SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or
(S)240.14a-12
ENERGY RESEARCH CORPORATION
(Name of Registrant as Specified In Its Charter)
Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:______________________________________
(2) Aggregate number of securities to which transaction
applies:______________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and how it was
determined):__________________________________
<PAGE>
(4) Proposed maximum aggregate value of transaction:
______________________________________________
(5) Total Fee paid:_______________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:______________________
(2) Form, Schedule or Registration Statement No.:
_____________________________________________
(3) Filing Party:________________________________
(4) Date Filed:__________________________________
<PAGE>
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
TO BE HELD MARCH 11, 1998
TO THE SHAREHOLDERS OF ENERGY RESEARCH CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Shareholders' Meeting of Energy
Research Corporation (the "Company") will be held at The American Stock
Exchange, Boardroom, 13th Floor, 86 Trinity Place, New York, NY 10006 on
March 11, 1998 at 10:00 a.m. Eastern Daylight Savings Time for the purpose
of considering and voting upon:
1. To elect ten (10) directors to serve for the ensuing year and until
their successors are duly elected.
2. To consider and act upon a proposal to amend the Energy Research
Corporation 1988 Stock Option Plan.
3 To consider and act upon a proposal to adopt the Energy Research
Corporation 1998 Equity Incentive Plan.
4. To consider and act upon any matters incidental to the foregoing
purposes and any other matters which may properly come before the Meeting
or any adjourned session thereof.
Shareholders of record at the close of business on January 22, 1998 are
entitled to notice of and to vote at the meeting.
Your attention is directed to the attached Proxy Statement. If you do
not expect to be present at the meeting, please fill in, sign, date and mail
the enclosed Proxy as promptly as possible in order to save the Company
further solicitation expense. There is enclosed with the Proxy an addressed
envelope for which no postage is required if mailed in the United States.
BY ORDER OF THE BOARD OF DIRECTORS
LOUIS P. BARTH
CORPORATE SECRETARY
Danbury, Connecticut
February 20, 1998
<PAGE>
PROXY STATEMENT
ENERGY RESEARCH CORPORATION
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 11, 1998
This Proxy Statement is furnished to the shareholders of
Energy Research Corporation (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company to
be voted at the 1998 Annual Meeting of Shareholders (the "Annual
Meeting") and at any adjournments thereof. The Annual Meeting will
be held on March 11, 1998 at The American Stock Exchange, Board-
room-13th Floor, 86 Trinity Place, New York, New York, 10006 at
10:00 a.m. Eastern Daylight Savings Time. The Company is a New
York corporation with its principal executive offices at 3 Great
Pasture Road, Danbury, CT 06813.
The approximate date on which this Proxy Statement and the
accompanying proxy card are first being sent or given to
shareholders is February 20, 1998.
VOTING
General
The securities which can be voted at the Annual Meeting
consist of Common Stock of the Company, $.0001 par value per share,
with each share entitling its owner to one vote on each matter
submitted to the shareholders. The record date for determining the
holders of Common Stock who are entitled to notice of and to vote
at the Annual Meeting is January 22, 1998. On the record date,
4,013,647 shares of Common Stock were outstanding and eligible to
be voted at the Annual Meeting.
<PAGE> 1
Quorum and Vote Required
The presence, in person or by proxy, of a majority of the
outstanding shares of Common Stock of the Company is necessary to
constitute a quorum at the Annual Meeting. The affirmative vote of
the holders of a plurality of the shares of Common Stock
represented in person or by proxy at the Annual Meeting is required
to elect the directors. The affirmative vote of a majority of the
votes of the holders of the Common Stock present in person or by
proxy at the Meeting will be required for the approval of Proposals
No. 2 and 3, the amendment to the Energy Research Corporation 1988
Stock Option Plan and the adoption of the Energy Research
Corporation 1998 Equity Incentive Plan, respectively. Shares of
Common Stock held of record by brokers who return a signed and
dated proxy but who fail to vote on one or more of the proposals
will count toward the quorum but will have no effect on the outcome
of the proposal not voted. Similarly abstentions will have no
effect on the proposal for which an abstention is made.
Voting by Proxy
In voting by proxy with regard to the election of directors,
shareholders may vote in favor of all nominees, withhold their
votes as to all nominees or withhold their votes as to specific
nominees. Shareholders should specify their choices on the
accompanying proxy card. All properly executed proxy cards
delivered by shareholders to the Company and not revoked will be
voted at the Annual Meeting in accordance with the directions
given. If no specific instructions are given with regard to the
matters to be voted upon, the shares represented by a signed proxy
card will be voted "FOR" such matter. If any other matters
properly come before the Annual Meeting, the persons named as
proxies will vote upon such matters according to their best
judgment.
Any shareholder delivering a proxy has the power to revoke it
at any time before it is voted by giving written notice to the
Secretary of the Corporation, by executing and delivering to the
Secretary a proxy card bearing a later date or by voting in person
at the Annual Meeting.
In addition to soliciting proxies through the mail, the
Company may solicit proxies through its directors and employees in
<PAGE> 2
person and by telephone. Brokerage firms, nominees, custodians and
fiduciaries also may be requested to forward proxy materials to the
beneficial owners of shares held of record by them. All expenses
incurred in connection with the solicitation of proxies will be
borne by the Company.
<PAGE> 3
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Ten directors are to be elected at the Annual Meeting, each to
hold office until the next annual meeting of shareholders and until
a successor is elected and qualified. It is the intention of the
persons named in the enclosed form of proxy to vote, if authorized,
the proxies for the election as directors of the ten persons named
below as nominees. All of the nominees are at present directors of
the Company. If any nominee declines or is unable to serve as a
director (which is not anticipated), the persons named as proxies
reserve full discretion to vote for any other person who may be
nominated.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO ELECT THE TEN NOMINEES LISTED BELOW AS DIRECTORS OF THE
COMPANY.
The following table sets forth certain information for each
nominee for election as a director.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---- --- -------------------- --------
<S> <C> <C> <C>
Jerry D. Leitman 55 Jerry D. Leitman has been President 1997
and Chief Executive Officer of the
Company since August 1997. Mr. Leitman
was previously President of ABB Asea
Brown Boveri's global air pollution
control businesses from 1992 to 1995.
Prior to joining ABB Mr. Leitman was
Group Executive Vice President of
FLAKT AB, a Swedish multinational,
responsible for FLAKT s worldwide
industrial businesses from 1989 to
1992. Mr. Leitman received both a BS
and MS in Mechanical Engineering from
Georgia Institute of Technology in 1965
and 1967, respectively.
<PAGE> 4
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---- --- -------------------- --------
Bernard S. Baker 61 Dr. Baker joined the Company in 1970
1970 and was President from
1973 to August 1997 when he became
Chairman of the Board of Directors
and a part-time employee of the
Company. He was Chief Executive
Officer of the Company from March 1992
to August 1997. He received a Ph.D.
from the Illinois Institute of Technology
in 1969, and was a Fulbright Fellow at
the Laboratory for Electrochemistry
at the University of Amsterdam
subsequent to his receiving his Master
of Science in Chemical Engineering
from the University of Pennsylvania
in 1959.
Hansraj C. Maru 53 Dr. Maru has been Executive Vice 1992
President since December 1992
and President, Advance Technology
Group since January 1998. Dr. Maru
was Chief Operating Officer from
December 1992-December 1997.
Dr. Maru joined the Company in 1977.
Dr. Maru received a Ph.D. in
Chemical Engineering from the
Illinois Institute of Technology
in 1975.
Christopher R. 55 Mr. Bentley has been Executive 1993
Bentley Vice President since joining the
Company in September 1990 and
President of the Fuel Cell
Group since January 1998.
Mr. Bentley was President of Fuel
Cell Manufacturing Corporation
from September 1990 to December
1997. From 1985 through 1989 he was
Director of Manufacturing (1985),
Vice President and General Manager
(1985-1988) and President (1988-
1989) of the Turbine Airfoils
Division of Chromalloy Gas Turbine
Corporation, a major manufacturer
of gas turbine hardware. Mr. Bentley
received a BSME from Tufts University
in 1966.
<PAGE> 5
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
Thomas L. 70 Thomas Kempner was the Chairman 1988
Kempner of the Board of Directors of the
Company from March 1992 to August
1997. He has been Chairman and
Chief Executive Officer of Loeb
Partners Corporation since 1979
and a general partner of Loeb
Investors Co. LXXV, an affiliate of
Loeb Partners Corporation and an
investment partnership. Mr.
Kempner is a director of Alcide
Corporation, The Arlen
Corporation, Cybernetics Service,
Inc. (Formerly Silent Radio,
Inc.), IGENE Biotechnology, Inc,
Intermagnetics General
Corporation, CCC Information
Group, Northwest Airlines, Inc.
and Roper Starch Worldwide, Inc.
William A. 64 William Lawson has been President 1988
Lawson since 1987 of W.A. Lawson
Associates, an industrial and
financial consulting firm.
Mr.Lawson has been Chairman of the
Board of Directors of Newcor, Inc.
since March 1991. Chairman and Chief
Executive Officer of Bernal
International Inc. since March 1997
(formerly Atlantic Eagle Inc.).
Mr. Lawson was a director of Old
Kent-Central Bank from 1981 to 1997.
Warren D. 59 Warren Bagatelle has been a 1988
Bagatelle Managing Director of Loeb Partners
Corporation since 1988.
Mr. Bagatelle is a director
of Genisys Reservation Systems, Inc.
(formerly Corporate Travel Link,
Inc.) which owns and operates a
computer reservation system for
ground transportation.
<PAGE> 6
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
Richard M.H. 63 From November 1991 through 1988
Thompson December 1997, Richard Thompson
was the President and Director
of Rotary Power International, Inc.,
a company that designed and built
rotary engines for military and
commercial uses. Mr. Thompson has
been Chairman of the Executive
Committee of the Company since
January, 1988. Since March, 1987,
he has been President of Richard
M.H. Thompson & Associates, Inc.,
a private investment company and
financial advisor serving a
variety of technology and emerging
growth companies.
Michael Bode 52 Michael Bode joined Messerschmitt- 1993
Bolkow-Blohm GmbH in 1974, where
he had held a variety of positions
since that time. He became Vice
President and Director of the New
Technology group of the Space
Transportation and Propulsion
Systems division of Deutsche
Aerospace AG, a subsidiary of
Daimler-Benz Corp. in 1990. Since
July, 1993, Mr. Bode has been Vice
President and Director of the New
Technology group of Daimler Benz
affiliate MTU-Friedrichshafen GmbH
James D. Gerson 54 Since March 1993, Mr. Gerson has 1992
been Senior Vice President of
Fahnestock & Co., Inc. and is
currently Portfolio Manager of the
Hudson Capital Appreciation Fund,
a mutual fund from January, 1992
to March, 1993, Mr. Gerson was Senior
Vice President and Managing Director
of Corporate Finance of Reich & Co.,
Inc. Mr. Gerson also serves as a
director of Ag Services of America,
Inc., American Power Conversion Corp.,
Arguss Holdings, Inc., Computer
Outsourcing Services, Inc. and
Hilite Industries, Inc.
</TABLE>
<PAGE> 7
Jerry D. Leitman has been nominated as a director pursuant to
his employment agreement. See "Employment Agreement." Michael
Bode has been nominated as a director at the request of MTU-Friedrichshafen
GmbH ("MTU"). Certain shareholders of the Company
have agreed to vote their shares in favor of a nominee of MTU for
so long as MTU owns at least 10% of the Common Stock of the
Company. See "Certain Transactions."
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held six meetings during the fiscal
year ended October 31, 1997. All incumbent directors attended at
least 75% of the meetings of the Board of Directors and Board
committees of which they were members. The Company does not have
a standing nominating committee.
Executive Committee
The Board of Directors has an Executive Committee comprised of
Richard Thompson (Chairman), Warren Bagatelle, William Lawson,
Jerry Leitman and Bernard Baker which held one meeting during
fiscal 1997. The Executive Committee has and exercises the powers
of the Board in monitoring the management of the business of the
Company between meetings of the Board of Directors.
Audit Committee
The Company has an Audit Committee consisting of Messrs.
Bagatelle (Chairman), Thompson and Lawson. The Audit Committee had
one meeting in fiscal 1997 and has responsibility for consulting
with the Company's officers regarding the appointment of
independent public accountants as auditors, discussing the scope of
the auditors' examination and reviewing annual financial
statements.
Compensation Committee
The Company has a Compensation Committee consisting of Messrs.
Lawson (Chairman), Thompson and Bagatelle. The Compensation
Committee had four meetings in fiscal 1997. The functions of the
Compensation Committee are to review, approve and recommend to the
Board of Directors the terms and conditions of incentive bonus
plans applicable to corporate officers and key management
personnel, to review and approve the annual salary of the chief
executive officer, and to administer the Energy Research
Corporation Section 423 Stock Purchase Plan.
<PAGE> 8
Director Compensation
The Company currently pays a director fee of $1,250 per month
to Warren Bagatelle in connection with his duties as Chairman of
the Audit Committee. The Company also pays a director fee of
$1,250 per month to Thomas Kempner. The Company also pays a
directors fee of $1,500 per month to William Lawson in connection
with his duties as Chairman of the Compensation Committee and his
activities on the Audit and Executive Committees. Mr. Gerson is
currently paid $1,000 each month in connection with his duties as
a director of the Company. Mr. Thompson is currently paid $2,000
each month in connection with his duties as Chairman of the
Executive Committee, his activities on the Audit and Compensation
Committees. The Company reimburses certain directors for reasonable
expenses incurred in connection with the performance of their
duties as directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
the beneficial ownership of the Company's Common Stock as of
January 22,1998 by each person or group that is known by the
Company to be the beneficial owner of more than 5% of its
outstanding Common Stock, each director of the Company, each of the
executive officers named under the heading "Executive Compensation"
below and all directors and executive officers of the Company as a
group (11 persons). This information is based upon information
received from or on behalf of the named individuals.
<PAGE 9
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNERSHIP (1) OF CLASS
---- --------------------------- --------
<S> <C> <C>
Warren Bagatelle 541,284 (2) 13.49
c/o Loeb Partners Corp.
61 Broadway
New York, NY 10006
Thomas L. Kempner 401,667 (2) 10.01
c/o Loeb Partners Corp.
61 Broadway
New York, NY 10006
Loeb Investors Co., LXXV 401,667 (2) 10.01
61 Broadway
New York, NY 10006
James D. Gerson 210,333 (3) 5.24
Bernard S. Baker 119,700 (4) 2.90
Richard M.H. Thompson 111,800 (5) 2.80
William A. Lawson 55,666 (6) 1.38
Christopher R. Bentley 43,900 (7) 1.08
Hansraj C. Maru 28,450 (8) *
Louis P. Barth 22,655 (9) *
Donald R. Glenn 31,076 (10) *
Jerry D. Leitman -- *
Michael Bode -- (11) *
Daimler Benz affiliate
MTU-Friedrichshafen 457,758 11.41
GmbH (MTU)
Abt.VC, Gebaude 6.1
Zimmer 102A D-85521 Ottobrunn
Germany
All Directors and Executive
Officers as a Group (11 persons) 1,535,455 (12) 36.92
</TABLE>
<PAGE> 10
* Less than one percent.
(1) Unless otherwise noted, each person identified possesses sole
voting and investment power with respect to the shares listed.
(2) Warren Bagatelle and Thomas L. Kempner, by virtue of being
general partners of Loeb Investors Co. LXXV, may each be
deemed to beneficially own the shares of Loeb Investors Co.
LXXV. Each of Mr. Kempner and Mr. Bagatelle is a member of a
group, as that term is used in Section 13(d) of the Exchange
Act, which group, in the aggregate, owns 541,284 shares of
Common Stock.
(3) Mr. Gerson's shareholdings include 36,400 shares held by his
wife, Barbara Gerson as Custodian for two minor children and
also includes 15,800 shares held by a private foundation, of
which Mr. Gerson is President and a Director. Mr. Gerson
disclaims beneficial ownership of the securities held by his
wife and of the private foundation.
(4) Includes 8,500 shares owned by Dr. Baker's wife Cornelia
Baker. Also includes currently exercisable options to
purchase 67,568 shares of Common Stock.
(5) Mr. Thompson's shareholdings include 75,800 shares owned by
his wife, Elizabeth Thompson. Mr. Thompson disclaims
beneficial ownership of the shares owned by Mrs. Thompson.
Mr. Thompson's shareholdings do not include (i) 2,777 shares
owned beneficially by Intervalora Investments Inc.
("Intervalora"), a company owned by a trust, the sole
beneficiaries of which are Mr. Thompson's children or (ii)
96,000 shares owned beneficially by Malbena Foundation Vaduz
("Malbena"), a trust, the sole beneficiaries of which are Mr.
Thompson's children. Mr. and Mrs. Thompson disclaim
beneficial ownership in the Common Stock owned by Intervalora
and Malbena.
(6) Mr. Lawson's shareholdings include currently exercisable
options to purchase 19,000 shares of Common Stock.
(7) Mr. Bentley's shareholdings include currently exercisable
options to purchase 43,000 shares of Common Stock.
(8) Dr. Maru's shareholdings include currently exercisable options
to purchase 13,000 shares of Common Stock.
(9) Mr. Barth's shareholdings include currently exercisable
options to purchase 3,000 shares of Common Stock.
(10) Mr. Glenn's shareholdings include currently exercisable options to
purchase 19,297 shares of Common Stock.
(11) Michael Bode is an executive officer of MTU.
(12) Includes currently exercisable options to purchase 145,568
shares of Common Stock. Does not include the shares of Common
Stock beneficially owned by Donald R. Glenn, who is no longer
an executive officer of the Company.
<PAGE> 11
EXECUTIVE COMPENSATION
The following table sets forth the compensation during the
last three fiscal years of the Chief Executive Officer and each of
the four most highly-compensated executive officers of the Company
whose annual salary and bonus, if any, exceeded $100,000 for
services in all capacities to the Company during the last fiscal
year (the "named executive officers").
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION
-------------------
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
NAME AND UNDERLYING ALL OTHER
PRINCIPAL SALARY BONUS OPTIONS COMPENSATION
POSITION YEAR ($) ($) # ($)
-------- ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jerry D. Leitman (1) 1997 73,848 -0- -0- -0-
President, Chief
Executive Officer
Bernard S. Baker (2) 1997 302,991 75,000 -0- 14,400 (3)
Former President 1996 270,688 75,000 -0- 13,500
and Chief Executive 1995 246,306 75,000 -0- 13,500
Officer
Hansraj C. Maru 1997 163,220 27,000 -0- 14,400 (4)
Exec. Vice President, 1996 152,221 31,000 6,000 13,631
Chief Operating 1995 142,095 28,000 -0- 14,705
Officer
Christopher R. Bentley 1997 195,514 32,000 -0- 14,400 (5)
Executive Vice 1996 185,246 36,000 6,000 13,500
President 1995 175,175 33,000 -0- 13,500
Louis P. Barth 1997 148,171 26,000 -0- 13,993 (6)
Senior VP, Chief 1996 138,174 29,000 6,000 14,455
Financial Officer, 1995 128,884 26,000 -0- 13,878
Treasurer, Corporate
Secretary
Donald R. Glenn 1997 171,004 25,000 -0- 14,400 (7)
Vice President-Corp. 1996 157,446 29,000 6,000 13,500
Development 1995 148,430 26,000 -0- 14,530
</TABLE>
(1) Mr. Leitman joined the Company as President and Chief Executive Officer
on August 4, 1997.
(2) Dr. Baker served as President and Chief Executive Officer through August 3,
1997 and as a part-time employee since that date. Fiscal 1997 salary
includes salary received by Dr. Baker in both these capacities during
the year.
<PAGE> 12
(3) Represents employer contributions to the Defined Contribution Pension
Plan of $6,400 and employer contributions to the Section 401(k) Plan of
$8,000.
(4) Represents employer contributions to the Defined Contribution Pension
Plan of $6,400 and employer contributions to the Section 401(k) Plan of
$8,000.
(5) Represents employer contributions to the Defined Contribution Pension
Plan of $6,400 and employer contributions to the Section 401(k) Plan of
$8,000.
(6) Represents employer contributions to the Defined Contribution Pension
Plan of $6,219 and employer contributions to the Section 401(k) Plan of
$7,774.
(7) Represents employer contributions to the Defined Contribution Pension
Plan of $6,400 and employer contributions to the Section 401(k) Plan of
$8,000.
The following two tables set forth certain information with
respect to (i) option grants to the named executive officers of the
Company during the fiscal year ended October 31, 1997, and (ii) the
aggregated number and value of options exercisable and
unexercisable by the named executive officers as of October 31,
1997.
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
(Individual Grants)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL
SECURITIES THE TOTAL RATES OF STOCK
UNDERLYING OPTIONS/SARs PRICE APPRECIATION
OPTIONS/SARs GRANTED TO EXERCISE OR FOR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION (2)
NAME (1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------ ------------ ----------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Bernard S. Baker 50,000 16% $13.00 12/31/2006 $ 232,650 $ 353,685
Jerry D. Leitman 250,000 78% $ 9.88 7/31/2007 $2,444,181 $3,820,775
</TABLE>
(1) Does not include options to purchase 16,667, 16,667 and 16,666 shares of
Common Stock (50,000 shares in the aggregate) issued to Dr. Baker as of December
31, 1997, with exercise prices of $14.75, $15.00 and $18.00 per share,
respectively, which were replaced with the options to purchase 50,000 shares set
forth above. See "Report on Repricing of Options." The options granted to Dr.
Baker became exercisable in full on January 1, 1998. The options granted to Mr.
Leitman become exercisable in four annual installments as follows: 100,000
shares on August 4, 1998 and an additional 50,000 shares each year
thereafter, subject to acceleration in certain circumstances. The options
may be subject to termination prior to their expiration date in the event of
termination of the employment of the optionholder. See Proposal No. 2 for a
more detailed description of the options granted to Mr. Leitman.
(2) The assumed rates are compounded annually for the full term of the options.
<PAGE> 13
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS OPTIONS AT
ACQUIRED AT 10/31/97 10/31/97
ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME # $ # ($) (1)
---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Jerry D. Leitman -0- -0- -0- (2) -0- (2)
250,000 (3) 1,532,500 (3)
Bernard S. Baker 37,432 265,993 17,568 (2) 251,749 (2)
50,000 (3) 150,000 (3)
Hansraj C. Maru 10,000 78,930 11,500 (2) 68,125 (2)
4,500 (3) 16,875 (3)
Christopher R. Bentley -0- -0- 41,500 (2) 5,625 (2)
4,500 (3) 16,875 (3)
Louis P. Barth 16,900 159,790 1,500 (2) 5,625 (2)
4,500 (3) 16,875 (3)
Donald R. Glenn 5,400 51,732 24,100 (2) 264,843 (2)
4.500 (3) 16,875 (3)
</TABLE>
(1) Based upon the closing price of $16.00 on October 31, 1997 of the
Company's Common Stock on The American Stock Exchange minus the respective
option exercise price.
(2) Exercisable
(3) Unexercisable
REPORT ON REPRICING OF OPTIONS
On September 17, 1997, the Compensation Committee reviewed the
options to purchase an aggregate of 50,000 shares of Common Stock
granted to Dr. Baker on December 31, 1996 (the "Original Options").
The Original Options had exercise prices of $14.75, $15.00 and
$18.00 per share, covering 16,667 shares, 16,667 shares and 16,666
shares respectively, for an average exercise price of $15.92 per
share. On September 17, 1997, the market value of the Company's
Common Stock was $13.00 per share. Based upon the important role
<PAGE> 14
that Dr. Baker was serving during the transition to Mr. Leitman as
Chief Executive Officer and the ongoing important contributions
that Dr. Baker was expected to make to the Company, the
Compensation Committee determined to reprice the Original Options
to the then market value of its Common Stock of $13.00 per share.
The voting and expiration dates of the options remained unchanged.
The following table sets forth information concerning the repricing
of Dr. Baker's stock options. In the last ten years, the Company
has not repriced any other options granted to any of its executive
officers.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
MARKET PRICE ORIGINAL
NUMBER OF OF STOCK EXERCISE OPTION TERM
OPTIONS AT TIME OF PRICE AT REMAINING AT
REPRICED REPRICING REPRICING NEW DATE OF
OR OR OR EXERCISE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
- ---- ---- ----------- -------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bernard S. Baker 9/17/97 16,667 $13.00 $14.75 $13.00 9.25 years
16,667 $13.00 $15.00 $13.00 9.25 years
16,666 $13.00 $18.00 $13.00 9.25 years
</TABLE>
Compensation Committee
William A. Lawson
Warren D. Bagatelle
Richard M. H. Thompson
EMPLOYMENT AGREEMENT
In August 1997, the Company entered into an employment agreement with
Mr. Leitman, upon hiring him as its President and Chief Executive Officer.
Under the agreement, which is terminable by either party upon 30 days notice,
Mr. Leitman is entitled to a minimum annual salary of $320,000 and commencing
for the current fiscal year a bonus based upon an incentive compensation plan
to be developed by Mr. Leitman with the Compensation Committee. In addition,
upon entering into the agreement, the Company granted Mr. Leitman options to
purchase 250,000 shares of Common Stock. See Stock Option Tables above. The
agreement also provides Mr. Leitman with the opportunity to participate in
insurance plans and other employment benefits as may be generally available
<PAGE> 15
to other employees of the Company. In certain circumstances, if Mr.
Leitman's employment is terminated during the first five years of his
employment, including a termination by Mr. Leitman upon a change of control,
Mr. Leitman will be entitled to a severance benefit equal to (i) two times
his then base salary, plus (ii) an amount equal to Mr. Leitman's bonus from
the Company for the immediately preceding year. The agreement also contains
non-disclosure provisions and prohibits Mr. Leitman from competing with the
Company during the term of his employment and for a period of two years
thereafter. Under the Agreement, the Company has agreed to use its best
efforts to cause Mr. Leitman to be elected to the Board of Directors and to
appoint Mr. Leitman as a member of the Executive Committee of the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding certain executive compensation are made by the
Compensation Committee, which is composed of Warren D. Bagatelle, Richard
M.H. Thompson and William A. Lawson. Decisions with respect to the salary
and bonus of the Chief Executive Officer are made by the Compensation
Committee. The Chief Executive Officer is responsible for the salary
administration of the remaining executive officers. The Company has an
informal incentive compensation plan. The Committee is responsible for
approval of the incentive awards with significant reliance on the
recommendations of the Chief Executive Officer.
Stock option awards under the 1988 Stock Option Plan are approved by
either the Compensation Committee or the Board of Directors with reliance
upon the recommendations of the Compensation Committee. No member of the
Compensation Committee is a current or former employee of the Company.
COMPENSATION COMMITTEE REPORT AND BOARD OF DIRECTORS REPORT
The Company's primary objectives in developing executive compensation
policies are to attract, motivate and retain superior talent to enable the
Company to achieve its business objectives and to align the financial
interests of the executive officers with the shareholders of the Company.
The compensation of executive officers consists of base compensation,
bonus, periodic grants of options and participation in benefit plans
generally available to employees. In setting compensation, the Compensation
Committee and the Chief Executive Officer strive to maintain base
compensation for the Company's executive officers at levels which the
Compensation Committee and the Chief Executive Officer, based on their
experience, believe are competitive with the compensation of comparable
executive officers in similar situated companies while relying upon stock
<PAGE> 16
options and the informal bonus plan to provide significant performance
incentives.
Executive officers are eligible to participate in an informal bonus
plan. The bonus of Dr. Bernard S. Baker was determined independent of the
bonus plan. Awards under the informal bonus plan and the bonus of Dr. Baker
are determined by the Compensation Committee. The Compensation Committee
relies significantly upon the recommendation of the Chief Executive Officer
with respect to the bonus to be awarded to the other executive officers. The
executive officers, as well as other key employees, may receive discretionary
bonuses based upon a subjective evaluation of the performance of the Company
and their contributions to the Company. The incentive compensation plan is
currently being re-evaluated by the Chief Executive Officer. The development
of a new incentive compensation plan is in process.
Each of the executive officers and certain key employees are eligible to
receive grants of options under the 1988 Stock Option Plan and will be
eligible to receive awards under the 1998 Equity Incentive Plan if approved
by the shareholders. See "Proposal No. 3". The 1988 Plan has been used to
align a portion of the officers compensation with the shareholders' interest
and the long-term success of the Company. In determining the number of
options to be granted to each executive officer, the Board of Directors
reviews the recommendations provided by the Compensation Committee with
respect to the Chief Executive Officer or the recommendations of the Chief
Executive Officer with respect to the other executive officers and makes a
subjective determination regarding those recommendations.
The compensation paid by the Company to its chief executive officers for
fiscal 1997 (Dr. Baker served as chief executive officer through August 3,
1997 and Mr. Leitman since that date) was based upon employment agreements
negotiated with each such person. The Compensation Committee has not
conducted any surveys of compensation packages of chief executive officers in
comparable companies, but believes, based upon the individual experience of
its members, that the compensation packages for each of Dr. Baker and Mr.
Leitman for fiscal 1997 were reasonable based upon Dr. Baker's and Mr.
Leitman's experience, their level of responsibility and the contributions
made and expected to be made by each to the Company. See "Employment
Agreement" for a description of Mr. Leitman's employment agreement. Dr.
Baker's employment agreement terminated on December 31, 1997.
<PAGE> 17
Compensation Committee Board of Directors
William A. Lawson Jerry D. Leitman
Warren D. Bagatelle Bernard S. Baker
Richard M.H. Thompson Warren D. Bagatelle
Christopher R. Bentley
Michael Bode
James D. Gerson
Thomas L. Kempner
William A. Lawson
Hansraj C. Maru
Richard M.H. Thompson
PERFORMANCE GRAPH
The following graph compares the annual change in Energy Research
Corporation's cumulative total Shareholder return for the period for each of
the five fiscal years ended October 31, 1992 - 1997 based upon the market
price of the Company's Common Shares, with the cumulative total return on the
Russell 2000 and a peer group consisting of SIC Group Code 369 companies
listed on The American Stock Exchange, Nasdaq Stock Market and New York Stock
Exchange for that period.
<TABLE>
<CAPTION>
10/31/92 10/31/93 10/31/94 10/31/95 10/31/96 10/31/97
-------- -------- -------- -------- -------- --------
COMPUTED INDEX DATA:
<S> <C> <C> <C> <C> <C> <C>
Energy Research Corp. 100.00 138.89 111.11 126.39 134.72 177.78
Peer Group 100.00 136.25 184.90 214.29 229.26 406.93
Broad Market
(Russell 2000 Index 100.00 132.41 132.00 156.20 182.31 235.74
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and any persons owning more than
10% of a class of the Company's stock to file certain reports of
ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). All filings for 1997 were made on a timely
basis except (i) Richard M.H. Thompson did not file a Form 4 with
respect to one transaction and filed Form 5 late with respect to
two transactions. (ii) Louis P. Barth filed Form 5 late with
respect to one transaction. (iii) Christopher R. Bentley filed Form
5 late with respect to one transaction.
<PAGE> 18
The above information is to the Company's knowledge, based
solely on a review of copies of reports furnished to the Company
and representations of certain officers, directors and shareholders
owning more than 10% of the Company's Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year 1997, the Company sold to Daimler Benz
affiliate MTU-Friedrichshafen GmbH ("MTU")fuel cell components for
approximately $7,000 and purchased a test facility from MTU for
approximately $300,000.
In November, 1989 the Company entered into a license agreement
with MTU, which license was originally with Messerschmitt-Bolkow-Blohm
GmbH, that granted to MTU an exclusive license, with certain
exceptions, to develop the Company's carbonate fuel cell technology
in Europe, and a non-exclusive license for the Middle East, Africa
and South America. Pursuant to the MTU Agreement, the Company
receives annual license fees and has the right to receive royalties
upon commercial sales. Concurrent with the entering into of the
MTU Agreement, MTU purchased 360,000 shares of Common Stock of the
Company at a purchase price of $7.00 per share and made loans to
the manufacturing subsidiary of the Company, which were secured by
the stock of that subsidiary, in the aggregate principal amount of
$1,980,000. 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 principal and accrued interest to common
stock of the Company at $9 per share. During December 1996 and
December 1997, the Company paid to MTU $1,296,000 and $673,000,
respectively, of principal and interest in full repayment of the
loans from MTU. The Subscription Agreement between the Company and
MTU also grants to all shareholders of the Company preemptive
rights on sales of the Common Stock of the Company at a price less
than $7.00 per share. As a condition to MTU entering into its
agreements with the Company, substantially all of the then
shareholders of the Company agreed to vote their shares in favor of
one nominee of MTU to the Board of Directors of the Company for so
long as MTU owns at least 10% of the Common Stock of the Company.
<PAGE> 19
The Company believes that the terms of its transactions with
MTU are no less favorable to the Company than it could have
obtained from an unaffiliated third party.
PROPOSAL NO. 2
AMENDMENT TO THE ENERGY RESEARCH CORPORATION
1988 STOCK OPTION PLAN
Purpose of Plan
The purposes of the Energy Research Corporation 1988 Stock
Option Plan (the "1988 Plan") are to provide long-term incentives
and rewards to those key employees of the Company and its
subsidiaries and any other persons who are in a position to
contribute to the long-term success and growth of the Company and
its subsidiaries, to assist the Company in retaining and attracting
executives and key employees with requisite experience and ability
and to associate more closely the interests of such executives and
key employees with those of the Company's shareholders. Eighteen of
the Company's current employees have been granted options under the
1988 Plan.
Proposed Amendment
The Board has approved an amendment to the 1988 Plan, subject
to shareholder approval, to increase the number of shares of Common
Stock available for issuance under the 1988 Plan from 600,000
shares to 701,000 shares. The primary purpose of this increase is
to provide the 1988 Plan with a sufficient number of shares to
cover options granted to Jerry Leitman, the Company's President and
Chief Executive Officer, when he joined the Company in August 1997.
In August 1997, in connection with Mr. Leitman's joining the
Company, the Company granted to Mr. Leitman an option to purchase
250,000 shares of Common Stock at an exercise price of $9.875 per
share. The option has a term of ten years (subject to earlier
termination if Mr. Leitman leaves the Company's employ), with
50,000 shares vesting on the date of grant, and an additional
50,000 shares vesting each year thereafter, such that the option
will be fully vested in August 2001. Notwithstanding the initial
vesting of 50,000 shares, the option will not be exercisable until
August 1998. The option may vest earlier under certain
circumstances, such as a change of control of the Company or the
termination of Mr. Leitman's employment without cause.
<PAGE> 20
At the time the option was granted to Mr. Leitman, there were
only 149,000 shares available for issuance under the 1988 Plan. As
a result, the option to purchase 101,000 of the 250,000 shares
covered by the option is subject to shareholder approval. If the
requisite shareholder approval is not obtained, the number of
shares covered by the option will be reduced in reverse order of
vesting, such that the reduction would not affect the first 149,000
shares to be vested under the option, and the Company would be
required to grant Mr. Leitman so called phantom stock, stock
appreciation rights or such other rights as would provide Mr.
Leitman with benefits substantially equivalent to the benefits that
he would have received had the number of shares covered by the
option not been reduced.
The following table sets forth the benefit to be received by
Mr. Leitman should this Proposal No. 2 be approved:
NEW PLAN BENEFITS
1988 Stock Option Plan
<TABLE>
<CAPTION>
Name and Position Dollar Value ($) Number of Shares
<S> <C> <C>
Jerry D. Leitman, President
and Chief Executive
Officer $1,666,500(1) 101,000
</TABLE>
(1) Based upon the closing price of the Company's Common Stock of $16.50 per
share as reported by the American Stock Exchange on January 30, 1998.
General Provisions
Under the 1988 Plan, the Company may grant (i) options which
are not qualified as incentive stock options ("nonqualified stock
options"), (ii) incentive stock options ("incentive stock options")
intended to qualify under Section 422 of the Internal Revenue Code
of 1986, as it may be amended from time to time (the "Code"), and
(iii) stock appreciation rights ("SARs") which may be included with
each nonqualified option granted.
Nonqualified stock options may be granted to persons who are
officers, directors or employees of or consultants or advisors to
the Company or persons who are in a position to contribute to the
long-term success and growth of the Company at the time of grant.
Incentive stock options may only be granted to persons who are
<PAGE> 21
employees of the Company at the time of grant, which may include
officers and directors who are employees.
The 1988 Plan is administered by the Compensation Committee of
the Board of Directors (the "Compensation Committee"). Subject to
the terms of the 1988 Plan, the Compensation Committee determines
the person to whom options and/or SARs are granted, the number of
shares covered by the option, the term of any option and the time
during which any option is exercisable.
Options and SARs under the 1988 Plan may not be granted after
April 13, 1998. No option under the 1988 Plan may be exercised
subsequent to ten years from the date of the grant (five years
after the date of grant for incentive stock options granted to
holders of more than 10% of the Company's Common Stock) and, unless
otherwise provided for in the option agreement, no option or SAR
may be exercised prior to one year from the date of grant.
Nonqualified stock options may be granted at an exercise price
greater or lesser than the fair market value of the Common Stock on
the date of the grant, in the discretion of the Compensation
Committee. Incentive stock options, however, may not be granted at
less than the fair market value of the Common Stock on the date of
grant and may be granted to holders of more than 10% of the common
stock only at an exercise price of at least 110% of the fair market
value of the Common Stock on the date of grant.
No incentive stock option granted pursuant to the 1988 Plan
may be exercised more than three months after the option holder
ceases to be an employee of the Company, except that in the event
of death or permanent and total disability of the option holder,
the option may be exercised by the holder of his estate for a
period of up to one year after the date of such death or permanent
and total disability.
SARs may only be granted in conjunction with nonqualified
stock options under the 1988 Plan, are exercisable only for the
period and to the extent the corresponding option is exercisable
and may be terminated by the Compensation Committee at any time
prior to exercise. SARs permit an optionee to surrender to the
Company, prior to exercise, the option together with the SAR in
exchange for an amount equal to the product of (i) the fair market
value of the Company's Common Stock less the exercise price of the
option and (ii) the number of shares for which the option is being
exercised (the net value of the exercise of the option to the
<PAGE> 22
option holder). The Company may pay this sum in cash, in shares of
Common Stock or in any combination of the two.
In order to assist an optionee in the acquisition of shares of
Common Stock pursuant to the exercise of an option granted under
the 1988 Plan, the Compensation Committee may authorize payment (i)
in cash, (ii) by delivery of mature shares of Common Stock having
a fair market value equal to the purchase price of the shares,
(iii) by any other property (valued at its fair market value on the
date of such exercise), or (iv) by any combination of cash, stock
and other property.
A total of 600,000 shares of Common Stock is currently
available for issuance under the 1988 Plan, subject to adjustment
for any recapitalization, reclassification, stock split, stock
combination, stock dividend or certain other corporate
reorganizations. The shares issued may include either authorized
but unissued shares of Common Stock or treasury shares. Shares
subject to an option that ceases to be exercisable for any reason
will be available for subsequent option grants. If this Proposal
No. 2 is approved, the number of shares of Common Stock available
for issuance under the 1988 Plan will increase to 701,000 shares.
<PAGE> 23
As of January 30, 1998, options to purchase 600,000 shares of
Common Stock (net of terminations, and excluding the option to
purchase 101,000 shares granted to Mr. Leitman which is subject to
shareholder approval of the Proposal No. 2) had been granted under
the 1988 Plan, including those set forth below:
Number of Shares
Subject to
Name Options Granted Average Exercise Price
---- ---------------- ----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Named Executive Officers:
Jerry D. Leitman 149,000 $9.88
Bernard S. Baker 110,000 $6.82
Hansraj C. Maru 38,000 $5.47
Christopher R. Bentley 46,000 $5.51
Louis P. Barth 30,000 $3.79
Donald R. Glenn 34,000 $5.44
All Executive Officers
as a group (4) persons) 263,000 $7.78
All current directors who
are not executive officers
as a group (7 persons) 134,000 $5.90
All current employees
who are not executive
or named executive officers 122,000 $7.40
</TABLE>
The closing price of the Company's Common Stock on January 30,1998
was $16.50 per share.
Options granted under the 1988 Plan may not be assigned or
transferred except by will or the laws of descent and distribution.
The Board of Directors may amend, suspend or terminate the 1988
Plan; provided, however, that neither the Board of Directors nor the
Compensation Committee may materially increase the number of securities
which may be issued under the 1988 Plan, reduce the minimum option
price, extend the term of the 1988 Plan or the option period of any
options or SARs thereunder, materially modify the requirements to be a
participant in the 1988 Plan, materially increase the benefits accruing
to participants in the 1988 Plan, or otherwise modify the 1988 Plan in
any way or manner requiring the approval of the shareholders without
such approval and compliance with any applicable law, rules or
regulations.
<PAGE> 24
Federal Income Tax Consequences
For a discussion of the Federal income tax consequences in
connection with the grant of options or SARs, see "Federal Income Tax
Consequences" under Proposal No 3.
Vote Required
The affirmative vote of a majority of the votes of holders of
the Common Stock present in person or by proxy at the Meeting is
required for adoption of Proposal No. 2.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF PROPOSAL NO. 2.
PROPOSAL NO. 3
ADOPTION OF THE ENERGY RESEARCH CORPORATION
1998 EQUITY INCENTIVE PLAN
In January 1998, the Company adopted, subject to shareholder
approval, the Company's 1998 Equity Incentive Plan (the "1998 Plan").
The purposes of the 1998 Plan are to attract and retain key employees,
directors, advisors and consultants, to provide an incentive for them
to assist the Company to achieve long-range performance goals and to
enable them to participate in the long-term growth of the Company. The
following is a summary description of the 1998 Plan and is qualified in
its entirety by reference to the full text of the 1998 Plan, which is
attached hereto as Exhibit A.
Under the 1998 Plan, the Company may grant (i) incentive stock
options intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), (ii) options that are not
qualified as incentive stock options ("nonqualified stock options"),
(iii) stock appreciation rights either in tandem with an option or
alone and unrelated to an option ("SARs"), and (iv) restricted shares
of Common Stock ("restricted stock").
All employees, and in the case of awards other than incentive
stock options, directors, advisors and consultants of the Company or
any affiliate (as that term is defined in the 1998 Plan) capable of
contributing significantly to the successful performance of the
Company, other than a person who has irrevocably elected not to be
eligible, are eligible to participate in the 1998 plan.
<PAGE> 25
The Board of Directors of the Company, including any duly
authorized committee of the Board of Directors, has the authority to
adopt, alter and repeal administrative rules, guidelines and practices
governing the operation of the 1998 Plan and to interpret provisions of
the Plan. The Board of Directors may delegate, to the extent permitted
by applicable law, the power to make awards to participants and all
determinations under the 1998 Plan with respect thereto. The Board of
Directors has initially designated the Compensation Committee to
administer the 1998 Plan.
There are a total of 500,000 shares of Common Stock available for
issuance under the 1998 Plan, subject to adjustment for any stock
dividend, recapitalization, stock split, stock combination or certain
other corporate reorganizations. Shares issued may consist in whole or
in part of authorized but unissued shares or treasury shares. Shares
subject to an award that expires or is terminated or is forfeited for
any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded will again be available for
award under the 1998 Plan. The closing price of the Company's Common
Stock on January 30, 1998 was $16.50.
Stock Options
Subject to the provisions of the 1998 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. 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 terms and conditions of incentive stock options shall be
subject to and comply with Section 422 of the Code and any regulations
thereunder. No incentive stock option granted under the 1998 Plan may
be granted more than ten years after the effective date of the 1998
Plan and no such grant may be exercisable more than ten years from the
date of grant (five years after the date of grant for incentive stock
options granted to holders of more than 10% of the Common Stock).
Incentive stock options shall be granted only to employees of the
Company and shall be transferable by the option holder only by the laws
of descent and distribution, and shall be exercisable only by the
employee during his or her lifetime.
<PAGE> 26
Nonqualified stock options may be granted at an exercise price
greater or lesser than the fair market value of the Common Stock on the
date of grant, in the discretion of the Board. Incentive stock
options, however, may not be granted at less than the fair market value
of the Common Stock on the date of grant and may be granted to holders
of more than ten percent of the Common Stock only at an exercise price
of at least 110% of the fair market value of the Common Stock on the
date of the grant.
Stock Appreciation Rights
Subject to the provisions of the 1998 Plan, the Board of Directors
may award SARs in tandem with an option (at or after the award of the
option) or alone and unrelated to an option. A SAR entitles the holder
to receive from the Company an amount equal to the excess, if any, of
the fair market value of the Common Stock over the reference price.
SARs granted in tandem with an option will terminate to the extent that
the related option is exercised, and the related option will terminate
to the extent that the tandem SARs are exercised.
Restricted Stock
Subject to provisions of the 1998 Plan, the Board of Directors may
grant shares of restricted stock to participants, with such restricted
periods and other conditions as the Board may determine and for no cash
consideration or such minimum consideration as may be required by
applicable law. During the restricted period, unless otherwise
determined by the Board, stock certificates evidencing the restricted
shares will be held by the Company and may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by
the Board. At the expiration of the restricted period, the Company
will deliver such certificates to the participant or, if the
participant has died, to the beneficiary designated by the participant.
General Provisions
Each award 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 1998 Plan as the Board considers necessary or
advisable. 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
<PAGE> 27
uniformly. The Board may amend, modify or terminate any
outstanding award, including substituting therefor another award,
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 would not materially and adversely
affect the participant.
The Board of Directors may determine whether awards granted
pursuant to the 1998 Plan are settled in whole or in part in cash,
Common Stock, other securities of the Company or other property. The
Board may permit a participant to defer all or any portion of a payment
under the 1998 Plan. In the Board's discretion, tax obligations
required to be withheld in respect of an award may be paid in whole or
in part in shares of Common Stock, including shares retained from such
award. The Board will determine the effect on an award of the death,
disability, retirement or other termination of employment of a
participant and the extent to which and period during which the
participant's legal representative, guardian or designated beneficiary
may receive payment of an award or exercise rights thereunder.
The Board in its discretion may take certain actions in order to
preserve a participant's rights under an award in the event of a change
in control of the Company, including providing for the acceleration of
any time period relating to the exercise or realization of the award,
providing for the cash purchase of the award or adjusting the terms of
the award in order to reflect the change in control.
The Board of Directors of the Company may amend, suspend or
terminate the 1998 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 law, rules or
regulations.
Federal Income Tax Consequences
The following general discussion of the Federal income tax
consequences of awards granted under the 1998 Plan and the 1988 Plan is
based upon the provisions of the Internal Revenue Code as in effect on
the date hereof, current regulations thereunder and existing public and
private administrative rulings of the Internal Revenue Service. This
discussion is not intended to be a complete discussion of all of the
Federal income tax consequences of the 1998 Plan or the 1988 Plan, or
of all of the requirements that must be met in order to qualify for the
tax treatment described herein. Changes in the law and regulations may
<PAGE> 28
modify the discussion, and in some cases the changes may be
retroactive. No information is provided as to state tax laws. Neither
the 1998 Plan nor the 1988 Plan is qualified under Section 401 of the
Code, nor is either of those plans subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended. The tax
treatment of each kind of award under the 1998 Plan or 1988 Plan, as
applicable, is as follows:
Nonqualified Stock Options. An option holder will not recognize
any taxable income upon the grant of a nonqualified option. Generally,
an option holder recognizes ordinary taxable income at the time a
nonqualified option is exercised in an amount equal to the excess of
the fair market value of the shares of Common Stock on the date of
exercise over the exercise price.
However, if (a) the Company imposes restrictions on the shares
which do not permit the recipient to transfer the shares to others and
which require the recipient to return the shares to the Company at less
than fair market value upon termination of employment (a "risk of
forfeiture"), or (b) the recipient is an officer or director of the
Company subject to Section 16(b) of the Securities Exchange Act of
1934, as amended ("Section 16(b)") then, upon their sale of shares of
Common Stock, the date on which taxable income (if any) is recognized
(the "Recognition Date") will be the date on which the stock becomes
"freely transferable" or not subject to risk of forfeiture. In this
circumstance, the option holder will generally recognize ordinary
taxable income on the Recognition Date in an amount equal to the excess
of the fair market value of the shares at that time over the exercise
price.
Despite this general rule, if the Recognition Date is after the
date of exercise, then the option holder may make an election pursuant
to Section 83(b) of the Code. In this case, the option holder will
recognize ordinary taxable income at the time the option is exercised
and not on the later date. In order to be effective, the Section 83(b)
election must be filed with the Company and the Internal Revenue
Service within 30 days of exercise.
The Company will generally be entitled to a compensation deduction
for Federal income tax purposes in an amount equal to the taxable
income recognized by the option holder, provided the Company reports
the income on a form W-2 or 1099, whichever is applicable, that is
timely provided to the option holder and filed with the IRS.
<PAGE> 29
When an option holder subsequently disposes of the shares of
Common Stock received upon exercise of a nonqualified option, he or she
will recognize long-term or short-term capital gain or loss (depending
upon the holding period), in an amount equal to the difference between
the sale price and the fair market value on the date on which the
option holder recognized ordinary taxable income as a result of the
exercise of the nonqualified option.
An option holder who pays the exercise price for a nonqualified
option, in whole or in part, by delivering mature shares only of Common
Stock already owned by him or her will recognize no gain or loss for
Federal income tax purposes on the shares surrendered, but otherwise
will be taxed according to the rules described above.
Incentive Stock Options. An option holder generally will not
recognize taxable income upon either the grant or the exercise of an
incentive stock option. However, under certain circumstances, there
may be alternative minimum tax or other tax consequences, as discussed
below.
An option holder will recognize taxable income upon the
disposition of the shares received upon exercise of an incentive stock
option. Any gain recognized upon a disposition that is not a
"disqualifying disposition" will be taxable as long-term capital gain.
A "disqualifying disposition" means any disposition of shares acquired
on the exercise of an incentive stock option within two years of the
date the option was granted or within one year of the date the shares
were issued to the option holder. The use of shares acquired pursuant
to the exercise of an incentive stock option to pay the option price
under another incentive stock option is treated as a disposition for
this purpose. In general, if an option holder makes a disqualifying
disposition, an amount equal to the excess of (a) the lesser of (i) the
fair market value of the shares on the date of exercise or (ii) the
amount actually realized over (b) the option exercise price, will be
taxable as ordinary income and the balance of the gain recognized, if
any, will be taxable as either long-term or short-term capital gain,
depending on the option holder's holding period for the shares. In
the case of a gift or certain other transfers, the amount of ordinary
income taxable to the option holder is not limited to the amount of
gain which would be recognized in the case of a sale. Instead, it is
equal to the excess of the fair market value of the shares on the date
of exercise over the option exercise price.
<PAGE> 30
As noted previously, the tax result may change if (a) the Company
imposes restrictions on the shares which do not permit the recipient to
transfer the shares to others and which require the recipient to return
the shares of the Company at less than fair market value upon
termination of employment, or (b) the recipient is an officer or
director of the Company subject to Section 16(b). In the case of a
disqualifying disposition of shares acquired pursuant to the exercise
of such an incentive stock option, the date on which the fair market
value of the shares is determined will be postponed, and the tax
consequences will be similar to the treatment that applies to shares
acquired pursuant to nonqualified options, including the ability to
make a Section 83(b) election.
In general, in the year an incentive stock option is exercised,
the holder must include the excess of the fair market value of the
shares issued upon exercise over the exercise price in the calculation
of alternative minimum taxable income. The application of the
alternative minimum tax rules for an option holder subject to Section
16(b) or who receives shares that are not "substantially vested" are
more complex and may depend upon whether the holder makes a Section
83(b) election, as described above.
The Company will not be entitled to any deduction with respect to
the grant or exercise of an incentive stock option provided the holder
does not make a disqualifying disposition. If the option holder does
make a disqualifying disposition, the Company will generally be
entitled to a deduction for federal income tax purposes in a amount
equal to the taxable income recognized by the holder, provided the
Company reports the income on a form W-2 that is timely provided to the
option holder and filed with the IRS.
Stock Appreciation Rights. A recipient of a SAR will not be
considered to receive any income at the time a SAR is granted, nor will
the Company be entitled to a deduction at that time. Upon the exercise
of a SAR, the holder will have ordinary income equal to the cash
received upon the exercise. At that time, the Company will be entitled
to a tax deduction equal to the amount of ordinary income realized by
the holder.
Restricted Stock. The recipient of restricted stock will be
treated in the same manner as a person who has exercised a nonqualified
stock option, as described above, for which the Company has imposed
restrictions on the shares received, and for which the exercise price
is either zero or a nominal amount. In general, this means that the
<PAGE> 31
holder may either wait until the restrictions have elapsed, and
then pay tax at ordinary income tax rates, based upon the fair market
value of the shares at that time, or he or she can file a Section 83(b)
election, and pay tax based on the fair market value of the shares at
the time they are received. Again, the Company will get a deduction
that corresponds to the income recognized by the recipient. If a
recipient makes a Section 83(b) election but later forfeits some or all
of the shares as to which the election was made, he or she will not be
entitled to a deduction or other reduction related to the income
previously recognized.
Vote Required
The affirmative vote of a majority of the votes of holders of the
Common Stock present in person or by proxy at the Meeting is required
for adoption of Proposal No. 3.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF PROPOSAL NO. 3
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed KPMG Peat Marwick LLP,
certified public accountants to audit the consolidated financial
statements of the Company for the fiscal year ending October 31, 1998
A representative of KPMG Peat Marwick LLP will be present at the
Annual Meeting to make a statement if such representative desires to do
so and to respond to appropriate questions.
AMENDMENT TO BY-LAWS
In August 1997, the Company amended its By-laws to increase the
number of members of the Board of Directors from nine to ten members.
Upon joining the Company, Mr. Leitman was elected by the Board of
Directors to fill the vacancy created thereby.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Shareholders who may wish to present proposals for inclusion in
the Company's proxy materials and for consideration at the 1999 Annual
Meeting of Shareholders should submit the proposals in writing to the
Secretary of the Company in accordance with all applicable rules and
regulations of the SEC no later than October 23,1998.
<PAGE> 32
ANNUAL REPORT AND FORM 10-K
ADDITIONAL COPIES OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997 AND COPIES OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ARE AVAILABLE TO
SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST ADDRESSED TO: ENERGY
RESEARCH CORPORATION, 3 GREAT PASTURE ROAD, DANBURY, CONNECTICUT 06813
ATTN: SHAREHOLDER RELATIONS.
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors
knows of no matters which will be presented for consideration at the
Annual Meeting other than the proposals set forth in this Proxy
Statement. If any other matters properly come before the meeting, it
is intended that the persons named in the proxy will act in respect
thereof in accordance with their best judgment.
By Order of the Board of Directors
Louis P. Barth
Corporate Secretary
Danbury, CT
February 20, 1998
<PAGE> 33
EXHIBIT A
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.
<PAGE> 34
(p) "Restricted Stock" means shares of Common Stock subject to forfeiture,
awarded to a Participant under Section 8.
(q) "Stock Appreciation Right" or "SAR" means a right to receive any excess
in value of shares of Common Stock over the reference price, awarded to a
Participant under Section 7.
Section 3. Administration
The Plan shall be administered by the Committee, which shall initially
be the 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.
<PAGE> 35
Section 6. Stock Options
(a) Subject to the provisions of the Plan, the Board may award Incentive
Stock Options and Nonqualified Stock Options and determine the number of
shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The
terms and conditions of Incentive Stock Options shall be subject to and
comply with Section 422 of the Code, or any successor provision, and any
regulations thereunder.
(b) The Board shall establish the option price at the time each Option is
awarded, which price shall not be less than 100% of the Fair Market Value of
the Common Stock on the date of award with respect to Incentive Stock Options.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Board may specify in the applicable Award or
thereafter. The Board may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the
Corporation. Such payment may be made in whole or in part in cash or, to
the extent permitted by the Board at or after the award of the Option, by
delivery of a note or shares of Common Stock owned by the optionholder,
including Restricted Stock, valued at their Fair Market Value on the date of
delivery, by the reduction of the shares of Common Stock that the
optionholder would be entitled to receive upon exercise of the Option,
such shares to be valued at their Fair Market Value on the date of exercise,
less their option price (a so-called "cashless exercise"), or such other
lawful consideration as the Board may determine.
(e) The Board may provide for the automatic award of an Option upon the
delivery of shares to the Corporation in payment of an Option for up to the
number of shares so delivered.
(f) In the case of Incentive Stock Options the following additional
conditions shall apply to the extent required under Section 422 of the Code
for the options to qualify as Incentive Stock Options:
(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.
<PAGE> 36
Section 8. Restricted Stock
(a) Subject to the provisions of the Plan, the Board may award shares of
Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Corporation and the other terms and conditions of such Awards. Shares
of Restricted Stock may be issued for no cash consideration or such minimum
consideration as may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Board, during the
Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Board may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Board, deposited by the Participant,
together with a stock power endorsed in blank, with the Corporation. At the
expiration of the Restricted Period, the Corporation shall deliver
such certificates to the Participant or if the Participant has died, to the
Participant's Designated Beneficiary.
Section 9. General Provisions Applicable to Awards
(a) Documentation. Each Award under the Plan shall be evidenced by a
written document delivered to the Participant specifying the terms and
conditions thereof and containing such other terms and conditions not
inconsistent with the provisions of the Plan as the Board considers necessary or
advisable to achieve the purposes of the Plan or comply with applicable tax
and regulatory laws and accounting principles.
(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 anytime 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
<PAGE> 37
made or at any time thereafter, take one or more of the following actions:
(i) provide for the acceleration of any time period relating to the exercise
or realization of the Award, (ii) provide for the purchase of the Award upon
the Participant's request for an amount of cash or other property that could
have been received upon the exercise or realization of the Award had the
Award been currently exercisable or payable, (iii) adjust the terms of the
Award in a manner determined by the Board to reflect the change in control,
(iv) cause the Award to be assumed, or new rights substituted therefor, by
another entity, or (v) make such other provision as the Board may consider
equitable and in the best interests of the Corporation.
(g) Withholding. The Corporation shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Corporation an
amount sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required to be withheld with respect to an
Award or any dividends or other distributions payable with respect thereto.
In the Board's discretion, such tax obligations may be paid in whole or in
part in shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value on the date of
delivery. The Corporation and its Affiliates may, to the extent permitted by
law, deduct any such tax obligations from any payment of any kind otherwise
due to the Participant.
(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.
<PAGE> 38
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the jurisdiction of incorporation
of the Corporation.
(f) Indemnity. Neither the Board nor the Committee, nor any members of
either, nor any employees of the Corporation or any parent, subsidiary, or
other affiliate, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with their
responsibilities with respect to this Plan, and the Corporation hereby agrees
to indemnify the members of the Board, the members of the Committee, and the
employees of the Corporation and its parent or subsidiaries in respect of any
claim, loss, damage, or expense (including reasonable counsel fees)
arising from any such act, omission, interpretation, construction or
determination to the full extent permitted by law.
<PAGE> 39
ENERGY RESEARCH CORPORATION
3 GREAT PASTURE ROAD
DANBURY, CT 06813
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Jerry D. Leitman and Bernard S. Baker as
Proxies, each with power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all of the shares of
Common Stock of Energy Research Corporation (the "Company") held by the
undersigned of record on January 22,1998, at the annual meeting of the
shareholders of the Company to be held on March 11,1998 and at any and all
adjournments thereof, and hereby revokes all former proxies:
1. Election of ten directors.
[ ] FOR all nominees listed below (except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below:
Jerry D. Leitman Warren D. Bagatelle
Bernard S. Baker Richard M.H. Thompson
Hansraj C. Maru Michael Bode
Christopher R. Bentley James D. Gerson
Thomas L. Kempner
William A. Lawson
(Instruction: To withhold authority to vote for any nominee,
write that nominee's name in the space provided below.)
________________________________________________________________________
<PAGE> 1
2. Proposal to amend the Energy Research Corporation 1988 Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to adopt the Energy Research Corporation 1998 Equity
Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
(sign on reverse side)
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR EVERY ITEM LISTED ABOVE.
Dated _______________________, 1998
____________________________________
Signature
_____________________________________
Signature if held jointly
Please sign exactly as name
appears on this card. When shares
are held by joint tenants, both
should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by president or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 2
