connection with the
spin-off of Evercel from ERC, its former parent company, and the concurrent
rights offering by Evercel. The Prospectus constitutes an Information Statement
describing the spin-off of Evercel which has been effected by means of a
distribution to ERC shareholders of 100% of the outstanding shares of Evercel
(the "Distribution") and describes the offer to you of additional shares of
Evercel (the "Rights Offering") pursuant to the exercise by you of the
transferable subscription rights granted hereby.
The Prospectus describes the business and financial condition of
Evercel as well as how you may participate in the Rights Offering. You are urged
to read the Prospectus carefully, and to pay particular attention to the section
called "RISK FACTORS".
THE DISTRIBUTION
Effective February___, 1999, ERC distributed to you one share of
Evercel common stock, $.01 par value, for every three shares of ERC common stock
that you held on February ____, 1999. You are not required to make any payment
or take any other action to receive your shares in the Distribution. The shares
received by you in the Distribution may not be sold or otherwise disposed of
prior to [the closing of the Rights Offering] and will remain uncertificated
until such time.
Fractional shares of Evercel common stock will not be issued in the
Distribution. A cash payment will be made to you if you would otherwise be
entitled to a fractional share of Evercel common stock as a result of the
Distribution. The amount of such payment will be based upon the average bid
price on the first day of trading of the Evercel common stock which will not
occur until [the closing of the Rights Offering]. Such payment will, therefore,
not be made until such trading begins on or about April [], 1999.
Your receipt of shares in the Distribution is tax free, except that
cash received in lieu of fractional shares will result in a recognition of gain
or loss equal to the difference between the amount of cash received and the
allocated basis of the fractional share deemed surrendered in exchange for such
cash. Please refer to the section of the
<PAGE>
Prospectus entitled "THE DISTRIBUTION--Federal Income Tax Aspects of the
Distribution" for a discussion of the tax consequences of the Distribution. You
are also urged to consult with your own tax advisor to determine the income tax
consequences and reporting requirements of the Distribution based upon your own
particular facts and circumstances.
THE RIGHTS OFFERING
Evercel is granting at no cost to holders of its common stock as of
February ___, 1999 (which includes all ERC shareholders receiving Evercel shares
in the Distribution) transferable subscription rights ("Rights") to subscribe
for and purchase additional shares of Evercel common stock for a price of $6.00
per share.
The basic terms of the Rights Offering are as follows:
- - You will receive one Right for each share of Evercel common stock held
on February ___, 1999.
- - You may purchase one share of Evercel common stock for each Right you
exercise at the Subscription Price of $6.00 per share.
- - Shareholders who have fully exercised the Rights issued to them may
subscribe for additional shares of Evercel common stock, to the extent
available, at the Subscription Price through the exercise of an
oversubscription privilege.
- - Evercel has applied to have the shares of its common stock listed for
trading on the Nasdaq SmallCap Market following the closing of the
Rights Offering.
- - THE RIGHTS MAY NOT BE EXERCISED AFTER 5:00 P.M., EASTERN TIME, ON MARCH
, 1999.
If your shares are held in your name, a Subscription Certificate
representing your Rights is enclosed. If your shares are held in the name of
your bank or broker, you must contact your bank or broker if you wish to
participate in the Rights Offering.
To exercise or sell your Rights, you should follow the enclosed
instructions as to the exercise or transfer of your Rights.
THOSE SHAREHOLDERS WHO DO NOT TAKE ANY ACTION WILL EXPERIENCE A
DILUTION IN THE VALUE OF THEIR SHARES OF EVERCEL COMMON STOCK AND A REDUCTION IN
THEIR PROPORTIONATE INTEREST IN EVERCEL, THUS YOU ARE ENCOURAGED TO SUBSCRIBE
FOR ADDITIONAL SHARES OF EVERCEL OR SELL YOUR RIGHTS.
<PAGE>
ADDITIONAL INFORMATION
You may obtain additional information concerning the Distribution
and/or the Rights Offering from the following sources:
Joseph G. Mahler Continental Stock Transfer & Trust Company
Acting Chief Financial Officer Two Broadway
Evercel, Inc. New York, New York 10004
3 Great Pasture Road (212) 509-4000, ext. 535
Danbury, Connecticut 06813
(203) 825-6000
On behalf of the Board of Directors of ERC and Evercel, we thank you
for your support and confidence and look forward to our continuing relationship.
Very truly yours,
ENERGY RESEARCH CORPORATION
By:_______________________________
Jerry D. Leitman
President and Chief Executive Officer
EVERCEL, INC.
By:_______________________________
Jerry D. Leitman
Chairman and Acting President
<PAGE>
NOTICE TO SHAREHOLDERS PURSUANT TO DELAWARE
LAW REGARDING UNCERTIFICATED
SHARES OF EVERCEL, INC. COMMON STOCK
The following legends apply to your uncertificated shares of Evercel,
Inc. Common Stock:
The shares of the Corporation distributed by Energy Research
Corporation, a New York corporation, to its stockholders, in connection with
the "Distribution" as described in the Registration Statement on Form SB-2
originally filed by the Corporation with the Securities and Exchange
Commission on September 30, 1998 as amended (the "Registration Statement") in
connection with the offering of transferable subscription rights to subscribe
for and purchase additional shares of Corporation Common Stock (the "Rights
Offering") or any right or interest therein shall not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, prior to the
date on which the Rights Agent for the Rights Offering delivers to the
Company final notice of the number of shares of Corporation Common Stock
subscribed for in the Rights Offering (the "Closing Date") (the "Restriction
on Transfer").
The Restriction on Transfer shall immediately terminate and be of no
further force or effect as to any of the shares of Common Stock of the
Corporation upon the Closing Date and shall not be applicable to the shares
of the Company acquired by stockholders of the Corporation pursuant to the
Rights Offering or to the shares of the Corporation which are acquired by the
Underwriters in connection with the Rights Offering pursuant to (i) any
Standby Underwriting Agreement entered into in connection therewith or (ii)
the Overallotment Option, as defined in the Registration Statement which may
be granted to the Underwriters in connection with the Rights Offering.
The Corporation is authorized to issue more than one class or series of
stock. The Corporation will furnish without charge to each stockholder upon
written request the full text of the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof authorized to be issued by the Corporation as set
forth in the Amended and Restated Certificate of Incorporation of the
Corporation and amendments thereto filed with the Secretary of State of the
State of Delaware. Such request should be made to the office of Continental
Stock Transfer & Trust Company, in its capacity as the Transfer Agent.
