SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 1-14204
ENERGY RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
New York 06-0853042
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3 Great Pasture Road, Danbury, Connecticut 06813
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (203) 792-1460
- ---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's Common Stock, par value
$.0001, as of September 9,1998 was 4,128,273.
ENERGY RESEARCH CORPORATION
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Consolidated Condensed
Financial Statements:
Consolidated Condensed Balance Sheets as of
July 31, 1998 and October 31, 1997 2
Consolidated Condensed Statements of Operations
for the three months ended July 31, 1998
and July 31, 1997 3
Consolidated Condensed Statements of Operations
for the nine months ended July 31, 1998
and July 31, 1997 4
Consolidated Condensed Statements of Cash Flows
for the nine months ended July 31, 1998
and July 31, 1997 5
Notes to Unaudited Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Part I - Financial Information
Item I. Financial Statements
<TABLE>
ENERGY RESEARCH CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
July 31, October 31,
1998 1997
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash & cash equivalents $10,276 $6,802
Accounts receivable 4,700 2,828
Inventories 356 47
Deferred income taxes 821 205
Other current assets 508 279
Total current assets 16,661 10,161
Property , plant and equipment, net 8,190 8,254
Other assets, net 2,717 3,018
Total Assets $27,568 $21,433
LIABILITIES AND SHAREHOLDERS EQUITY:
Current Liabilities:
Current portion of long-term debt $ 784 $1,702
Accounts payable 806 865
Accrued liabilities 1,102 1,182
Customer advances 2,080 -
Current portion of deferred license fee income 1,417 46
Total current liabilities 6,189 3,795
Long Term Liabilities:
Long-term debt 2,111 2,699
Deferred income taxes 219 170
Total liabilities 8,519 6,664
Minority Interest 3,220 -
Shareholders Equity:
Convertible preferred stock, Series C($.01 par value);
30,000 shares issued and outstanding at
July 31, 1998 and October 31, 1997, respectively 600 600
Common Shareholders Equity:
Common stock, ($.0001 par value); 8,000,000 shares
authorized: 4,126,398 and 4,000,650 shares issued and
outstanding at July 31, 1998 and October 31, 1997,
respectively - -
Additional paid-in capital 12,514 11,460
Retained earnings 2,715 2,709
Total common shareholders equity 15,229 14,169
Total shareholders equity 15,829 14,769
Total Liabilities and Shareholders Equity $27,568 $21,433
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
<TABLE>
ENERGY RESEARCH CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended July 31,
1998 1997
<S> <C> <C>
Revenues $5,537 $6,448
Cost and Expenses:
Cost of Revenues 3,633 3,721
Administrative and selling expense 1,612 1,792
Depreciation 333 451
Research and development 548 383
6,126 6,347
Income/(loss) from operations (589) 101
License fee income, net (includes income from related parties of $62 and $79 for
the three months ended July 31, 1998 and 1997,
respectively) 53 207
Interest expense (57) (98)
Interest and other income, net 81 75
Income/(loss) before provision
for income taxes (512) 285
Provision for income taxes (163) 90
Net Income/(loss) ($349) $195
Earnings per share:
Basic earnings/(loss) per share ($.08) $.05
Basic shares outstanding 4,116,318 3,976,610
Diluted earnings per share N/A $.05
Diluted shares outstanding 4,302,487 4,158,878
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
<TABLE>
ENERGY RESEARCH CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Nine Months Ended July 31,
1998 1997
<S> <C> <C>
Revenues $16,056 $18,203
Cost and Expenses:
Cost of Revenues 9,931 11,521
Administrative and selling expense 3,998 4,248
Depreciation 1,225 1,416
Research and development 1,541 860
16,695 18,045
Income/(loss) from operations (639) 158
License fee income, net (includes income from related parties of $204 and $237
for the nine months ended July 31, 1998 and 1997,
respectively) 649 441
Interest expense (210) (271)
Interest and other income, net 201 234
Income before provision
for income taxes 1 562
Provision for income taxes (5) 216
Net Income $ 6 $346
Earnings per share:
Basic earnings per share $-0- $.09
Basic shares outstanding 4,065,357 3,941,176
Diluted earnings per share $-0- $.05
Diluted shares outstanding 4,227,457 4,179,869
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
<TABLE>
ENERGY RESEARCH CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31,
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 6 $ 346
Adjustments to reconcile net income to
net cash provided by/(used in) operating activities:
Compensation for options granted 206 -
Depreciation and amortization 1,536 1,697
Deferred income taxes (567) -
Conversion of accrued interest to principal
on long-term debt - 29
(Gain) loss on disposal of property 1 -
Changes in operating assets and liabilities:
Accounts receivable (1,872) 615
Inventories (309) (45)
Other current assets (229) (254)
Accounts payable (59) (558)
Accrued liabilities (80) (32)
Customer advances 2080 -
Income taxes payable - (2)
Deferred license fee income 1,371 38
Net cash provided by/(used in)
Operating activities 2,084 1,834
Cash flows from investing activities:
Capital expenditures (1,162) (2,415)
Proceeds from sale of marketable securities - 1,999
Payments on other assets (10) (42)
Net cash provided by/(used in) investing
activities (1,172) (458)
Cash flows from financing activities:
Repayments of long-term debt (1,506) (2,116)
Sale of minority interest in joint venture 3,220 -
Common stock issued 848 123
Net cash provided by/(used in)
financing activities 2,562 (1,993)
Net increase/(decrease) in cash and
cash equivalents 3,474 (617)
Cash and cash equivalents, beginning of period 6,802 7,597
Cash and cash equivalents, end of period $ 10,276 $ 6,980
Supplemental disclosure of cash paid during
the period for:
Interest $210 $267
Income taxes $377 $314
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
ENERGY RESEARCH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements for Energy Research
Corporation (the "Registrant"), have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position of the Company as of July 31,
1998 and the results of operations for the three and nine months ended July 31,
1998 and 1997 and cash flows for such nine month periods have been included.
Information included in the Consolidated Condensed Balance Sheet as of October
31, 1997 has been derived from audited financial statements included in the
Company's Annual Report on Form 10-K for the year ended October 31, 1997, but
does not include all disclosures required by generally accepted accounting
principles.
The results of operations for the nine months ended July 31, 1998 and 1997 are
not necessarily indicative of the results to be expected for the full year.
The reader should supplement the information in this document with prior
disclosures in the form of previous 10-Q's and the 1997 10-K.
NOTE 2: LICENSE AGREEMENTS AND SIGNIFICANT CONTRACTS
The Company recognizes from licensees income in each reporting period. The
Company is not obligated to return any of the license income earned. A royalty
is payable to the Company on commercial product sales. To date the Company has
not received any royalty payments. The Company is obligated to share new
technological developments with the licensee concerning the licensed technology.
Under the licenses the Company is not obligated to continue development of the
technology.
In December 1994, the Company entered into a $136,000,000 Cooperative Agreement
with the U.S. Department of Energy (DOE) in which the DOE would provide
$78,000,000 to the Company over the next five years to support the continued
development and improvement of the Company's commercial product. The balance of
the funding is expected to be provided by the Company, the Company's partners or
licensees, other private agencies and utilities. Approximately 60% of the
non-DOE portion has been committed or credited to the project in the form of
in-kind or direct cost share from non-U.S. government sources. There can be no
assurance that the final 40% of the private sector funding will be available on
favorable terms, if at all. Failure of the Company to obtain the required
funding could result in a delay or reduction of DOE funding.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
ENERGY RESEARCH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
CONTINUED
<CAPTION>
NOTE 3: EARNINGS PER SHARE
Basic and diluted earnings per share are calculated based upon the provisions of
SFAS 128, adopted in 1998, using the following data:
Three Months Nine Months
Ended July 31 Ended July 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average basic
Common shares 4,116,318 3,976,610 4,065,357 3,941,176
Effect of dilutive securities
Stock options 156,169 82,268 132,100 138,693
Preferred C convertible 30,000 30,000 30,000 30,000
Convertible debt 70,000 70,000
Weighted average basic
Common shares adjusted
for diluted calculation 4,302,487 4,158,878 4,227,457 4,179,869
</TABLE>
<PAGE>
Part I - Financial Information
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Comparison Three Months Ended July 31, 1998 and July 31, 1997
Revenues decreased 14% to $5,537,000 in the 1998 period from $6,448,000 in the
1997 period. The decrease was due primarily to the completion of the
two-megawatt Direct Fuel Cell power plant project in Santa Clara, California in
the 1997 period. The decrease in revenues was partially offset by an increase in
billings under the Companys other contracts.
Cost of Revenues were relatively unchanged at $3,633,000 and $3,721,000 in the
1998 and 1997 periods, respectively.
Administrative and selling expense decreased 10% to $1,612,000 in the 1998
period from $1,792,000 in the 1997 period. The administrative and selling
expense includes approximately $571,000 of costs associated with the
commercialization of the Company's battery business. Approximately 35% of these
costs included expenses associated with several agreements in China including a
nickel-zinc battery license for bicycles, scooters and other applications and
the formation of a joint venture to manufacture and sell batteries and a second
joint venture to develop various electrochemistry based products. Approximately
35% of these costs were associated with the negotiations to acquire a privately
held battery company. After due diligence issues arose, the Company decided not
to proceed with the transaction. The remainder of the costs were internal
expenses associated with the above as well as internal costs associated with the
potential battery company spinoff currently being considered. Depreciation
decreased 26% to $333,000 in the 1998 period from $451,000 in the 1997 period.
The decrease is due primarily to the completion of the depreciation of the
original equipment installed in the fuel cell manufacturing facility. Research
and development expense increased 43% to $548,000 in the 1998 period from
$383,000 in the 1997 period. The increase was substantially due to expanded
battery development activities.
Income from operations resulted in a loss of $589,000 in the 1998 period
compared to $101,000 of income in the 1997 period. In addition to the $571,000
administrative and selling expense discussed above, the Company also included
$65,000 of other internal expenses in cost of revenues associated with the
battery activity explained above. Income from operations also included certain
non-recoverable employment costs associated with the hiring of the chief
executive officer in the fourth fiscal quarter of 1997. Income from operations
during the remainder of 1998 will be <PAGE>
reduced by certain non-recoverable employment costs.
License fee income, net, decreased 74% to $53,000 in the 1998 period from
$207,000 in the 1997 period. The decrease is primarily due to Corning, Inc.
terminating the battery license agreement with the Company during the second
fiscal quarter 1998. The remainder of the decrease was due to the incurrence of
cost associated with a battery test as part of the electric vehicle battery
license with Nan Ya Plastics Corporation of Taiwan and Xiamen Three Circles Co.,
Ltd of Xiamen, Peoples Republic of China. The amortization of the ten-year
paid-up fuel cell license , which was pre-paid in 1988 with Sanyo Electric Co.,
Ltd(Sanyo) in Japan,( the "Sanyo License") ended during the second fiscal
quarter 1998. As anticipated, Sanyo did not renew its license with the Company.
License fee income, net, is expected to be higher in the fiscal year 1998 than
in fiscal year 1997. The previously deferred license fee income of $1,300,000 is
expected to be recognized as income during the second fiscal quarter 1999.
Interest expense decreased 42% to $57,000 in the 1998 period from $98,000 in the
1997 period. The decrease was due primarily to the complete repayment of debt to
MTU-Friedrichshafen (MTU) during the first fiscal quarter 1998. The Company also
completed the repayment of a machinery and equipment loan to First Union Bank
during the current 1998 period.
Interest and other income, net, increased 8% to $81,000 in the 1998 period from
$75,000 in the 1997 period.
Results of Operations
Comparison Nine Months Ended July 31, 1998 and July 31, 1997
Revenues decreased 12% to $16,056,000 in the 1998 period from $18,203,000 in the
1997 period. The expected decrease was due primarily to the completion of the
two-megawatt Direct Fuel Cell power plant demonstration project in Santa Clara,
California in the 1997 period. The decrease in revenues was partially offset by
an increase in billings under the Companys other contracts. Revenues for fiscal
year 1998 are expected to be lower than fiscal year 1997.
Cost of revenues decreased 14% to $9,931,000 in the 1998 period from $11,521,000
in the 1997 period. The decrease was due primarily to the lower revenues
mentioned above. During the 1998 period approximately $847,000 of unbilled, but
recoverable engineering and manufacturing overhead costs were incurred. These
costs will be recognized with the associated revenues during the remainder of
the fiscal year.
Administrative and selling expense decreased 6% to $3,998,000 in the 1998 period
from $4,248,000 in the 1997. The administrative and selling expense includes
approximately $571,000 of costs <PAGE>
associated with the commercialization of the Company's battery business,
including licenses, joint ventures, a terminated acquisition and spinoff costs
mentioned above in the comparison of the three months ended July 31, 1998.
During the 1998 period, approximately $1,201,000 of unbilled, but recoverable
administrative and selling expenses were incurred. These costs will be
recognized with the associated revenues during the remainder of the fiscal year.
Depreciation decreased 13% to $1,225,000 in the 1998 period from $1,416,000 in
the 1997 period. The decrease is due primarily to the completion of the
depreciation of the original equipment installed in the fuel cell manufacturing
facility. Research and development expense increased 79% to $1,541,000 in the
1998 period from $860,000 in the 1997 period. The increase was substantially due
to expanded battery activities including the manufacture and successful testing
of a nickel-zinc electric vehicle battery. A second electric vehicle battery is
currently being manufactured.
Income from operations resulted in a loss of $639,000 in the 1998 period
compared to $158,000 of income in the 1997 period. In addition to the $571,000
administrative and selling expense discussed above, the Company also included
$65,000 of other internal expenses in cost of revenues associated with the
battery activity explained above. Income from operations also included certain
non-recoverable employment costs associated with the hiring of the chief
executive officer in the fourth fiscal quarter of 1997. Income from operations
during the remainder of 1998 will be reduced by certain non-recoverable
employment costs.
License fee income, net, increased 47% to $649,000 in the 1998 from $441,000 in
the 1997 period. The increase was due substantially to the battery license
agreement with Nan Ya Plastics Corporation of Taiwan and Xiamen Three Circles
Co., Ltd.( formerly Xiamen Daily- Used Chemicals Co., Ltd.) of Xiamen, Peoples
Republic of China. The increase was also due to the battery license agreement
with Corning, Inc. During the 1998 period Corning, Inc. terminated its license
with the Company, therefore, license fee income, net, in future periods is not
expected to include payments from Corning, Inc. The amortization of the Sanyo
License ended during the second fiscal quarter 1998. As anticipated, Sanyo did
not renew its license with the Company. License fee income, net, is expected to
be higher in the fiscal year 1998 than in fiscal year 1997. The previously
deferred license fee income of $1,300,000 is expected to be recognized as income
during the second fiscal quarter 1999.
Interest expense decreased 23% to $210,000 in the 1998 period from $271,000 in
the 1997 period. The decrease was due primarily to the complete repayment of
debt to MTU-Friedrichshafen (MTU) during the first fiscal quarter 1998. The
Company also completed the repayment of a machinery and equipment loan to First
Union Bank during the current 1998 period. <PAGE>
interest and other income, net, decreased 14% to $201,000 in the 1998 period
from $234,000 in the 1997 period. The decrease was due primarily to the use of
cash for the repayment of debt and the use of cash for unbilled, but recoverable
expenses mentioned above.
Liquidity and Capital Resources
Working capital at July 31,1998 was $10,472,000, including $10,276,000 of cash
and cash equivalents, compared to working capital of $6,366,000 at October 31,
1997, including $6,802,000 of cash and cash equivalents. The cash and cash
equivalents at July 31, 1998 is also inclusive of $3,220,000 in two majority
owned joint ventures in China.
During the 1998 period, $2,084,000 of cash was provided by operating activities
of the Company. During that period, accounts receivable increased $1,872,000,
and accounts payable decreased $59,000. Accounts receivable includes the
incurrence of $2,048,000 of unbilled but recoverable costs that will be
recognized with the associated revenues during the remainder of the fiscal year.
Net cash from operating activities also included the Companys net income of
$6,000 and an increase in deferred license fee income $1,371,000. During the
period the Company received customer advances of $2,080,000.
The Company's capital expenditures are incurred primarily to support ongoing
contracts and to replace existing equipment. Capital expenditures for the 1998
period were $1,162,000. The capital expenditures were financed from the recovery
of depreciation expense under cost-reimbursement contracts and cooperative
agreements.
During the 1998 period the Company invested $481,000 in the aggregate in two
majority owned joint ventures in the People's Republic of China. The Company
obtained a 51% ownership in Xiamen Three Circles-ERC Battery Company, Ltd. and
granted the joint venture a nickel-zinc license for certain market applications
including electric bicycles, scooters and other applications. The Company also
obtained a 66 2/3% ownership of Xiamen-ERC Technology Company, Ltd. to develop
and commercialize various advanced electrochemical technologies.
In fiscal year 1990, the Company borrowed $1,980,000 from MTU at a rate of 6%
per annum. The payment of principal and interest was deferred until November 30,
1996. The indebtedness, including deferred interest, as of October 31, 1996 was
$1,926,000. This loan was secured by the pledge of stock in the Company's
manufacturing subsidiary and certain machinery, equipment and leasehold
improvements at the Torrington, Connecticut, facility. The accrued interest on
the loan was payable at the Company's option. The principal amount of the loan
could be converted at MTU's option, into the Company's common stock at a
conversion rate of $9 per share prior to November 30, 1996. During fiscal 1996,
$877,000 of this loan was converted into 97,397 shares of common stock of the
Company. MTU extended the maturity of $630,000 of the loan to November 30, 1997
with the right to convert to common stock at $9 per share. During December 1996,
the Company paid to MTU $1,296,000 of principal and interest. During December,
1997 the Company paid the entire balance of principal and interest due in the
amount of $673,000.
<PAGE>
In December 1994, the Company entered into a $136,000,000 Cooperative Agreement
with the U.S. Department of Energy (DOE) in which the DOE would provide
$78,000,000 to the Company over the next five years to support the continued
development and improvement of the Company's commercial product. The balance of
the funding is expected to be provided by the Company, the Company's partners or
licensees, other private agencies and utilities. Approximately 60% of the
non-DOE portion has been committed or credited to the project in the form of
in-kind or direct cost share from non-U.S. government sources. There can be no
assurance that the final 40% of the private sector funding will be available on
favorable terms, if at all. Failure of the Company to obtain the required
funding could result in a delay or reduction of DOE funding.
The Company will need to raise additional funds to expand the capacity of the
Company's manufacturing facility. The first stage in this process is to raise
the output capability to 50 MW per year. Approximately $16 million has been
estimated for this step. There can be no assurance that this funding will be
available or if available will result in an output level which will result in a
cost competitive fuel cell stack. Meanwhile, the Company is using existing funds
to expand production capacity incrementally.
The Company has reviewed the hardware and software of its information systems.
The Company believes the year 2000 will not have a material impact on its
financial position.
The Company anticipates that its existing capital resources together with
anticipated revenues will be adequate to satisfy its existing financial
requirements and agreements through fiscal 1998.
<PAGE>
Item 6 - Exhibits and Reports on Form 8
EXHIBIT INDEX
(a) EXHIBIT DESCRIPTION
EXHIBIT NO.
10.51 Technology Transfer and License Contract, dated May 29,
1998 for Ni-Zn Battery Technology among Xiamen ERC
Battery Corp., Ltd., and Xiamen Daily-Used Chemicals Co.,
Ltd. and Energy Research Corporation. (confidential
treatment requested)
10.52 Cooperative Joint Venture Contract, dated as of July 7,
1998, between Xiamen Three Circles Co., Ltd. and Energy
Research Corporation for the establishment of Xiamen Three
Circles-ERC Battery Corp., Ltd., a Sino Foreign
Manufacturing Joint Venture.(confidential treatment
requested)
10.53 Amendment to the Energy Research Corporation 1988 Stock
Option Plan, as amended.
10.54 The Energy Research Corporation 1998 Equity Incentive Plan.
27 Financial Data Schedule
(b) Reports On Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGY RESEARCH CORPORATION
/s/ Louis P. Barth
Louis P. Barth
Senior Vice President, CFO
Treasurer/Corporate Secretary
Dated: September 14, 1998
<PAGE>
Confidential treatment has been requested
for portions of this document. Deleted
portions are identified with a dotted line
under the deleted information.
------------------------------------------------
TECHNOLOGY TRANSFER
AND
LICENSE CONTRACT
FOR
Ni-Zn BATTERY TECHNOLOGY
AMONG
XIAMEN ERC BATTERY CORP. LTD.,
AND
XIAMEN DAILY-USED CHEMICALS CO., LTD.
AND
ENERGY RESEARCH CORPORATION
----------------------------------------------
May 29, 1998
<PAGE>
This Technology Transfer and License Contract (this "Contract") made and entered
into as of May 29, 1998, by and between Xiamen Daily-Used Chemicals Co., Ltd.
("Xiamen") A Chinese legal person having its place of business at 722 Xiahe Road
in Xiamen, Fujian Province, China and Energy Research Corporation ("ERC"), a New
York corporation having its place of business at 3 Great Pasture Road, Danbury,
CT 06813 USA. Following execution of this Contract Xiamen and ERC anticipate
establishing a joint venture, Xiamen ERC Battery Corp. Ltd., (the "Joint Venture
") that shall become a party to this Contract. Xiamen and ERC agree, that for
purpose of this Contract, Xiamen shall be solely responsible for the obligations
of the Joint Venture hereunder (and the term "Joint Venture" when used herein
shall mean "Xiamen") until, following the establishment of the Joint Venture,
the Joint Venture is made a party to this Contract.
WITNESSETH THAT:
Whereas, ERC has developed certain technology and technical know-how for
a sealed nickel zinc ("Ni-Zn") battery including technology for a fibrillated
electrode, an improved zinc electrode and a lightweight nickel electrode that
uses graphite, ERC has represented to the Joint Venture that such technology has
been used to develop a Ni-Zn battery suitable for use in the Field ( as defined
herein), and has demonstrated and described this technology to representatives
of the Joint Venture and the Joint Venture has determined to its satisfaction
that it wishes to acquire and license the technology for the purpose of
commercializing a Ni-Zn battery in the Field; and
Whereas, ERC, in consideration of the payments and obligations described
herein, wishes to license its know-how to the Joint Venture and enter into a
technology license agreement as set forth herein for the purpose of allowing the
Joint Venture to make, have made and sell or otherwise commercialize a Ni-Zn
battery in the Field and in the Licensed Territories (as defined herein):
NOW, THEREFORE:
In consideration of the foregoing and the mutual terms, promises and
conditions set forth herein, all of which is hereby acknowledged, the Parties
agree as follows:
I. DEFINITIONS
When used in this Contract, the following capitalized terms shall
have the following meanings:
1.1 "Effective Date" shall mean the date this Contract is signed
by the Parties. 1.2 "ERC Facility" shall mean the ERC facility
located at 3 Great Pasture
Road, Danbury, CT 06813, USA.
<PAGE>
1.3 "ERC Know-How" shall mean all of the technical information,
know-how, inventions (whether patented or not), trade secrets, and other
technical, engineering and design information and data, including without
limitation, all processes and techniques owned by ERC or in which ERC acquires a
licensable interest; during the term of this Contract useful for the commercial
manufacture of Ni-Zn batteries within the Field, such as designs, drawings,
blueprints, flow sheets, reports, manuals, specifications, process descriptions,
operating procedures, materials or parts lists and other written or printed
materials that are owned by ERC and which may be useful or helpful to die Joint
Venture in the development and production of Ni-Zn batteries within the Field.
1.4 "Field" means the manufacture, use and sale, lease or other
transfer of Ni-Zn batteries for miner's lamps and two and three wheel vehicles,
applications such as motor bikes, bicycles, scooters, rickshaws, industrial
traction equipment, and off-road recreational vehicles such as golf carts, boats
and all terrain vehicles (ATVs).
1.5 "Licensed Technology" shall mean ERC Know-How.
1.6 "Licensed Territories" means the Exclusive Licensed Territory
and Non Exclusive Licensed Territory. The term "Exclusive Licensed Territory"
shall mean Mainland China, Taiwan, Hong Kong, and Macao and the term "Non
Exclusive Licensed Territory", shall. mean the other countries of Southeast Asia
listed in Annexure A. This Contract does not provide a license to any other
territory.
1.7 "Net Sales" means the sum of all sales, leases and other
transfers of Ni-Zn batteries at the Net Selling Price.
1.8 "Net Selling Price" means the gross invoiced price of Ni-Zn
batteries sold by the Joint Venture or the consideration received by the Joint
Venture if leased or transferred by the Joint Venture or its agents or
affiliates in arms-length commercial transactions in the ordinary course of
business, without any deduction other than returns, rebates and refunds actually
given and die following items of expense to the extent to which they are
actually given or paid and expressly included in the gross invoice price:
1. Sales discounts;
2. Transportation insurance premiums
3. Transport expenses on sales, leases and other transfers.
For the purpose of computing the Net Selling Price for sales,
leases or other transfers of the Ni-Zn batteries to affiliates of the Joint
Venture or other parties that do not represent arms-length commercial
transactions in the ordinary course of business, the Net Selling Price shall be
determined by the Joint Venture.
1.9 "Party" means ERC or Xiamen until the Joint Venture is made a
party to this Contract and, thereafter, ERC, Xiamen or the Joint Venture as the
case may be.
<PAGE>
II LICENSE
2.1 License. ERC hereby grants to the Joint Venture for the duration of
the Term stated in Section 6.1, a license of the Licensed Technology solely
within the Licensed Territories and solely within the Field, subject to and in
accordance with the terms and conditions of this Contract. The Joint Venture
agrees that: (a) notwithstanding the transfer of the License Technology
contemplated in this Contract, ERC owns and retains, and shall continue after
the transfer to own and retain, all rights in the Licensed Technology, (b) the
Joint Venture receives hereby only those rights expressly granted to it in this
Contract, and (C) the Joint Venture shall make no use of any trade names or
marks of ERC without ERC's express written consent.
2.2 Exports. The Joint Venture shall not, without ERC's prior written
consent export, cause to be exported or facilitate the export of Ni-Zn batteries
out of either the Exclusive Licensed Territory or the Non-Exclusive Licensed
Territory, nor sell, lease or transfer Ni-Zn batteries to third parties for
export, or sale, lease or transfer, provided however, that the Joint Venture may
(a) export products incorporating the Ni-Zn batteries, and (b) sell, lease or
transfer Ni-Zn batteries to third parties incorporating Ni-Zn batteries into
their products for export, if the manufacture of, and the incorporation of Ni-Zn
batteries into, such products takes place in the Exclusive Licensed Territory
and Non-Exclusive Licensed Territory.
2.3 New Developments. ERC or its assigns shall promptly from time to
time, but at least once a year, disclose to the Joint Venture any know-how or
patents of ERC or its assigns arising or issued after the Effective Date and not
previously disclosed to the Joint Venture, and if reasonably requested by the
Joint Venture, provide the Joint Venture, from time to time, with a list of all
patent applications filed by ERC relating to the Field. Similarly, the Joint
Venture shall promptly disclose to ERC or its assigns any inventions,
discoveries, know-how, technical information, improvements or other
developments, whether or not patentable, relating to the Licensed Technology,
that it develops or in which it acquires a licensable interest during the term
of this Contract. ERC or its assigns shall have a worldwide, perpetual
royalty-free license to use these new developments, for all purposes, outside
the Exclusive Licensed Territory.
2.4 Compliance with Law. The Joint Venture shall comply with all
applicable laws and regulations when using the Licensed Technology, including
any applicable U.S. export control laws, and shall take all steps required to
record and authenticate this Contract and obtain whatsoever Chinese approvals
are required to render it valid and enforceable.
2.5 Other Agreements. During the Term of the license granted under
Section 2.1 hereof ERC will not work independently or with any other entity in
the Field in the Exclusive Licensed Territory.
<PAGE>
III PAYMENTS
3.1 Transfer Payment. The total payment (the "Transfer Payment") (which
does not include royalties) for the transfer of the Licensed Technology is three
million U.S. dollars (US$3,000,000). This amount shall be paid to ERC by the
Joint Venture within sixty (60) days of the Effective Date of the Joint Venture
Contract.
3.2 Payment Procedures. All payments made pursuant to this Contract
including all royalty payments due under Part V hereof, shall be made by wire
transfer to an account designated by ERC or Xiamen net of any applicable taxes,
withholdings, duties owed by the Joint Venture or ERC or Xiamen (excluding, in
the case of ERC or Xiamen, only income or corporate excise taxes imposed by the
U.S. or P.R.China and its states and instrumentalities respectively).
Accordingly, whatever payment is due hereunder the Joint Venture shall make such
additional payments as are necessary to ensure that the net amounts actually
received by ERC or Xiamen will not be less that the amounts it would have
received if such taxes and the like were not required to be paid. All payments
hereunder shall be made in U.S. dollars or Chinese currency by wire transfer to
a bank account designated by ERC or Xiamen respectively. Where it is necessary
to convert Chinese currency into U. S. dollars for the purpose of calculating
and paying royalties under Part V of this Contract, the exchange rate shall be
determined by reference to the average of the daily exchange rates published by
the People's Bank of China on the day the conversion is made.
3.3 Reinvestment. ERC will reinvest the Transfer Payment of $3 million
received under Section 3.1 hereof or more to purchase a 51% equity interest in
this Joint Venture within 90 days of the Effective Date of the Joint Venture
Contract.
IV TECHNOLOGY TRANSFER
4.1 The Licensed Technology will be transferred to the Joint Venture for
use in the Field pursuant to this Contract upon receipt of the Transfer Payment
made in accordance with Section 3.2 hereof.
4.2 Such transfer shall take place within six (6) months of the Effective
Date of the Joint Venture Contract and at ERC's Facility in Danbury, CT to
persons designated by the Joint Venture. ERC will provide reasonable support to
transfer Licensed Technology at no cost to the Joint Venture in order for the
Joint Venture to duplicate the Ni-Zn battery performance set forth in Appendix
B. Persons designated by the Joint Venture to accept the transfer will have
reasonable access to all personnel and equipment at ERC's Facility to facilitate
the transfer.
<PAGE>
V. ROYALTIES
5.1 Royalty Payments. As additional consideration for the license granted
herein, the Joint Venture shall pay to ERC a royalty of ________ percent (____%)
on Net Sales of Ni-Zn batteries sold, leased or transferred in the Exclusive
Licensed Territory and ________ percent (____%) on such Net Sales in the
Non-Exclusive Territory. The contract establishing the Joint Venture shall
provide that the Joint Venture shall distribute to Xiamen from its Net Sales
income an amount equivalent to a royalty of ________ percent (____%) on Net
Sales of Ni-Zn batteries sold, leased or transferred in the Exclusive Licensed
Territory and ________ percent (____%) on such Net Sales in the Non-Exclusive
Licensed Territory The obligation to make royalty payments hereunder shall
commence with the first product sales, leases or transfers of Ni-Zn batteries
manufactured by the Joint Venture, its agents or affiliates and royalties shall
thereafter by payable semi-annually thirty (30) days after the close of each
June 30 and December 31 of each year in which products subject to royalty are
sold, leased or transferred. All payments shall be made in accordance with the
payment provisions in Sections 3.2 hereof.
5.2 Records and Reports. The Joint Venture shall keep accurate, detailed
records and books of account containing all information reasonably required to
compute and verify royalties due to ERC and Xiamen under this Contract,
including information concerning products manufactured and assembled and sales,
leases and other transfers by the Joint Venture, its agents and its affiliates.
Such books and records shall be maintained for at least five (5) years after the
year to which they relate. When rendering payment of royalties, the Joint
Venture shall provide ERC and Xiamen with a written accounting showing the
calculation of the royalty, the number of products to which the royalty is
applicable and the Net Selling Price. At its expense, ERC or Xiamen may, by its
designated independent public accountants, audit once annually all Joint
Venture, royalty records and books kept by the Joint Venture to confirm the
accuracy of the Joint Venture's calculations of the Net Selling Price, Net Sales
and royalties due; provided however, that in the event such an audit discloses
that the actual royalty amount due under this Contract for the applicable period
is more than five percent (5%) greater than the royalty amount reported by the
Joint Venture for such period, the Joint Venture shall pay the reasonable costs
of such audit incurred by ERC or Xiamen.
VI. TERM, TERMINATION AND LIABILITY
6.1Term and Termination for Default. The license granted to the Joint
Venture hereby shall continue for a period of _________ years (the "Term")
commencing on the Effective Date of this Contract unless earlier terminated as
provided in this Section. In the event that the Joint Venture (a) fails to make
any payment hereunder when and as due, (b) otherwise materially defaults in its
obligations hereunder and fails to remedy such default within sixty (60) days
after such default has been called to its attention by written notice from the
parties, or (C) is dissolved or liquidated, and in any such event, the other
party, at its
<PAGE>
option, may terminate this Contract upon sixty (60) days prior written notice,
and all its obligations and the license granted hereunder shall thereupon cease.
6.2 Non-Waiver. No failure or delay on the part of either Party to
exercise any of its rights under any provision of this Contract or for any one
or more defaults shall be construed to prejudice its rights in connection with
such provisions or any continuing or subsequent default.
6.3 Return of Information. Upon termination of this Contract for any
reason before the end of its Term the Joint Venture will promptly deliver and
return to ERC the Licensed Technology and all technical information it has
received from ERC or derived from the Licensed Technology. Thereupon, the Joint
Venture shall not use the Licensed Technology for any purpose and ERC shall have
the right by any legal means to determine that the License Technology is not
being used.
6.4 Liability and Indemnity. ERC makes no warranties concerning any
products developed or manufactured by the Joint Venture. The Joint Venture shall
be responsible for all uses it makes of the Licensed Technology, for compliance
with all laws and regulations, and for any representations, warranties and
liabilities to purchasers of its Ni-Zn batteries. The Joint Venture shall
indemnify and hold harmless ERC and its affiliates from any claims, suits,
costs, damages, losses or liabilities of any kind or nature whatsoever arising
from or in connection with the Joint Venture's use of the Licensed Technology or
sale, lease or other transfer of Ni-Zn batteries. Under no circumstances will
ERC be liable to the Joint Venture for any indirect special or consequential
damages, irrespective of the cause.
VII. CONFIDENTIAL INFORMATION
7.1 Confidentiality. In order to protect the proprietary interest of ERC
in the Licensed Technology, ERC and Xiamen shall enter into a confidentiality
agreement substantially in the form set forth in Appendix D prior to the
transfer of the Licensed Technology pursuant to Section 4.1. The Joint Venture
shall become a party to such confidentiality agreement following its
establishment.
VIII. SUB-LICENSING
8.1 Authorization. The Parties agree that the Joint Venture shall only be
authorized to sub-license Licensed Technology to third parties within China,
Hong Kong, Taiwan and Macao. All such sub-licenses shall be non-exclusive. The
Joint Venture shall determine the terms of such sub-license.
8.2 Revenue Sharing. The contract establishing the Joint Venture shall
provide for the sharing of certain revenue received by the Joint Venture as
provided in Appendix C hereof.
<PAGE>
IX. REPRESENTATIONS AND WARRANTIES
Each of ERC and Xiamen represents and warrants that:
(a) it is validly existing with the status of a legal person in its
jurisdiction of establishment as evidenced by its business license or
certificate of incorporation;
(b) it has full power and authority under law to enter into this Contract
and perform its obligations hereunder;
(C) the person executing this Contract on behalf of such Party has been
authorized to do so pursuant to a valid resolution of such Party's board of
directors; and
(d) this Contract when executed by such Party, will constitute the
legal, valid and binding obligations of that Party in accordance with its terms.
X. NOTICES
10.1 Notice Procedures. Any notice or other communication provided for
in this Contract shall be written in English or Chinese and shall be delivered
personally or be sent by telefacsimile or first class mail, postage prepaid:
If to Xiamen or the Joint Venture:
Xiamen Daily-Used Chemicals Co., Ltd.
and Xiamen ERC Battery Corp., Ltd.
722 Xiahe Road
Xiamen, Fujian, Province, China
Attention: Sheng Qi, General Manager
Tel: [0592-2074764]
Fax: [0592-20221931
If to ERC:
Energy Research Corporation
3 Great Pasture Road
Danbury, CT 06813
Attention: Jerry D. Leitman, President
Tel: 203-792-1460
Fax: 203-798-2945
<PAGE>
cc: Ross M. Levine, Manager,
Contracts & Assistant Secretary
or to such other persons, telefacsimile or address as a Party may specify by
notice in accordance with this Section to the other Party. Any notice or other
communication rendered in accordance with this Section shall be deemed to have
been duly given: if delivered personally, when left at the address referred to
above; if sent by airmail, fourteen(14) days after the postmark; or if, sent by
telefacsimile, upon electronic confirmation of receipt of the facsimile by the
transmitter.
XI. MISCELLANEOUS
11.1 Applicable Law. This Contract shall be governed by the laws of
the State of New York, excluding its choice of law principles. Any dispute,
controversy or claim arising out of or in connection with the Contract, or the
breach, termination or invalidity thereof, if not resolved by mutual agreement
between the Parties within sixty(60)days of notice thereof, shall be finally
settled, upon the notice of any Party, by arbitration in accordance with the
Rules of the Arbitration Institute of the Stockholm, Chamber of Commerce. The
arbitration shall be held in Stockholm, Sweden. There shall be one arbitrator
who shall be appointed by the Parties within sixty(60) days of a notice of
arbitration. If the Parties fail to agree on an arbitrator within such time
period, the arbitrator shall be appointed by the Arbitration Institute of the
Stockholm Chamber of Commerce. Such arbitrator shall have the authority to award
any remedy or relief proposed by any Party. Any award rendered shall be rendered
in both the English and Chinese languages and shall be final and binding on the
Parties as from the date rendered. Judgment upon the award may be entered in any
court having jurisdiction thereof. Notwithstanding any dispute under
arbitration, the Parties shall continue to perform this Contract, except for the
matter under dispute. Each Party agrees that should any arbitration or legal
proceedings be brought against it or its assets in relation to the performance
of this Contract no immunity (sovereign or otherwise) shall be claimed by or on
behalf of itself with respect thereto or to any award made in respect thereof.
11.2 Legality. The Parties each declare that~ to the best of their
respective knowledge, as of the date first written above, there are no laws or
regulations in effect that materially limit or restrict their ability to fully
perform their obligations under this Contract.
11.3 Amendment.. This Contract may not modified or amended except by a
writing duly signed by an authorized representative of each Party.
11.4 Effect of Unenforceable Provisions. In the event any one or more
of the provisions contained in this Contract are found to be invalid, illegal or
unenforceable in any respect, such provision(s) shall be deemed severed and
deleted herefrom and the Validity, legality and/or enforceability of the
remaining pro-visions contained herein shall not in any way be affected or
impaired thereby, and the Contract shall be construed insofar as possible to
reflect the commercial basis on which the Parties entered into the Contract.
<PAGE>
11.5 Government Information, Nothing in this Contract shall authorize
the disclosure of, or access to, classified or restricted information, material
or know-how of the Government of the United State of America to persons not
authorized or licensed to disclose or receive such. classified or restricted
information.
11.6 Relationship. The relationship of the Parties herein shall be
that of independent contractors and nothing herein contained shall be deemed to
create any agency relationship.
11.7 Assignment. No Party may assign its interest in this Contract
without the written consent of the other Party, except to a wholly-owned or
majority-owned subsidiary of the assigning Party.
11.8 Entire Contract. The terms and provisions herein contained
constitute the entire agreement between the Parties as to the subject matter
thereof and supersede all previous and contemporaneous communications,
representations, contracts or understandings, whether written or oral, between
the Parties hereto with respect to the subject matter hereof. This Contract is
written in both the English and Chinese languages; both versions shall be
equally valid.
11.9 Counterparts. This Contract may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures hereto and thereto were upon the same instrument.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the Parties
hereto have caused this Contract to be duly executed and delivered on their
respective behalf in a manner binding upon them by their duly authorized
officers, whose signatures appear below, as of the date first above written.
For and on behalf of:
XIAMEN DAILY-USED CHEMICALS CO., LTD.
By: /s/ Shen Qi
Title: General Manager
For and on behalf of:
ENERGY RESEARCH CORPORATION
By: /s/ Jerry D. Leitman
Title: President
<PAGE>
APPENDIX A
DEFINITION OF NON-EXCLUSIVE LICENSED
COUNTRIES IN SOUTHEAST ASIA
For purposes of this Contract the non-exclusive license countries in the
Southeast Asia area are as follows:
1. Brunei
2. Myanmar (formerly known as Burma
3. Cambodia
4. Indonesia
5. Lao
6. Malaysia
7. Philippines
8. Singapore
9. Thailand
10. Vietnam
<PAGE>
APPENDIX B
NICKEL-ZINC BATTERY PERFORMANCE
Battery Size: __ Ampere-hour __ Volt (__7-cell) Module
Cycle Life: ___ to ___% Depth of Discharge at the ___ Discharge Rate at
_____degrees C
Specific Energy: ___ Wh/kg at the ___ Discharge Rate at _____degrees C
Normal Recharge Time: ___ Hrs at ___ oC
<PAGE>
APPENDIX C
SHARING OF SUB-LICENSE REVENUE
Capitalized terms used herein shall have the meanings ascribed to them
in the Technology Transfer and License Contract dated May 29,1998 between Energy
Research Corporation and Xiamen Daily-Used Chemicals Co., Ltd.
It is intended that the contract establishing the Joint Venture will
provide for a sharing by ERC and -Xiamen of the payments received by the Joint
Venture pursuant to sub-license agreements entered into between the Joint
Venture and third parties (hereinafter referred to as "Sub-license Revenue") as
follows:
1. Subject to the exception in paragraph 3 below, the first US$ ______
of Sub- license Revenue (excluding Royalties) shall be distributed by the Joint
Venture to Xiamen. Thereafter, ______ of the Sub-license Revenue (excluding
Royalties) shall be distributed by the Joint Venture to ERC and _______ of the
Sub-license Revenue (excluding Royalties) shall be distributed by the Joint
Venture to Xiamen.
2. In the event the Joint Venture receives a non-exclusive license or
sub-license to manufacture Ni-Zn batteries for electric or hybrid electric
vehicles, provided Xiamen has received Sub-license Revenue (excluding
Royalties)equal to US$ ______, then, following the Joint Venture's receipt of
such non-exclusive license, the next US$ ______ in Sub-license Revenue
(excluding Royalties) received by the Joint Venture shall be distributed by the
Joint Venture to ERC. Thereafter, Sub-license Revenue(excluding Royalties) shall
be distributed by the Joint Venture in accordance with the last sentence of
paragraph 1 above.
3. In the event the Joint Venture receives an exclusive license to
manufacture Ni-Zn batteries for electric or hybrid electric vehicles, then,
following the Joint Venture's receipt of such exclusive license, the first US$
______ in Sub-license Revenue (excluding Royalties) received by the Joint
Venture shall be distributed by the Joint Venture to ERC. Thereafter, Sub-
license Revenue (excluding Royalties) shall be distributed by the Joint Venture
in accordance with the last sentence of paragraph 1 above.
4.Sub-license Royalties in the Exclusive Territory are intended to be
distributed ______ to ERC and ______ to Xiamen.
<PAGE>
APPENDIX D
FORM OF
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement(the "Agreement") dated May 29,1998, is
entered into among Xiamen Daily-Used Chemicals Co., Ltd., ("Xiamen") having its
legal address at 722 Xiahe Road, Xiamen, People's Republic of China and Energy
Research Corporation,("ERC") having its legal address at 3 Great Pasture Road,
Danbury, Connecticut 06813 USA (each respectively a "Party" and collectively,
the "parties" ). This Agreement is being entered into pursuant to and in
fulfillment of the requirements of Section VH of the Technology Transfer and
License Contract(the "Contract") dated May 29,1998 between Xiamen and ERC.
Accordingly, for good and valuable consideration, and in consideration
of the mutual promises contained herein, all of which is hereby acknowledged,
the Parties agree as follows:
1. The Parties shall, at all times, both during the term of the Contract and for
ten(10) years following its expiration or termination, keep in confidence all
Confidential Information(as defined below in paragraph 2), and shall not use the
Confidential Information of another Party except in accordance with paragraph 3
below or pursuant to the prior written consent of such Party. The Parties shall
take all necessary measures to maintain the confidentiality of Confidential
Information, including formulating rules and procedures satisfactory to the
Patties to prevent unnecessary access to an unauthorized disclosure of
Confidential Information.
2. "Confidential Information" shall mean any and all technical and non-technical
proprietary information or know-how, whether or not protected by patent,
copyright or trade secret, that is related to existing and future technology,
products, product development, improvements, research, engineering, business
management, sales, marketing, financial affairs, or any other information of a
confidential nature relating to any party.
3. The Parties may disclose Confidential Information to their officers and
employees and to their legally authorized agents, but only to the extent
necessary for such Party to carry out its obligations under the Contract. The
Parties shall ensure that all individuals or entities having access to
Confidential Information are bound by confidentiality agreements at least as
restrictive as this one.
4. Each Party hereby agrees to indemnify and hold the other Party harmless
against any claim, loss, cost, expense, liability or damage caused by the
unauthorized disclosure of Confidential Information by such Party.
5. This Agreement shall be governed by the laws of the state of New York without
<PAGE>
any regard to the principles of the conflict of laws thereof. Any dispute,
controversy or claim arising out of or in connection with this Agreement shall
be finally settled by arbitration in accordance with Section 11. 1 of the
Contract.
6. This Contract may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures hereto and
thereto were upon the same instrument.
IN WITNESS WHEREOF, and intending to be legally bound, the Parties hereto
have caused this Agreement to be duly executed and delivered on their respective
behalf by their duly authorized officers, whose signatures appear below, as of
the date first written above.
XIAMEN DAILY-USED CHEMICALS CO., LTD.
By: /s/ Shen Qi
Title: General Manager
ENERGY RESEARCH CORPORATION
By: /s/ Jerry D. Leitman
Title: President
<PAGE>
Confidential treatment has been requested
for portions of this document. Deleted
portions are identified with a dotted line
under the deleted information.
----------------------
COOPERATIVE JOINT VENTURE CONTRACT
BETWEEN
XIAMEN THREE CIRCLES CO, LTD.
AND
ENERGY RESEARCH CORPORATION
FOR
THE ESTABLISHMENT
OF
XIAMEN THREE CIRCLES-ERC BATTERY CORP.,
LTD,
A
SINO-FOREIGN
MANUFACTURING JOINT VENTURE
<PAGE>
Cooperative Joint Venture Contract
Between Xiamen Three Circles Co., Ltd.
and Energy Research Corporation
General Provisions
In accordance with the "Law of the People's Republic of China on
Chinese-Foreign Cooperative Joint Ventures" and other relevant Chinese
laws and regulations and with the principles of equality and mutual
benefits and through friendly consultations, China Xiamen Three Circles
Co., Ltd. and Energy Research Corporation have agreed to jointly invest in
establishing a manufacturing joint venture company in Xiamen City, Fujian
Province, the People's Republic of China and hereby enter into this
Contract as follows (the "Contract"):
Parties of the Joint Venture
Article 1. Parties to this Contract are as follows:
Xiamen Three Circles Co., Ltd. ("Party A"), registered in Xiamen, China,
having its legal address at 722 Xiahe Road, Xiamen, China.
Legal representative: Name: Lin Kewei
Title: Chairman
Nationality: Chinese
Energy Research Corporation ("Party B"), registered in the United
States, having its legal address at Three Great Pasture Road, Danbury,
Connecticut.
Legal representative: Name: Jerry Leitman
Title: President
Nationality: United States of America
Establishment of the Joint Venture
Article 2. In accordance with the "Law of the People's Republic of China
on Chinese- Foreign Cooperative Joint Ventures" and other relevant Chinese
laws and regulations, both Party A and Party B agree to set up Xiamen
Three Circles-ERC Battery Corp., Ltd. a manufacturing joint venture
company (the "Joint Venture") in the People's Republic of China
(hereinafter also referred to as "China").
Article 3. The name of the Joint Venture shall be {Chinese Text }
inChinese and Xiamen Three Circles-ERC Battery Corp. Ltd. in English.
The legal address of the Joint Venture shall be at Gulangyu Industrial
Zone, Yue Hua Dong,
<PAGE>
Xiamen City, Fujian Province.
Article 4. All activities of the Joint Venture shall be in compliance with and
protected by the laws and pertinent rules and regulations of the People's
Republic of China.
Article 5. The form of organization of the Joint Venture shall be a limited
liability company with legal person status. Each Party's liability for the
obligations of the Joint Venture and otherwise shall be limited in all respects
to the extent of the funds it has actually contributed to the Joint Venture's
registered capital. In no event and under no circumstances shall any Party's
liability hereunder or otherwise exceed such amount. The profits of the Joint
Venture shall be shared by the Parties in accordance with this Contract.
The Purpose and Scope of Business
Article 6. The purpose for forming the Joint Venture is to commercialize certain
technologies of Party B through the establishment of the Joint Venture and to
enhance the economic cooperation in energy between China and the United States.
Article 7. The business scope of the Joint Venture shall be to (I) accept a
license of the technology of Party B specified in the Technology Transfer and
License Contract attached hereto as Annexure 1 (hereinafter referred to as the
"TLC"), (ii) manufacture nickel zinc electrochemical power sources ("Batteries")
with the technology received pursuant to the TLC, (iii) sell, lease or otherwise
transfer the Batteries both inside and outside China in accordance hereof, and
(iv) sub-license to third-parties the technology made available to the Joint
Venture pursuant to the TLC.
Included in the business scope of the Joint Venture shall be the
manufacture of Ni-Zn batteries for miner's lamps, two and three wheel vehicles,
industrial traction equipment and off-road golf carts, boats, and all terrain
vehicles.
It is expected that the annual sales value of the Joint Venture's Battery
production shall be US _________, ___% of which will be sold in the foreign
market.
Total Amount of Investment and Registered Capital
Article 8. The total investment of the Joint Venture is US$_________. The
registered capital of the Joint Venture is US$6,100,000. The difference between
the registered capital of the Joint Venture and its total investment amount
shall be provided to the Joint Venture either by the Parties, pro rata, in the
form of additional capital contributions or shareholder loans or shall be
provided to the Joint Venture in the form of loans by third party lenders.
Article 9. The aggregate amount of registered capital to be contributed by Party
A and Party B to the Joint Venture is US$6,100,000. Party A shall, in accordance
with Article
<PAGE>
10, contribute the Renminbi equivalent of US$3,019,500, accounting for 49.5% of
the Joint Venture's registered capital ("Party A's Ownership Percentage") and
Party B shall contribute US$3,080,500, accounting for 50.5% of the Joint
Venture's registered capital ("Party B's Ownership Percentage").
Article 10. Party A shall, in accordance with Article 9, make its contribution
to the registered capital of the Joint Venture in cash in Renminbi by reference
to the middle rate for the exchange of United States dollars for Renminbi
published by the People's Bank of China on the date of contribution and Party B
shall make its contribution to the registered capital of the Joint Venture in
cash in United States dollars on the basis of a letter of credit (the "Letter of
Credit") executed with a bank by Party B in favor of the Joint Venture.
Article 11. The registered capital of the Joint Venture shall be contributed in
a single installment by Party A and Party B in accordance with their respective
Ownership Percentages within 3 months after the issuance of a business license
to the Joint Venture. Party B shall provide the Joint Venture with the Letter of
Credit at the earliest possible date following the issuance of a business
license to the Joint Venture. Party A shall make its contribution to the
registered capital of the Joint Venture in a single installment within twenty
(20) days of the Joint Venture's receipt of the Letter of Credit produced by
Party B. Party B's capital contribution shall be made in a single ro installment
in accordance with the terms of the Letter of Credit.
Article 12. Transfer or assignment of all or part of a Party's Ownership
Interest in the registered capital of the Joint Venture to a third party shall
be permitted only with the consent of the other Party and the approval of the
examination and approval authority.
Responsibilities of the Parties
Article 13. Party A shall be responsible for:
(a) handling such matters as filing with the relevant Chinese departments
applications for approval and registration of establishment of the Joint Venture
and obtaining of the business license thereof;
(b) making its registered capital contribution to the Joint Venture in cash
within the time limit and in accordance with Articles 9 to 11;
(c) assisting Party B's foreign personnel in obtaining their entry -visas,
work permits and in going through customs procedures;
<PAGE>
(d) assisting the Joint Venture in obtaining land and facilities deemed
suitable by party B for the Joint Venture's operations;
(e) assisting the Joint Venture, with the selection and purchase of
machinery, equipment and materials inside China;
(f) assisting the Joint Venture in marketing sales and distributions of
Batteries within China;
(g) handling other matters entrusted to it by the Board Of Joint Venture;
and
(h) pay taxes on its income as required by law.
Party B shall be responsible for:
(a) making its registered capital contribution to the Joint Venture in cash
within the time limit and in accordance with Articles 9 to 11;
(b) assisting the Joint Venture with the selection and purchase of
machinery, equipment and materials outside China;
(c) assisting the Joint Venture in marketing, sales and distribution of
Batteries outside of China;
(e) assisting Joint Venture working personnel in obtaining visas and in
going through customs procedures for entrance to the U.S. for necessary
training;
(e) handling matters in respect of export licenses for technology and other
technology related matters set forth in the TLC;
(f) handling other matters entrusted to it by the Board of Directors of the
Joint Venture; and
(g) pay taxes on its income as required by law.
License; Battery Production; Sub-license; Revenue
Article 14. The Joint Venture shall enter into and become a party to the TLC.
Based on the Joint Venture's scope of business, it is anticipated that the Joint
Venture will derive revenue principally from two sources: (I) "Net Sales" (as
such term is defined in
<PAGE>
the TLC) of Batteries ("Battery Revenue") and (ii) from payments to the Joint
Venture under sub-licenses of Party B's technology ("Sub-license Revenue"),
including revenue received from the payment for the transfers of technology
(Sub-license Transfer Revenue") and revenue received from the payment of
royalties for use of such technology ("Sub-license Royalty revenue"). The Joint
Venture shall deposit the funds it receives in respect of Battery Revenue into a
bank account (the "Battery Revenue Account") and the funds it receives in
respect of Sub-license Revenue into another bank account (the "Sub-license
Revenue Account"). The Sub-license Revenue Account shall have two sub-accounts.
Sub-account A ("Sub-account A") shall contain all Sub-license Transfer Revenue.
Sub-account B ("Sub-account B") shall contain all Sub-license Royalty Revenue.
The Joint Venture shall allocate the costs and expenses of producing Battery
Revenue to the Battery Revenue Account and the costs of producing Sub-license
Revenue to the Sub-license Revenue Account in accordance with appropriate
accounting principles and such other guidelines as the Board of Directors of the
Joint Venture may establish. The revenue available for distribution to the
Parties from the Battery Revenue Account and the Sub-license Revenue Account,
and all other revenue or funds available to the Joint Venture for distribution
to the Parties, shall be distributed to the Parties in accordance with the
priority specified in the schedule set forth in Article 33.
Non-Competition
Article 15. The Parties hereby agree not to compete, whether directly or
indirectly, with each other with respect to the Field (as defined in the TLC) of
use of the technology to be provided under the TLC or with the business of the
Joint Venture in China (including Hong Kong, Taiwan and Macau) and to cause
their affiliated or associated companies and entities to be likewise bound not
to compete, in each case for the duration of the Joint Venture's term and for
two (2) years following the expiration or early termination of this Contract.
Board of Directors
Article 16. The establishment of the Board of Directors of the Joint Venture
shall take place on or after the date of the issuance of the business license to
the Joint Venture.
Article 17. The Board of Directors of the Joint Venture shall consist of five
Directors, two of whom shall be appointed by Party A and three of whom shall be
appointed by Party B. The Chairman of the Board shall be appointed by Party B
and the Vice Chairman by Party A. Each Director, Chairman and Vice Chairman
shall be appointed for a term of three years and may serve consecutive terms if
reappointed by the Party which originally appointed him.
Article 18. The highest governing authority of the Joint Venture shall be
its Board of
Directors (the "Board of Directors"). All decisions of the Board of
Directors shall be made by a simple majority vote of the members of the Board of
Directors, except
<PAGE>
for decisions regarding the following items that by law require the unanimous
approval of the Board of Directors:
(a) amendment of the Joint Venture's Articles of Association;
(b) increase in the registered capital of the Joint Venture;
(c) merger or division or change in the legal form of organization of the
Joint Venture;
(d) termination and dissolution of the Joint Venture; and
(e) mortgage of all the assets of the Joint Venture.
The Joint Venture shall not take out any loans or incur any debts or use the
assets of the Joint Venture as collateral without the prior approval of its
Board of Directors in a duty adopted resolution.
Article 19. The Chairman of the Board of Directors shall be the legal
representative of the Joint Venture. Should the Chairman be unable to perform
his responsibilities and duties, he may authorize the Vice Chairman to represent
him temporarily.
Article 20. The Board of Directors shall convene at least one meeting every
year, provided that no meeting shall be held unless notice of such meeting has
been waived or provided at the last known address, telex or fax of each director
or given in accordance with Article 51 hereof. In principal, the location for
holding such meeting shall alternate on an annual basis between the U.S. and
China. No less than two-thirds (2/3) of the Board of Directors shall constitute
a quorum, provided that no meeting of the Board of Directors shall be held for
matters requiring the unanimous approval of the Board of Directors unless all
Directors are present at such meeting. Meetings of the Board of Directors shall
be called and presided over by the Chairman of the Board of Directors. The
Chairman may convene interim meetings of the Board of Directors at the request
of not less than one third of all Directors. The Chairman shall establish the
agenda for Board of Directors' meetings and send a copy of the agenda to all the
members of the Board of Directors no less than fourteen (14) days prior to such
meetings. Minutes of all meetings shall be taken in English and Chinese, shall
be signed by all the members of the Board of Directors and filed with the
records of the Joint Venture.
Operation and Management Organization
Article 21. The Joint Venture shall establish an operation and management
organization responsible for the daily operations and management of the Joint
Venture. The operation
<PAGE>
and management organization shall have a General Manager and a Deputy General
Manager. The General Manager shall be nominated by Party A and approved and
appointed by the Board of Directors for a term of three years. Where the Board
of Directors determines that additional deputy general managers are needed, the
General Manager may nominate such additional deputy general managers for
approval and appointment by the Board of Directors.
Article 22. The responsibilities and duties of the General Manager shall be to
carry out resolutions adopted by the Board of Directors and to organize and
direct the day operations and management of the Joint Venture. The General
Manager shall maintain records of all actions taken by the Joint Venture and
cause the Joint Venture to implement financial reporting and accounting systems
that will enable the Joint Venture to produce financial reports that meet the
requirements of the laws of China. The Deputy General Manager(s) shall assist
the General Manager in his work.
The operation and management organization of the Joint Venture may have
several departmental managers, who shall be responsible for the work mi each
department respectively and for handling matters entrusted to them by the
General Manager and Deputy General Manager(s). Such departmental managers shall
be responsible to the General Manager and Deputy General Manager(s).
Article 23. In case of graft, dereliction of duty, or for any other reason, the
General Manager and Deputy General Manager(s) may be removed and replaced at any
time by a resolution of the Board of Directors.
Purchase of Equipment
Article 24. In the purchase of required raw materials, fuel, parts, equipment,
means of transportation and articles for office use, the Joint Venture shall
give preference to the purchase of such items in China provided that the terms
and conditions (including with respect to price and quality) are the same as
those available from sources outside China.
Article 25. If the Joint Venture's Board of Directors entrusts Party B to select
and purchase equipment on overseas markets, persons appointed by Party A shall
be permitted to attend any overseas meetings arranged by Party B's personnel
with potential sellers of such equipment.
Labor Management
Article 26. The recruitment, employment dismissal and resignation, wages, labor;
welfare, rewards, penalties, social insurance, housing allowances, traveling
standards and other matters concerning the employees of the Joint Venture
(including its senior
<PAGE>
management personnel) shall be determined by the Board of Directors. With
respect to labor contracts, the Joint Venture shall either enter into labor
contracts with the trade union of the Joint Venture or labor contracts with
individual employees to the extent required by law. All labor contracts, after
their execution, shall be filed with the local labor management department.
Article 27. The treatment of personnel recommended to the Joint Venture by Party
B shall be determined by the Board of Directors by reference to the treatment of
personnel of the Joint Venture in similar employment situations with similar
backgrounds and training.
Taxes, Finance and Auditing
Article 28. The Joint Venture shall pay taxes in accordance with the
stipulations of the laws of China.
Article 29. Employees of the Joint Venture shall pay individual income tax in
accordance with the stipulations of "Individual Income Tax Law of the People's
Republic of China".
Article 30. The Joint Venture's Board of Directors shall allocate reserve funds,
enterprise expansion funds and bonus and welfare funds for its employees in
accordance with the laws of China. The annual amount of such allocations shall
be decided by the Board of Directors.
Article 3l. The fiscal year of the Joint Venture shall be from January 1st to
December 31st of each year. All vouchers and receipts of the Joint Venture shall
be written in Chinese, and translated into English if requested by Party B,
The Joint Venture shall open Renminbi and/or foreign exchange bank
accounts in currencies used by the Joint Venture with banks inside China and/or
banks outside China (as approved by relevant Chinese authority) as the Board of
Directors determines to be required consistent with the laws of China. The Joint
Venture shall make all distributions hereunder to Party B in United States
dollars. Party A shall assist the Joint Venture in obtaining all necessary
approvals to allow it to (I) exchange Remninbi for foreign exchange through an
authorized foreign exchange bank and (ii) transfer foreign exchange outside of
China to Party B in respect of payments to Party B of distributions hereunder
and in respect of amounts due to it under the TLC and otherwise. If at any time
the Joint Venture does not have sufficient foreign exchange to pay Party B in
full its share of distributions due hereunder or amounts due under the TLC or
otherwise, Party A shall assist the Joint Venture in obtaining the necessary
foreign exchange.
Article 32. The annual examination and audit of the financial statements of the
Joint Venture shall be conducted by an international accounting firm registered
to do business in China and approved by the Board of Directors and the results
thereof shall be reported
<PAGE>
to the Board of Directors and the General Manager. The cost of employing such
accounting firm shall be borne by the Joint Venture.
At any other time, if either Party considers it necessary to employ another
registered auditor (including an auditor registered in another country) to
undertake a financial audit and examination of the Joint Venture's financial
affairs, that Party may do so and all expenses resulting therefrom shall be
borne solely by that Party. Each Party shall have the right to inspect the books
of account and other financial records of the Joint Venture at any time during
normal business hours and to make photocopies of any materials or records.
Distributions
Article 33. All funds received by the Joint Venture shall be deposited into its
bank accounts and withdrawn from its bank accounts in accordance with guidelines
established by the Board of Directors and this Contract.
Following the payment of all costs required by law and of the operating
expenses of the Joint Venture, revenue of the Joint Venture, which according to
law may be distributed to the Parties, shall be distributed to the Parties in
accordance with the following schedule:
A. Distributions to the Parties from Sub-account A of the Sub-license
Revenue Account shall be made at the end of each year after completion of the
annual audit in the following order of priority:
1. first, all of the revenue in Sub-account A shall be distributed to
Party A until Party A receives an aggregate amount of distributions
of revenue equal to US$_________; and
2. thereafter,_________ of the revenue in Sub-account A shall be
distributed to Party B and _________ of the revenue in such account
shall be distributed to Party A.
Distributions to the Parties from Sub-account B of the Sub-license Revenue
Account shall be made at the end of each year _________ _________ to Party
B and _________ to Party A.
B. Distributions to the Parties from the Battery Reveshallccount be made
at the end of each quarter in the following order of priority:
1. first, all of the revenue in such account shall. be distributed to
Party B until Party B receives an amount equivalent to
__________________ percent (___%) of Net Sales in the Exclusive
Licensed Territory (as such term is defined in the
<PAGE>
TLC) and __________________ percent (___%) of Net Sales in the
Non-Exclusive Licensed Territory (as such term is defined in the
TLC), in each case, as calculated for the relevant period;
2. secondly, all of the revenue in such account shall be distributed to
Party A until Party A receives an amount equivalent to
__________________ percent (___%) of Net Sales in the Exclusive
Licensed Territory (as such term is defined in the TLC) and
__________________ percent (___%) of Net Sales in the Non-Exclusive
Licensed Territory (as such term is defined in the TLC), in each
case, as calculated for the relevant period; and
3. thereafter, the revenue in such account shall be distributed to the
Parties in accordance with the respective Parties' Ownership
Percentages at the end of each year after completion of the annual
audit.
C. Distributions to the Parties of revenue or other funds of the Joint
Venture that are not Sub-license Revenue or Battery Revenue, if any,
shall be distributed to the Parties at the end of each year after
completion of annual audit in accordance with the respective.
Parties' Ownership Percentages.
Prior to the end of each quarter of each year, the General Manager shall
prepare the Joint Venture's previous quarter's balance sheet, profit and loss
statement, statement of changes in financial position and cash flow, and
statement of the amount of distributions to which the Parties are entitled based
on the foregoing schedule and submit the same to the Board of Directors for
examination and approval.
Duration of the Joint Venture
Article 34. The Joint Venture shall. commence on the date on which the business
license of the Joint Venture is issued and shall continue, unless earlier
terminated in accordance with Article 42 hereof, for ________ years following
such date.
Disposal of Assets Upon Expiry of the Duration
or Early Termination of the Joint Venture
Article 35. Upon (I) the expiry of the duration of the Joint Venture or (ii)
early termination of the Joint Venture in accordance with Article 42, the Joint
Venture shall be liquidated and dissolved and its assets disposed of in
accordance with the laws of
<PAGE>
China and the provisions of this Article. Pursuant thereto, the Board of
Directors shall appoint a committee (consisting of 3 members, one nominated by
Party A and two nominated by Party B) to oversee the liquidation and disposal of
the joint Venture's remaining assets. The committee shall value the Joint
Venture's assets based on their market value as determined by an independent
international appraiser appointed by the Board of Directors and shall exercise
its best efforts to auction the assets and obtain the highest price in foreign
exchange for them. In any such auction, the Parties shall be entitled to bid for
the purchase of the assets of the Joint Venture. Upon completion of the
liquidation process, the Joint Venture's assets shall be distributed to the
Parties in accordance with their Ownership Percentages. Should the Joint Venture
be terminated earlier pursuant to Article 42, then, concurrent with the
liquidation of any of the joint Venture's assets, the Joint Venture shall
procure the return to the Joint Venture of all technology, technical
documentation(including any and all copies)and know-how provided to licensees of
the Joint Venture and return to Party B the same along with all the technology,
technical documentation(including any and all copies)and know-how provided to
the Joint Venture by Party B pursuant to the TLC.
Insurance
Article 36. Insurance by the Joint Venture against various kinds of risks shall
be taken out with the People's Insurance Company of China or any other insurance
company registered to do business in China. The type, value and duration of the
insurance purchased by the Joint Venture shall be decided by the Board of
Directors.
Amendment to, Alteration and Termination of the Contract;
Confidentiality
Article 37. Amendments to or alterations of this Contract shall come into force
only after a written agreement with respect thereto has been signed by Party A
and Party B and approval by the original examination and approval authority has
been obtained.
Article 38. In order to protect the proprietary interests of Party B in the
technology that is the subject of the TLC, the Joint Venture shall enter into
and become a party to the Confidentiality Agreement attached to the TLC as
Appendix D thereto.
Article 39. Should the Joint Venture be unable to continue its operations or to
achieve the business purposes stipulated in the Contract as a result of the
failure of one Party to fulfill its obligations under the Contract or the
Articles of Association of the Joint Venture, or as a result of the material
breach by one Party of the stipulations of this Contract or the Articles of
Association, this Contract shall, at the option of the non-defaulting Party, be
deemed to have been terminated by the defaulting Party unilaterally. In such
case the non-defaulting Party, in addition to any other rights it may have,
shall have the right to apply to the original examination and approval authority
for termination of this Contract in accordance with Article 42.
<PAGE>
Liabilities for Breach of Contract
Article 40. Should either Party A or Party B fail to make its capital
contributions in accordance with the provisions set forth in Article 11 of this
Contract, the breaching Party shall pay to the other Party an amount equal to
one percent (1%) of its contribution that is overdue as liquidated damages per
month, starting from the first month in which its contribution is overdue.
Should the breaching Party fail to pay its capital contribution for more than
three (3) months, the breaching Party shall pay an additional amount equal to
three percent (3%) per month of its overdue contribution. If such failure
exceeds six (6) months, the non-breaching Party shall have the right, in
addition to any other right it may have, to apply to the original examination
and approval authority for termination of this Contract in accordance with
Article 42.
Article 41. In the event of a material breach of this Contract by one Party, the
other Party shall be relieved of its continued performance hereunder.
Early Termination
Article 42. A Party shall have the right at any time to give written notice to
the other Party of its desire to terminate this Contract and dissolve the Joint
Venture (a "Termination Notice") upon the occurrence of any of the following
significant events:
(a) the other Party commits a material breach of this Contract, the
Articles of Association, the TLC, or the Confidentiality Agreement and such
breach is not remedied within sixty (60) days of written notice thereof to the
breaching Party;
(b) the other Party becomes bankrupt, or is the subject of proceedings for
liquidation or dissolution, or ceases to carry on its present business;
(c) the Joint Venture is unable to pay its debts as they becom or is in
receipt of a petition to declare it bankrupt or insolvent or the Joint Venture
has incurred losses for a period of three (3) consecutive years after the issue
of its business license and the cumulative amount of such losses exceeds 100% of
the registered capital of the Joint Venture; or
(d) a material part of a Party's economic benefits under the Contract
cannot be realized on account of the action of a government authority.
A meeting of the Board of Directors shall take place within two (2) months
following the date of a Party's receipt of a Termination Notice, unless by the
date of such meeting a proposal to resolve the matter has been made to and
accepted in writing by the Party that served the Termination Notice. If by the
date of such meeting a proposal to resolve the matter has not been made or, if
made has not been accepted, then each Party shall be
<PAGE>
deemed to have provided the other Party with its consent to terminate this
Contract and dissolve the Joint Venture .
In any such case, the Parties shall cause all members of the Board of
Directors appointed by them to attend or be represented by proxy at such meeting
and to vote in such a manner that the Board of Directors shall adopt unanimous
resolutions to (I) terminate this Contract, (ii) dissolve the Joint Venture,
(iii) liquidate its assets in accordance with Article 35 and (iv) submit an
application to the relevant approval authorities to bring the foregoing
resolutions into effect. Failure of a Party to cause all of its members of the
Board of Directors to vote as aforesaid in accordance with this Article shall be
deemed sufficient evidence of a dispute entitling the other Party to proceed to
arbitration in accordance with Article 44.
Applicable Law
Article 43. Except as set forth in Article 44, the execution, validity,
interpretation and performance of this Contract shall be governed by the laws of
the People's Republic of China.
Settlement of Disputes
Article 44. Any dispute, controversy or claim arising out of or in connection
with this Contract, or the breach, termination or invalidity thereof, if not
resolved by mutual agreement between the Parties within sixty (60)days of notice
thereof, shall be finally settled by arbitration in accordance with the Rules of
the Arbitration Institute of the Stockholm Chamber of Commerce. The arbitration
shall be held in Stockholm, Sweden. The arbitration proceedings shall be
governed by the laws of Sweden without any regard to the principles of the
conflict of laws thereof. The text of the award shall be rendered in both the
English and Chinese languages. There shall be one arbitrator who shall be
appointed by the Parties within sixty (60)days of the respondent's receipt of
the claimant's request for arbitration. If the Parties fail to agree on the
appointment of an arbitrator within such time period, such appointment shall be
made by the Arbitration Institute of the Stockholm Chamber of Commerce within,
to the extent possible, twenty (20) days of the written request of any Party.
The arbitrator shall have the authority to award any remedy or relief,
including, without limitation, a declaratory judgment, specific performance of
any obligation created under this Contract or the issuance of an injunction. Any
award rendered shall be final and binding on the Parties as from the date
rendered. Judgment upon the award may be entered in any court having
jurisdiction thereof. The costs of any arbitration initiated pursuant to this
Article 44 (including, without limitation, the costs of legal counsel) shall be
borne by the Party losing the arbitration.
All claims or disputes between the Parties to this Contract, including with
respect to agreements contemplated herein (e.g. the TLC, Confidentiality
Agreement, and other
<PAGE>
agreements among the Parties and/or the Joint Venture), that arise under or in
connection with this Contract or such agreements, may be brought in a single
arbitration initiated in accordance with this Article 44.
Each Party agrees that should any arbitration or legal proceedings be brought
against it or its assets in relation to the performance of this Contract, no
immunity (sovereign or otherwise) shall be claimed by or on behalf of itself
with respect thereto or to any award made in respect thereof.
Article 45. If any dispute is under arbitration, except for the matters under
dispute, the Parties shall continue to perform this Contract.
Language
Article 46. This Contract is written in Chinese and English. Both versions shall
be equally authentic and valid.
Miscellaneous Matters
Article 47. This Contract shall be submitted for approval to the relevant
authorities of the People's Republic of China, and shall come into force on the
date of such approval.
Article 48. This Contract (including all Annexures) shall constitute the entire
agreement of the Parties in connection with the subject matter hereof and shall
<PAGE>
supersede all previous and contemporaneous discussions, negotiations, letters or
agreements (whether written or oral) between the Parties.
Article 49. The invalidity of any provision of this Contract shall not affect
the validity of any other provision of this Contract.
Article 50. The provisions of the Articles of Association of the Joint Venture
shall be construed in accordance with the provisions of this Contract to the
effect that the provisions of this Contract shall prevail if there is any
contradiction or inconsistency between the provisions of this Contract and the
pro-visions of the Articles of Association.
Article 51. Any notice or other communication provided for in this Contract
shall be written in English or Chinese and shall be delivered personally or be
sent by airmail or sent by facsimile as follows:
If to Party A:
Xiamen Three Circles Co., Ltd.
722 Xiahe Road,
Xiamen City, Fujian Province
China
Postal Code: 361004
Attention: Mr. Shen Yi, General Manager
Telephone: 86-592-2074764
Fax: 86-592-2022193
If to Party B:
Energy Research Corporation
Three Great Pasture Road
Danbury, Connecticut 06813
USA
Attention: Mr. Jerry D. Leitman, President
Telephone: (203) 792-1460
Fax: (203) 798-2945
or to such other person, address or facsimile number as either Party may specify
by notice in accordance with this Article to the other Party. Any notice or
other communication rendered in accordance with this Article shall be deemed to
have been duly given: if delivered personally, when left at the address refereed
to above; if sent by airmail, twenty (20) days after the postmark of the sending
city; or, if sent by
<PAGE>
facsimile, upon electronic confirmation of receipt of the facsimile by the
transmitter.
Article 52. This Contract shall be executed in 16 originals, 8 in Chinese
and 8 in English.
Article 53. Each of the Parties represents and warrants that:
(a) it is validly existing with status of legal person in its jurisdiction
of establishment as evidenced by its business license or certificate of
incorporation;
(b) it has full power and authority under law to enter into this Contract
and perform its obligations hereunder;
(c) the person executing this Contract on behalf of such Party has been
authorized to do so pursuant to a valid resolution of such Party's board of
directors; and
(d) this Contract when executed by such Party, will constitute the legal,
valid and binding obligations of that Party in accordance with its terms.
Article 54. In connection with the "Licensed Technology" (as defined in the
TLC), Party B undertakes that:
(a) to the best of its knowledge, the information in respect of all
technologies (including but not limited to design, manufacturing technology,
process flow, testing and inspection and relevant patent information ) to be
provided pursuant to the TLC in respect of the Batteries is complete and
accurate. Party B undertakes further that, to the best of its knowledge and
provided that the Joint Venture and Party A comply with their respective
obligations hereunder and under the TLC, and follow the instructions and advice
of Party B, such technologies are capable of meeting the product quality set
forth in Appendix B of the TLC;
(b) the Licensed Technology to be transferred to the Joint Venture is
currently among the most advanced technologies of Party B relating to the Field
(as such term is defined in the TLC);
(c) Annexure 2 hereto contains a list of all the technologies and services
Party B shall provide to the Joint Venture after it enters into and becomes a
party to the TLC;
<PAGE>
(d) the drawings, specifications and other detailed information concerning
the components of the Licensed Technology shall be furnished to the Joint
Venture as scheduled in the TLC;
(e) improvements in the Licensed Technology shall be provided to the Joint
Venture in accordance with Section 2.3 of the TLC; and
(f) the training of the Joint Venture's technicians in the use of the
Licensed Technology shall be in accordance with relevant industry standards.
Article 55. The TLC executed by and between Party A on behalf of the Joint
Venture and Party B on May 29, 1998 is attached hereto as Annexure I and forms
an integral part of this Contract. In the event of any inconsistency between the
provisions of the TLC and the provisions of this Contract, the provisions of
this Contract shall prevail. After this Contract is approved by the Examination
and Approval Authority and comes into force, the Joint Venture shall perform the
obligations of Party A under the TLC.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, this Contract has been
signed by the authorized representatives of both Parties on July 7, 1998 as
follows:
XIAMEN THREE CIRCLES CO., LTD.
By: /s/ Shen Qi
Name: Shen Qi
Title: General Manager
ENERGY RESEARCH CORPORATION
By: /s/ Jerry D. Leitman
Name: Jerry Leitman
Title: President
<PAGE>
Annexure 2
Technologies and Services to be Transferred to the Joint Venture
Technology
1. Process and technology description of the positive and negative
electrodes including:
a) Formulations
b) Material specifications
c) Methods of preparation
d) Machinery required
e) Vendors for raw materials
f) Drawings
2. Description of cell assembly including:
a) Materials required including separators, current collectors, cell cases,
terminals and electrolyte
b) Methods of assembly
c) Machinery required
d) Drawings
e) Vendors for materials
3. Description of cell and battery formation and testing including:
a) Procedures
b) Equipment required
c) Vendors
4. A list of all trade secrets including those related to:
a) Electrode formulations
b) Electrode processing and manufacture
c) Cell assembly
d) Cell formation (if required)
Services
1. Training for engineering and technical staff of the Joint Venture at ERC in
Danbury and at Xiamen to assist in:
a) Transferring of all pertinent technology relating to the manufacture of
nickel-zinc cells and batteries
b) Assistance with regard to understanding the operation of pertinent
manufacturing machinery
c) Assistance with regard to cell and battery assembly d) Assistance with the
operation (including software) of all equipment
<PAGE>
<TABLE>
<CAPTION>
U.S. PATENT
NO. DATE TITLE DESCRIPTION
<S> <C> <C> <C>
5,658,694 8/19/97 Simplified Zinc Negative electrode with Multiple Electrode assemblies Low solubility zinc electrode in
sealed
cell construction.
5,556,720 9/17/98 Sealed Zinc Secondary Battery and Zinc Electrode Therefore Improved low solubility zinc electrode
in sealed cell construction
5,460,899 10/24/95 Sealed Zinc Secondary Battery and Zinc Electrode Therefore Low solubility zinc electrode in sealed
cell construction
5,264,305 11/23/93 Zinc Secondary Bipolar Battery construction Bipolar batteries with horizontally
disposed electrodes
5,023,155 6/11/91 Nickel Electrode for Alkaline Batteries A nickel electrode comprising
conductive diluent, an active material
including nickel hydroxide containing
boron.
4,976,904 12/11/90 Method and Apparatus for Continuous Formation of Fibrillated
Polymer Binder Electrode Component Electrode materials containing
active material in a fibrillated
polymer binder are formed continuously
into a cohesive electrode
component by utilizing an extruder
barrel for processing the electrode
materials.
4,810,598 3/7/89 Gas Recombination Assembly for Electrochemical Cells An assembly for recombining
gases generated in electrochemical
cells.
4,661,759 4/28/87 Nickel-Oxygen Monitor Cell System A system for monitoring the state of
charge of a nickel-alkaline secondary
battery wherein the monitor cell is
comprised of a sealed metal-gas having
a nickel electrode and an oxygen
counter electrode.
4,546,058 10/8/85 Nickel Electrode for Alkaline Batteries A nickel electrode including a
conductive support and a layer on the
support including a mixture of nickel
hydroxide and a graphite diluent
containing a spinel-type oxide.
</TABLE>
<PAGE>
AMENDMENT
TO
ENERGY RESEARCH CORPORATION
1988 STOCK OPTION PLAN, AS AMENDED
Energy Research Corporation, a New York corporation (the "Corporation")
hereby adopts the following Amendment to the Energy Research Corporation 1988
Stock Option Plan, as amended (the "1988 Plan"), effective as of March 11, 1988:
1. That the number of shares of Common Stock authorized to be issued
under the 1988 Plan be increased from 600,000 shares to 701,000
shares.
Executed effective as of the date set forth above.
ENERGY RESEARCH CORPORATION
By: /s/ Louis P. Barth
Name: Louis P. Barth
Title: Senior Vice President, CFO
Treasurer/Corporate Secretary
<PAGE>
ENERGY RESEARCH CORPORATION
1998 EQUITY INCENTIVE PLAN
Section 1. Purpose
The purpose of the Energy Research Corporation 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 Energy Research
Corporation (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 $.0001 per share, of the Corporation. (h)
"Corporation" means Energy Research Corporation (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. (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.
<PAGE>
Section 3. Administration
The Plan shall be administered by the Committee, which shall initially be
the Stock Option 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 500,000 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. (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.
<PAGE>
(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 option
holder, 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:
(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.
<PAGE>
(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. (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.
<PAGE>
(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. (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.
Subject to the approval of the shareholders of the Corporation, the Plan shall
be effective on March 11, 1998. Prior to such approval, Awards may be made under
the Plan expressly subject to such approval. (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
<PAGE>
reasonable counsel fees) arising from any such act, omission, interpretation,
construction or determination to the full extent permitted by law.
<PAGE>
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