SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 22, 1999
ENERGY RESEARCH CORPORATION
________________________________________________________________________________
(Exact Name Of Registrant As Specified In Its Charter)
NEW YORK
________________________________________________________________________________
(State or Other Jurisdiction of Incorporation)
0-24852 06-0853042
_____________________________ ____________________________________
(Commission File Number) (I.R.S. Employer Identification No.)
3 Great Pasture Road, Danbury, Connecticut 06813
__________________________________________ ____________________________________
(Address of Principal Executive Offices) (Zip Code)
(203)825-6000
________________________________________________________________________________
(Registrant's Telephone Number, Including Area Code)
N/A
________________________________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On February 22, 1999 (the "Distribution Date"), Energy Research
Corporation, a New York corporation ("ERC"), effected a special tax-free
distribution (the "Distribution") to its stockholders of one share of Common
Stock, $.01 par value ("Evercel Common Stock"), of Evercel, Inc. ("Evercel") for
every three shares of Common Stock, $.0001 par value, of ERC ("ERC Common
Stock") held of record as of the close of business on February 19, 1999 (the
"ERC Record Date").
Prior to the Distribution, ERC owned all of the outstanding shares of
Evercel Common Stock. Evercel was formed as a wholly-owned subsidiary of ERC on
June 22, 1998; on February 16, 1999, ERC transferred to Evercel the principal
assets related to ERC's battery business group ("Battery Business Group"), and
Evercel assumed certain liabilities related to those assets. ERC effected the
Distribution by delivering its shares of Evercel Common Stock to Continental
Stock Transfer & Trust Company (the "Distribution Agent"), for cancellation and
instructing the Distribution Agent to distribute all of the issued and
outstanding shares of Evercel Common Stock to the holders of record of ERC
Common Stock as of the ERC Record Date.
Shares of Evercel Common Stock received in the Distribution may not be sold
or otherwise disposed of prior to the closing of the rights offering (the
"Rights Offering") being conducted by Evercel immediately following the
Distribution. Until such closing occurs, the Evercel Common Stock will be
uncertificated. Following such closing, which is expected to occur on or about
April 5, 1999, the Distribution Agent will begin to mail stock certificates
representing the shares of Evercel Common Stock to ERC stockholders as of the
ERC Record Date. Holders of ERC Common Stock on the ERC Record Date will not be
required to make any payment or to take any other action to receive their
portion of the Distribution.
The principal effect of the Distribution will be to separate ERC's Battery
Business Group and operations from its fuel cell business and related
activities. After the Distribution, each business will be conducted by a
separate, publicly held corporation. Evercel will own and operate the battery
business, and ERC will retain and continue to own and operate the fuel cell
business.
The Distribution did not require stockholder approval, and Evercel's
stockholders will not be entitled to appraisal rights in connection with the
Distribution.
After the Distribution, ERC Common Stock will continue to be traded on the
American Stock Exchange. As a result of the Distribution, the trading prices of
ERC Common Stock are likely to be lower than the trading prices of ERC Common
Stock immediately prior to the Distribution. The aggregate trading prices of ERC
Common Stock and Common Stock of Evercel after the Distribution may be less
than, equal to or greater than the trading prices of ERC Common Stock prior to
the Distribution. In addition, until the market has fully analyzed the
operations of ERC without the battery business, the prices at which ERC Common
Stock trades may fluctuate significantly.
<PAGE>
Reasons for the Distribution
The Board of Directors of ERC has determined, for the reasons set forth
below, to separate ERC into two publicly held companies: Evercel, a newly formed
corporation which will own and operate the battery business and operations, and
ERC, which will continue to own and operate its fuel cell business.
The battery business of Evercel and the fuel cell business of ERC have
distinctly different investment, operating and financial characteristics. For
instance, the battery markets are mature markets in which Evercel expects to
introduce a new product, while the fuel cell market is in its preliminary stage.
Currently, there are widespread commercial markets for batteries, while no such
markets exist for fuel cells. Battery products require mass production, while
fuel cell products are expected to be much more customized depending on their
use. Batteries have different retail market segments ranging from electronic
equipment, such as cell phones and computers to electric cars, while ERC's fuel
cells are mainly geared towards stationary electric power. The two businesses
attract investors having different investment criteria, and operation of the two
businesses by the same corporation or affiliated group of corporations may
reduce the ability of each business to attract equity capital.
The ERC Board therefore considers it to be in the best interests of both
the battery business and fuel cell business that they be separated, which will
allow management of each company to more appropriately undertake capital raising
requirements and investment decisions, as well as to allow investors to invest
in either business without consideration of the other.
In addition, the Distribution will allow Evercel to offer its employees an
effective equity-based employee compensation package as well as to allow ERC to
provide its employees with incentive plans that more appropriately relate to the
performance of its fuel cell business. Furthermore, the Board of Directors of
ERC believes that Evercel's post-Distribution capital structure and business
focus should help it better compete with other battery companies while enabling
ERC to devote its capital and personnel solely to the development of its fuel
cell technology.
Pursuant to the Distribution, a stockholder will have an ownership interest
in both ERC and Evercel after the Distribution. However, as a result of the
Distribution, current stockholders and prospective investors will have the
ability to make separate investment decisions regarding each business.
<PAGE>
Manner of Effecting the Distribution
In connection with the Distribution, the Distribution Agent distributed all
of the outstanding shares of Evercel Common Stock to the holders of record of
ERC Common Stock as of the ERC Record Date. Shares of Evercel Common Stock
received in the Distribution may not be sold or otherwise disposed of prior to
the date on which the Subscription Agent for the Rights Offering delivers to
Evercel final notice of the number of shares of Common Stock subscribed for in
the Rights Offering (the "closing") pursuant to a restriction on transfer
contained in Evercel's Amended and Restated Certificate of Incorporation
("Certificate"). Until such closing occurs, the Evercel Common Stock will be
uncertificated. It is expected that shares of Evercel Common Stock will be
delivered by the Distribution Agent to ERC stockholders promptly following the
closing of the Rights Offering.
Fractional shares of Evercel Common Stock were not issued in the
Distribution. A cash payment will be made to ERC stockholders otherwise entitled
to a fractional share of Evercel Common Stock as a result of the Distribution.
The amount of such payment will be based upon the average bid price on the first
day of trading of the Evercel Common Stock. Such payment will, therefore, not be
made until the Evercel Common Stock begins trading after the closing of the
Rights Offering.
No holder of ERC Common Stock will be required to pay any cash or other
consideration for the shares of Evercel Common Stock received in the
Distribution or surrender or exchange shares of ERC Common Stock. The
Distribution will not affect the number of, or the rights attaching to,
outstanding shares of ERC Common Stock. All shares of Evercel Common Stock will
be fully paid and non-assessable and the holders of those shares will not be
entitled to preemptive rights.
Listing and Trading of Evercel Common Stock
There is not currently a public market for the Evercel Common Stock. Prior
to the closing of the Rights Offering, the Evercel Common Stock received in the
Distribution may not be sold or otherwise disposed of pursuant to a restriction
on transfer contained in Evercel's Certificate. Prices at which Evercel Common
Stock may trade on a "when-issued" basis or after the closing of the Rights
Offering cannot be predicted. Until the Evercel Common Stock is fully
distributed, the Rights Offering is closed and an orderly market develops, the
prices at which trading in such stock occurs may fluctuate significantly.
Evercel Common Stock has been conditionally approved for listing on The Nasdaq
SmallCap Market under the symbol "EVRC" and Evercel has applied to have the
Evercel Common Stock listed for quotation on the Boston Stock Exchange under the
symbol "EVL", following the closing of the Rights Offering. The prices at which
Evercel Common Stock trades will be determined by the marketplace and may be
influenced by many factors, including the depth and liquidity of the market for
Evercel Common Stock, investor perception of Evercel and the industries in which
Evercel or its customers participate, and other general economic and market
conditions.
Federal Income Tax Aspects of the Distribution
Evercel has been advised by its counsel, Brown, Rudnick, Freed & Gesmer,
that the Distribution qualifies as a tax free spin-off under Sections 355 and
368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). Such
counsel has issued an opinion of counsel satisfactory to the ERC Board to the
same effect. So long as the Distribution qualifies under Sections 355 and
368(a)(1)(D) of the Code, in the opinion of Brown, Rudnick, Freed & Gesmer, the
principal Federal income tax consequences of the Distribution will be as
follows:
(1) No gain or loss will be recognized by (and no amount will be included
in the income of) a holder of ERC Common Stock upon the receipt of Common Stock
in the Distribution, other than on account of cash received in lieu of
fractional shares. A stockholder who receives cash in lieu of fractional shares
will recognize gain or loss equal to the difference between the amount of cash
received and the allocated basis of the fractional share deemed surrendered in
exchange for such cash. Provided the fractional share is a capital asset in the
hands of the stockholder, such gain or loss will be capital gain or loss.
<PAGE>
(2) The aggregate basis of the ERC Common Stock and the Evercel Common
Stock (including fractional shares in lieu of which cash will be issued) in the
hands of the stockholders of ERC immediately after the Distribution will be the
same as the aggregate basis of the ERC Common Stock held immediately before the
Distribution, allocated in proportion to the fair market value of each.
(3) The holding period of the Evercel Common Stock (including fractional
shares in lieu of which cash will be issued) received by the stockholders of ERC
will include the holding period of ERC Common Stock with respect to which the
Distribution will be made, provided that such stockholder held the ERC Common
Stock as a capital asset on the Distribution Date.
(4) No gain or loss will be recognized by ERC upon the Distribution.
The foregoing is only a summary of the material federal income tax
consequences of the Distribution under current law, and does not take into
account any special circumstances that may apply to particular stockholders.
Each stockholder should consult his or her tax advisor as to the particular
consequences of the Distribution to such stockholder, including the application
of state, local and foreign tax laws, and as to possible changes in tax laws
that may affect the tax consequences described above. This summary may not be
applicable to stockholders who received their ERC Common Stock pursuant to the
exercise of employee stock options, under an employee stock purchase plan or
otherwise as compensation or who are not citizens or residents of the United
States.
The opinions of counsel referred to above would not be binding upon the
Internal Revenue Service (the "IRS") and would be subject to certain factual
representations and assumptions. ERC is not aware of any present facts or
circumstances which should cause such representations and assumptions to be
untrue. However, certain future events not within the control of ERC or Evercel,
including certain extraordinary purchases of ERC Common Stock or Evercel Common
Stock, could cause the Distribution not to qualify as tax-free. Depending on the
event, Evercel may be liable for some or all of the taxes resulting from the
Distribution not qualifying under Sections 355 and 368(a)(1)(D) of the Code as
tax-free. If the Distribution were taxable, then (i) each holder of ERC Common
Stock who receives shares of Evercel Common Stock in the Distribution would be
treated as if such shareholder received a taxable distribution, taxed as a
dividend to the extent of such shareholder's pro rata share of ERC's current and
accumulated earnings and profits and then treated as a return of capital to the
extent of the holder's basis in the ERC Common Stock and finally as gain from
the sale or exchange of ERC Common Stock and (ii) corporate level taxes would be
payable by the affiliated group of which ERC is the common parent, based upon
the excess of the fair market value of the Evercel Common Stock on the date of
the Distribution over ERC's tax basis therein.
Relationship Between ERC and Evercel after the Distribution
For purposes of governing certain relationships between ERC and Evercel
after the Distribution and providing for an orderly transition, ERC and Evercel
have entered into various agreements, including those described below. Copies of
certain of the agreements are included as exhibits hereto, and the following
discussions with respect to such agreements are qualified in their entirety by
reference to the agreements as filed.
Distribution Agreement
ERC and Evercel have entered into a Distribution Agreement (the
"Distribution Agreement"), which provides for, among other things, the principal
corporate transactions required to effect the Distribution, the transfer to
Evercel of the principal assets of the Battery Business Group, the division
between ERC and Evercel of certain liabilities and obligations, the distribution
by ERC of all outstanding shares of the Evercel Common Stock to ERC stockholders
and certain other agreements governing the relationship between ERC and Evercel.
<PAGE>
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of obligations and liabilities and
cross-indemnities designed to allocate financial responsibility for the
obligations and liabilities arising out of or in connection with the battery
business to Evercel and financial responsibility for the obligations and
liabilities arising out of or in connection with the fuel cell business to ERC.
ERC has entered into a joint venture in China, called Xiamen Three
Circles-ERC Battery Corp., Ltd. (the "Joint Venture") with Xiamen Three Circles
Co., Ltd, a Chinese entity, to develop and manufacture nickel-zinc batteries to
be used to power electric bicycles, scooters, off-road vehicles and miners' cap
lamps to be marketed and sold in China and Southeast Asia. The Joint Venture and
ERC entered into a Technology Transfer and License Contract (the "Three Circles
License Agreement") pursuant to which ERC licensed certain of its nickel-zinc
battery technology to the Joint Venture. The Distribution Agreement provides
that ERC will transfer the Joint Venture and the Three Circles License Agreement
to Evercel after it obtains the consent of the Joint Venture and ERC's Chinese
partner and the approval of the appropriate examination and approval authority
of the PRC to the transfer. The Distribution Agreement also provides that ERC
will retain a limited license to use the technology transferred by ERC to
Evercel until all consents and approvals to the transfer to Evercel of the Three
Circles License Agreement and the related Joint Venture have been obtained.
In the Distribution Agreement, ERC has agreed to endeavor to cause Evercel
to become a party to a joint venture formed by ERC with the City of Xiamen,
China, called Xiamen-ERC Technology Company, Limited, in order to pursue
research in advanced electrochemical technologies. ERC has also agreed that this
joint venture will not undertake any projects involving battery technology
without Evercel's prior consent, until Evercel becomes a party to the joint
venture.
In accordance with the terms of the Option Agreement entered into by ERC
and Mr. Leitman at the time that Mr. Leitman joined ERC, which provides for the
grant by ERC to Mr. Leitman of stock options (the "ERC Options") to acquire
250,000 shares of ERC Common Stock, the Distribution Agreement provides that
Evercel will issue to Mr. Leitman one share of Evercel Common Stock for every
three shares of ERC Common Stock which he purchases pursuant to his exercise of
the ERC Options. The ERC Options began to vest in August 1997: 100,000 shares in
the first year and annual installments of 50,000 shares thereafter. These
options will become fully vested in August 2001. The Distribution Agreement
provides that ERC and Evercel will allocate the exercise price of the ERC
Options between them based proportionately upon the relative fair market values
of the ERC Common Stock and the Evercel Common Stock.
The Distribution Agreement also provides that each of Evercel and ERC will
be granted access to certain records and information in the possession of the
other, and requires the retention by each of Evercel and ERC for a period of six
years following the Distribution of all such information in its possession, and
thereafter requires that each party give the other prior notice of its intention
to dispose of such information. In addition, the Distribution Agreement provides
for the allocation of shared privileges with respect to certain information
(including, for example, the attorney-client privilege) and requires each of
Evercel and ERC to obtain the consent of the other prior to waiving any shared
privilege.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be charged to the party for whose benefit the expenses are
incurred.
<PAGE>
Tax Sharing Agreement
ERC and Evercel have entered into a tax sharing agreement (the "Tax Sharing
Agreement") that defines the parties' rights and obligations with respect to
filing of returns, payments, deficiencies and refunds of federal, state and
other income, franchise or certain other taxes relating to ERC's business for
periods prior to and including the Distribution and with respect to Evercel
after the Distribution. With respect to periods ending on or before the last day
of the taxable year in which the Distribution occurs, ERC is responsible for (i)
filing both consolidated federal tax returns for the ERC affiliated group and
combined or consolidated state tax returns for any group that includes a member
of the ERC affiliated group, including, in each case, Evercel for the relevant
periods of time that Evercel was a member of the applicable group, and (ii)
paying the taxes relating to such returns (including any subsequent adjustments
resulting from the redetermination of such tax liabilities by the applicable
taxing authorities). Evercel is responsible for filing returns and paying taxes
relating to it for periods that begin before and end after the Distribution and
for periods that begin after the Distribution. ERC and Evercel have agreed to
cooperate with each other and to share information in preparing such tax returns
and in dealing with other tax matters.
Services Agreement
Pursuant to the terms of the Distribution Agreement, ERC and Evercel have
entered into a Services Agreement (the "Services Agreement"), under the terms of
which ERC will provide to Evercel certain management and administrative
services, as well as the use of certain office, research and development, and
manufacturing and support facilities and services. The Services Agreement shall
continue until terminated by either party upon 120 days' notice. In addition,
Evercel may terminate the Services Agreement as to one or more of the services,
upon 60 days' notice to ERC.
The types of services to be provided pursuant to the Services Agreement by
ERC, through its employees, include financial reporting, accounting, auditing,
tax, office services, payroll, human resources, analytical lab, microscopic
analysis, machine shop and drafting, as well as the part time management
services of Jerry Leitman and Joseph Mahler, the Chief Executive Officer and
Chief Financial Officer, respectively, of ERC. ERC will also provide office,
research and development and manufacturing space for Evercel. The method of
calculating the applicable charges to be paid by Evercel for each type of
service are set forth in the Services Agreement; such charges are payable
quarterly.
ERC estimates that the net fees to be paid by Evercel to ERC for services
performed will initially be approximately $208,000 per quarter, excluding
certain services billed on the basis of usage, such as purchasing, analytical
lab, microscopic analysis, machine shop and drafting, which amount takes into
account ERC's additional costs related to providing such services, and will
decline as the services performed decrease. ERC presently expects that most of
such services will be provided by ERC for approximately one year.
License Assistance Agreement
Evercel and ERC have entered into a License Assistance Agreement (the
"License Assistance Agreement") pursuant to which Evercel has agreed to provide
all services and assistance necessary for Evercel to effectively fulfill, on
behalf of ERC, all of ERC's obligations under the Joint Venture contract and the
Three Circles License Agreement, pending the receipt of certain consents and
approvals to be obtained prior to the transfer of this contract and agreement to
Evercel, in exchange for payment to Evercel by ERC of all future remuneration
paid and other benefits accruing to ERC pursuant to such contract and agreement.
The intent of the License Assistance Agreement is to provide that Evercel will
bear the obligations and receive the benefits of ERC under the Joint Venture
contract and license agreement. In addition, until such consents and approvals
are obtained, ERC has agreed that should any vacancy occur in the Board of
Directors of the Joint Venture relating to a directorship which ERC is entitled
to appoint, ERC will request a nominee from Evercel to fill such vacancy. In
addition, in the event that the transfer of the Joint Venture contract and the
license agreement to Evercel has not taken place within six months from the date
of the License Assistance Agreement, upon the request of Evercel, ERC will
replace its appointees to the Board of Directors of the Joint Venture with
nominees specified by Evercel. ERC also agrees to exercise its residual rights
and powers in the Joint Venture interests including voting rights, in accordance
with Evercel's instructions. Evercel has also agreed to reimburse ERC for any
expenses incurred by ERC under the License Assistance Agreement; ERC anticipates
that such expenses, if any, will be minimal.
<PAGE>
Line of Credit and Guarantees
On February 5, 1999, Evercel entered into a Loan Agreement and Line of
Credit Note (the "Line of Credit") to borrow up to $3,450,000 (including
borrowings described below) from ERC for working capital and capital
expenditures purposes. Any outstanding borrowings will be secured by all of
Evercel's tangible and intangible personal property and bear interest at the
London Interbank Offered Rate (LIBOR) plus 1 1/2%, payable monthly in arrears.
The Line of Credit terminates on the earlier of August 5, 2000 or the date on
which Evercel has received net proceeds from the Rights Offering or from other
financing equal to at least $3,450,000.
In addition to the Line of Credit, ERC has unconditionally guaranteed
Evercel's obligations under a loan from First Union National Bank. The loan was
entered into by Evercel for the purpose of acquiring machinery and equipment. As
of February 28, 1999, Evercel had borrowed $608,000 of the $1,000,000 available
under this facility. ERC has also pledged $1,000,000 in cash as security for
this loan which will be payable from proceeds of the Rights Offering. ERC has
also guaranteed Evercel's performance under its lease for manufacturing and
office space. In the event of a default by Evercel under the lease, ERC's
liability is limited to $500,000 reduced each anniversary date of the lease by
$100,000. Notwithstanding the foregoing, the guaranty terminates after the first
anniversary of the lease upon Evercel's net worth exceeding $3,000,000.
<PAGE>
Item 7. Financial Statements and Exhibits.
- ------- ----------------------------------
(b) Pro forma financial information:
Balance sheet and income statement as of and for the year
ended October 31, 1998.
(c) Exhibits:
2 Distribution Agreement between ERC and Evercel, dated as of
February 16, 1999.
99 Press Release dated February 23, 1999.
<PAGE>
Item 7. Financial Statements and Exhibits
Pro Forma Financial Information
As noted above, on February 22, 1999, ERC effected a special tax-free
distribution to its stockholders of record on February 19, 1999, one share of
Evercel Stock for every three share of ERC Common Stock.
Pro forma
The following unaudited pro forma consolidated information is based on the
historical consolidated financial statements of Energy Research Corp adjusted to
give offset to the Distribution.
The unaudited pro forma consolidated balance sheet as of October 31, 1998
gives effect to the elimination of the battery business group, as well as other
adjustments, assuming the distribution had taken place on October 31, 1998.
The unaudited pro forma consolidated income statement for the year ended
October 31, 1998 gives effect to the elimination of the battery business group
as well as other adjustments, assuming the Distribution had taken place as of
the beginning of the period.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable.
The following unaudited pro forma consolidated financial statements have
been prepared in accordance with the rules and regulation of the Securities and
Exchange Commission. Management does not believe that this pro forma
presentation is indicative of the financial position and results which would
have occurred had the transaction occurred on the date indicated in the pro
forma consolidated financial statements because of the hypothetical nature of
the pro forma information and because ERC may have operated its fuel cell
business differently during that period.
<PAGE>
ENERGY RESEARCH CORPORATION
PRO FORMA CONSOLIDATED INCOME STATEMENT
Year Ended October 31, 1998
($000, except per share amounts)
<TABLE>
<CAPTION>
Historically Divestment Pro Forma
Reported Evercel Adjustments Pro Forma
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $24,318 19 24,299
Costs and expenses:
Cost of revenues 14,590 87 14,503
Administrative and selling 6,986 1,805 664 (a) 5,845
Depreciation 1,529 45 1,484
Research and development 2,258 1,832 1,787 (a) 2,213
------------- ------------- ------------- -------------
Total costs and expenses 25,363 3,769 2,451 24,045
------------- ------------- ------------- -------------
Income(loss) from operations (1,045) (3,750) 2,451 254
License fee income net 678 419 259
Interest expense (269) - (269)
Interest and other income, net 267 - 267
------------- ------------- ------------- -------------
Income (loss) before provision
for income taxes (369) (3,331) 2,451 511
Provision (benefit) for income taxes 13 (1,006) (833) (b) 186
------------- ------------ ------------- -------------
Net Income (loss) ($382) (2,325) 1,618 325
============= ============= ============= =============
Basic Earnings(Loss) per share ($0.09) $0.08
============= =============
Basic shares Outstanding 4,081,018 4,081,018
Diluted Earnings(Loss) per share ($0.09) $0.08
============= =============
Diluted shares Outstanding 4,081,018 4,227,428
</TABLE>
<PAGE>
Notes to Pro Forma Consolidated Income Statement for the year ended October
31, 1998.
(Unaudited)
The preceding pro forma income statements present the consolidated income
of ERC for the year ended October 31, 1998 after eliminating the battery
business group and after giving effect to the adjustment described below.
The adjustments made to the pro forma income statement assume that the
distribution occurred as of the beginning of the period.
It is management's opinion that these pro forma results are not necessarily
indicative of the results which would have occurred had the distribution been
made at the beginning of the period.
Historically Reported
The historically reported column represents the historical consolidated
income of ERC for the year ended October 31, 1998.
Divestment Evercel
The divestment represents the historical results of the battery business
group for the year ended October 31, 1998.
Pro Forma Adjustments
(a) This adjustment reflects the allowable administrative and selling and
research and development expenses recovered under government contracts
that was applied to the battery business group. The revenue for these
costs have remained with ERC.
(b) The tax benefit for these costs was recognized using the statutory tax
rate of ERC for the year ended October 31, 1998.
<PAGE>
ENERGY RESEARCH CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
Year Ended October 31, 1998
($000)
<TABLE>
<CAPTION>
Historically Divestment Pro Forma
Reported Evercel Adjsutments Pro Forma
ASSETS
------------ ------------ ------------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash & cash equivalents $10,304 1 603 (c) 10,906
Accounts receivable 3,813 17 3,796
Inventories 30 - 30
Deferred income taxes 1,073 - 1,073
Other current assets 646 - (333) (d) 313
----------- ------------ ------------ -----------
Total current assets 15,866 18 270 16118
Property Plant and equipment, net 8,347 825 7,522
Other assets, net 2,630 333 333 (d) 2,630
------------ ----------- ----------- -----------
Total assets 26,843 1,176 603 26,270
============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $755 - 755
Accounts Payable 620 53 567
Accrued Liabilities 2,928 80 2,848
Current portion of deferred license fee income 1,329 - 1,329
Due to ERC - 603 (603) (c) -
----------- ---------- ------------ -----------
Total Current Liabilities 5632 736 (603) 5,499
Long term liabilities:
Long-term debt 1,944 - 1,944
Deferred income taxes 177 17 160
----------- ----------- ----------- -----------
Total Liabilities 7,753 753 (603) 7,603
Minority interest 3,220 - 3,220
Stockholders' equity:
Convertible Preferred 600 - 600
Common Stock - - - -
Additional Paid in Capital 12,943 423 12,520
Retained Earnings 2,327 - 2,327
----------- ----------- ----------- ----------
Total stockholders' equity: 15,870 423 - 15,447
----------- ----------- ---------- ----------
Total liabilities and stockholders' equity: 26,843 1,176 (603) 26,270
=========== =========== =========== ===========
</TABLE>
<PAGE>
Notes to Pro Forma Consolidated Balance Sheet as of October 31, 1998.
(Unaudited)
The preceding pro forma balance sheet presents the consolidated financial
position as of October 31, 1998 after eliminating the battery business group and
after giving effect to the adjustments described below.
The adjustments made to this pro forma balance sheet assume that the
distribution occurred as of October 31, 1998.
Historically Reported
The historically reported column represents the historical balance sheet of
ERC as of October 31, 1998.
Divestment Evercel
The divestment's represent the historical balance sheet positions of the
battery business group and the amounts related to the Distribution as of October
31, 1998.
Pro Forma Adjustments
(c) Reflects $603 received from ERC based on subsequent borrowings by Evercel
after October 31, 1998 to repay ERC for fixed asset acquisitions.
(d) Deferred rights offering costs amounting to $333 has been reclassified to
non current assets on ERC's consolidated balance sheet.
<PAGE>
SIGNATURE
---------
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
Dated: March 9, 1999
By: \s\ Jerry D. Leitman
-------------------------------------
Jerry D. Leitman
President and Chief Executive Officer
<PAGE>
DISTRIBUTION AGREEMENT
BY AND BETWEEN
ENERGY RESEARCH CORPORATION
AND
EVERCEL, INC.
DATED AS OF
FEBRUARY 16, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.........................................................1
ARTICLE II. TRANSFER OF ASSETS.................................................6
Section 2.01. TRANSFER OF ASSETS TO EVERCEL...................................6
Section 2.02. CONSIDERATION FOR ASSET TRANSFERS...............................7
Section 2.03. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION................7
Section 2.04. COOPERATION RE: ASSETS.........................................8
Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS......................8
Section 2.06. CONVEYANCING AND ASSUMPTION INSTRUMENTS.........................9
Section 2.07. CASH MANAGEMENT.................................................9
Section 2.08. RETAINED LICENSE TO USE TECHNOLOGY..............................9
ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES.......................12
Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES.....................12
ARTICLE IV. THE DISTRIBUTION..................................................12
Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION..........................12
Section 4.02. ERC BOARD ACTION; CONDITIONS PRECEDENT TO THE DISTRIBUTION.....12
Section 4.03. THE DISTRIBUTION...............................................13
ARTICLE V. INDEMNIFICATION....................................................13
Section 5.01. INDEMNIFICATION BY ERC.........................................13
Section 5.02. INDEMNIFICATION BY EVERCEL.....................................14
Section 5.03. INSURANCE PROCEEDS.............................................14
Section 5.04. PROCEDURE FOR INDEMNIFICATION..................................14
Section 5.05. REMEDIES CUMULATIVE............................................16
Section 5.06. SURVIVAL OF INDEMNITIES........................................16
ARTICLE VI. CERTAIN ADDITIONAL MATTERS........................................17
Section 6.01. CERTAIN POST-DISTRIBUTION TRANSACTIONS.........................17
Section 6.02. NOTICES BY ERC.................................................17
ARTICLE VII. ACCESS TO INFORMATION AND SERVICES...............................17
Section 7.01. PROVISION OF CORPORATE RECORDS.................................17
Section 7.02. ACCESS TO INFORMATION..........................................18
Section 7.03. PRODUCTION OF WITNESSES........................................18
Section 7.04. REIMBURSEMENT..................................................18
Section 7.05. RETENTION OF RECORDS...........................................18
Section 7.06. CONFIDENTIALITY................................................19
Section 7.07. PRIVILEGED MATTERS.............................................19
ARTICLE VIII. INSURANCE......................................................21
Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE EVERCEL ASSETS.........21
Section 8.02. POST-DISTRIBUTION DATE CLAIMS..................................21
Section 8.03. ADMINISTRATION AND RESERVES....................................21
Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE............22
ARTICLE IX. MISCELLANEOUS.....................................................22
Section 9.01. COMPLETE AGREEMENT; CONSTRUCTION...............................22
-ii-
<PAGE>
Section 9.02. EXPENSES.......................................................23
Section 9.03. GOVERNING LAW..................................................23
Section 9.04. NOTICES........................................................23
Section 9.05. AMENDMENTS; WAIVERS............................................23
Section 9.06. SUCCESSORS AND ASSIGNS.........................................24
Section 9.07. TERMINATION....................................................24
Section 9.08. NO THIRD-PARTY BENEFICIARIES...................................24
Section 9.09. TITLES AND HEADINGS............................................24
Section 9.10. EXHIBITS AND SCHEDULES.........................................24
Section 9.11. LEGAL ENFORCEABILITY...........................................24
Section 9.12. ARBITRATION OF DISPUTES........................................25
Section 9.13. COUNTERPARTS...................................................25
Section 9.14. RELATIONSHIP OF PARTIES........................................26
Section 9.15. FURTHER ACTION.................................................26
Section 9.16. PREDECESSORS AND SUCCESSORS....................................26
SCHEDULES.....................................................................28
EXHIBIT A: FORM OF SERVICES AGREEMENT
EXHIBIT B: FORM OF TAX SHARING AGREEMENT
EXHIBIT C: FORM OF LICENSE ASSISTANCE AGREEMENT
-ii-
<PAGE>
- 4 -
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this 16th day
of February, 1999 by and between Energy Research Corporation, a New York
corporation ("ERC"), and Evercel, Inc., a Delaware corporation and wholly-owned
subsidiary of ERC ("Evercel").
RECITALS
WHEREAS, the Board of Directors of ERC has determined that it is in the
best interests of its stockholders to transfer to Evercel certain principal
assets related to ERC's battery business group and for Evercel to assume certain
liabilities related to such assets (the "Asset Transfers") in consideration for
shares of Evercel Common Stock, and thereafter to distribute all of the
outstanding shares of Evercel Common Stock that are held by ERC to the holders
of ERC common stock (the "Distribution");
WHEREAS, in connection with the Distribution, ERC and Evercel have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers and the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, any other Person directly
or indirectly controlling or controlled by, or under direct or indirect common
control with, such specified Person. For purposes of this definition, "control,"
when used with respect to any Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of ERC shall not include
Evercel or any other Person which would be an Affiliate of ERC by reason of
ERC's ownership of the capital stock of Evercel prior to the Distribution or the
fact that any officer or director of Evercel shall also serve as an officer or
director of ERC, and (ii) the Affiliates of Evercel shall not include ERC or any
other Person which would be an Affiliate of Evercel by reason of ERC's ownership
of the capital stock of Evercel prior to the Distribution or the fact that any
officer or director of Evercel shall also serve as an officer or director of
ERC.
<PAGE>
AGENT: Continental Stock Transfer and Trust Company, the distribution agent
appointed by ERC to distribute the Evercel Common Stock pursuant to the
Distribution.
ASSET TRANSFERS: Shall have the meaning set forth in the recitals hereof.
COMMISSION: The Securities and Exchange Commission.
CONSENTS: Shall have the meaning set forth in Section 4.01(c) hereof.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers and the assumption of Liabilities in the manner contemplated by
this Agreement and the Related Agreements.
DISTRIBUTION: Shall have the meaning set forth in the recitals hereof.
DISTRIBUTION DATE: The date determined by the ERC Board as the date on
which the Distribution shall be effected, which Distribution Date is
contemplated by the ERC Board to occur on or about February 22, 1999.
DISTRIBUTION RECORD DATE: The date established by the ERC Board as the date
for taking a record of the Holders of ERC Common Stock entitled to participate
in the distribution, which Distribution Record Date has been established as
February 19, 1999, subject to the fulfillment on or before February 22, 1999 of
certain conditions to the Distribution as provided in Section 4.02.
ERC: Shall have the meaning set forth in the recitals hereof.
ERC BOARD: The Board of Directors of ERC.
ERC BOOKS AND RECORDS: The books and records (including computerized
records) of ERC and all books and records owned by ERC which relate to the ERC
Retained Business or are necessary to operate the ERC Retained Business, or are
required by law to be retained by ERC, including without limitation, all files
relating to any Action pertaining to the ERC Retained Liabilities, original
corporate minute books, stock ledgers and certificates and corporate seals, and
all licenses, leases, agreements and filings, relating to ERC or the ERC
Retained Business (but not including the Evercel Books and Records, provided
that ERC shall have access to, and shall have the right to obtain duplicate
copies of, the Evercel Books and Records in accordance with the provisions of
Article VII).
ERC COMMON STOCK: The common stock, par value $.0001 per share, of ERC.
ERC CONTRACTS: The contracts to be assigned by ERC to Evercel listed on
Schedule 1.01(b).
ERC INDEMNIFIABLE LOSSES: Shall have the meaning set forth in Section 5.02
hereof.
<PAGE>
ERC INDEMNITEES: Shall have the meaning set forth in Section 5.02 hereof.
ERC INTELLECTUAL PROPERTY ASSETS: The intellectual property assets listed
on Schedule 1.01(d).
ERC PERSONAL PROPERTY ASSETS: The personal property assets listed on
Schedule 1.01(a).
ERC RETAINED ASSETS: The assets of ERC other than the Evercel Assets
transferred to Evercel by ERC, including without limitation (i) assets relating
to the ERC Retained Business, (ii) all of the assets expressly allocated to ERC
under this Agreement or the Related Agreements, and (iii) any other assets of
ERC and its Affiliates relating to the ERC Retained Business.
ERC RETAINED BUSINESS: The businesses conducted by ERC pursuant to or
utilizing the ERC Retained Assets, including without limitation, the fuel cell
business.
ERC RETAINED LIABILITIES: (i) All of the Liabilities arising out of or in
connection with the ERC Retained Assets or the ERC Retained Business, (ii) all
Liabilities arising out of or in connection with any lawsuits relating to the
Distribution, (iii) all of the Liabilities of ERC under, or to be retained or
assumed by ERC pursuant to, this Agreement or any of the Related Agreements,
(iv) any Financing Obligations not constituting Evercel Liabilities, (v) all
Liabilities for the payment of outstanding drafts of ERC attributable to the ERC
Retained Business existing as of the Distribution Date, (v) all Liabilities
arising out of or in connection with lawsuits or other claims or actions
relating to the Davis Superfund Site and the Gallups Quarry Superfund Site, (vi)
any obligation to repay up to $1,300,000 of payments previously made to ERC
pursuant to the Nan Ya License Agreement (as defined in Section 2.01(a) hereof),
and (vii) all other Liabilities of ERC not constituting Evercel Liabilities.
ERC RETAINED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of ERC (or any of its predecessors) which relate to
the ERC Retained Business but do not relate to the Evercel Business.
EVERCEL: Shall have the meaning set forth in the recitals hereof.
EVERCEL ASSETS: Shall have the meaning set forth in Section 2.01(b) hereof.
EVERCEL BOOKS AND RECORDS: The books and records (including computerized
records) of Evercel and all books and records owned by ERC which relate to the
Evercel Business or are necessary to operate the Evercel Business, including,
without limitation, all such books and records relating to Evercel Employees,
all files relating to any Action being assumed by Evercel as part of the Evercel
Liabilities, original corporate minute books, stock ledgers and certificates and
corporate seals, and all licenses, leases, agreements and filings, relating to
Evercel or the Evercel Business (but not including the ERC Books and Records,
provided that Evercel shall have access to, and have the right to obtain
duplicate copies of, the ERC Books and Records in accordance with the provisions
of Article VII).
<PAGE>
EVERCEL BUSINESS: The business conducted by ERC prior to the Transfer Date,
and by Evercel thereafter, pursuant to or utilizing the Evercel Assets,
including without limitation, the acquisition, development and operation of
battery assets and business.
EVERCEL COMMON STOCK: The common stock, par value $.01 per share, of
Evercel.
EVERCEL EMPLOYEES: All of the Evercel employees at the time of the
Distribution, as identified on Schedule 1.01(e).
EVERCEL INDEMNIFIABLE LOSSES: Shall have the meaning set forth in Section
5.01 hereof.
EVERCEL INDEMNITEES: Shall have the meaning set forth in Section 5.01
hereof.
EVERCEL LIABILITIES: (i) All of the Liabilities of Evercel under, or to be
retained or assumed by Evercel pursuant to, this Agreement or any of the Related
Agreements, including those set forth on Schedule 1.01(c), (ii) all Liabilities
for payment of outstanding drafts of ERC attributable to the Evercel Business
existing as of the Distribution Date, and (iii) all Liabilities arising out of
or in connection with any of the Evercel Assets or the Evercel Business.
EVERCEL POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of ERC or any of its Affiliates or predecessors,
which relate to the Evercel Business but do not relate to the ERC Retained
Business, and which Policies are either maintained by Evercel or assignable to
Evercel.
FINANCING OBLIGATIONS: All (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, notes, debentures or similar instruments, (iii)
obligations under capitalized leases and deferred purchase arrangements, (iv)
reimbursement or other obligations relating to letters of credit or similar
arrangements, and (v) obligations to guarantee, directly or indirectly, any of
the foregoing types of obligations on behalf of others.
HOLDERS: The holders of record of ERC Common Stock as of the Distribution
Record Date.
INDEMNIFIABLE LOSSES: Shall have the meaning set forth in Section 5.02
hereof.
INDEMNIFYING PARTY: Shall have the meaning set forth in Section 5.03
hereof.
INDEMNITEE: Shall have the meaning set forth in Section 5.03 hereof.
INFORMATION: Shall have the meaning set forth in Section 7.02 hereof.
INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
<PAGE>
INSURED CLAIMS: Those Liabilities that, individually or in the aggregate,
are covered within the terms and conditions of any of the Policies, whether or
not subject to deductibles, co-insurance, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
LIABILITIES: Any and all debts, liabilities and obligations, absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
PERSON: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
POLICIES: Insurance policies and insurance contracts of any kind relating
to the Evercel Business or the ERC Retained Business as conducted prior to the
Distribution Date, including without limitation primary and excess policies,
comprehensive general liability policies, automobile and workers' compensation
insurance policies, and self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder.
PRIVILEGES: All privileges that may be asserted under applicable law,
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
PRIVILEGED INFORMATION: All Information as to which ERC, Evercel or any of
their Subsidiaries are entitled to assert the protection of a Privilege.
RELATED AGREEMENTS: All of the agreements, instruments, understandings,
assignments or other arrangements which are entered into in connection with the
transactions contemplated hereby and which are set forth in a writing,
including, without limitation (i) the Conveyancing and Assumption Instruments,
(ii) the Services Agreement, (iii) the Tax Sharing Agreement and (iv) the
License Assistance Agreement.
RIGHTS OFFERING: The offering by Evercel to its stockholders, following the
Distribution, to subscribe for and purchase additional shares of Evercel Common
Stock pursuant to the exercise of transferable subscription rights issued to
such stockholders immediately following the Distribution pursuant to a
Registration Statement on Form SB-2 which has been declared effective under the
Securities Act.
SECURITIES ACT: The Securities Act of 1933, as amended.
SERVICES AGREEMENT: The Services Agreement between ERC and Evercel, which
agreement shall be entered into on or prior to the Distribution Date in
substantially the form of Exhibit A attached hereto.
<PAGE>
SHARED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of ERC or its predecessors which relate to both the
ERC Retained Business and the Evercel Business, and all other Policies not
constituting Evercel Policies or ERC Retained Policies.
SUBSIDIARY: With respect to any Person, (a) any corporation of which at
least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any non-corporate entity in which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of such
Person, directly or indirectly, at the date of determination thereof, has at
least majority ownership interest.
TAX SHARING AGREEMENT: The Tax Sharing Agreement between Evercel and ERC,
which agreement shall be entered into on or prior to the Distribution Date in
substantially the form of Exhibit B attached hereto.
THIRD-PARTY CLAIM: Shall have the meaning set forth in Section 5.04(a)
hereof.
TRANSFER DATE: The effective date of the transfer of assets and liabilities
hereunder by ERC to Evercel which date shall be on or prior to the Distribution
Date.
ARTICLE II.
TRANSFER OF ASSETS
Section 2.01. TRANSFER OF ASSETS TO EVERCEL
(a) On the Transfer Date, ERC shall take or cause to be taken all actions
necessary to cause the transfer, assignment, delivery and conveyance to Evercel
of all of ERC's right, title and interest in and to the principal assets related
to the Evercel Business, including, without limitation, the following assets:
(i) the ERC Personal Property Assets;
(ii) the ERC Contracts;
(iii) the ERC Intellectual Property Assets;
(iv) the Evercel Books and Records;
(v) all of the other assets to be assigned to Evercel by ERC
under this Agreement or the Related Agreements; and
<PAGE>
(vi) all other assets primarily relating to the Evercel
Business held by ERC.
Notwithstanding the foregoing, the following assets shall not be
transferred to Evercel:
(i) payments received by ERC pursuant to the license agreement (the "Nan Ya
License Agreement") between ERC and a joint venture between Nan Ya Plastics
Corporation of Taiwan and Xiamen Three Circles Co., Ltd. (formerly Xiamen
Daily-Used Chemicals Co., Ltd.) up to $1,300,000; and
(ii) subject to the provisions of Section 2.03 hereof, ERC's interest in
the Cooperative Joint Venture Contract (the "Joint Venture Contract") between
ERC and Xiamen Three Circles Co., Ltd. for the Establishment of Xiamen Three
Circles - ERC Battery Corp., Ltd., a Sino-Foreign Manufacturing Joint Venture
(the "Joint Venture"), dated as of July 7, 1998, and the related Technology
Transfer and License Contract between ERC and the Joint Venture (the "Three
Circles License Agreement").
(b) The "Evercel Assets" shall consist of the assets transferred to Evercel
by ERC pursuant to this Section 2.01.
Section 2.02. CONSIDERATION FOR ASSET TRANSFERS
As consideration for the foregoing asset transfers on or prior to the
Distribution Date, ERC shall receive from Evercel a sufficient number of shares
of Evercel Common Stock to effect the Distribution to the Holders of ERC Common
Stock.
Section 2.03. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION
To the extent that any transfers contemplated by this Article II shall not
have been fully effected on the Distribution Date, the parties shall cooperate
to effect such transfers as promptly as shall be practicable following the
Distribution Date. Nothing herein shall be deemed to require the transfer of any
assets or the assumption of any Liabilities which by their terms or operation of
law cannot be transferred or assumed; PROVIDED, HOWEVER, that ERC and Evercel
and their respective Subsidiaries and Affiliates shall cooperate in seeking to
obtain any necessary consents or approvals for the transfer of all assets and
Liabilities contemplated to be transferred pursuant to this Article II. In the
event that any such transfer of assets or Liabilities has not been consummated
effective as of the Distribution Date, the party retaining such asset or
Liability shall thereafter hold such asset in trust for the use and benefit of
the party entitled thereto (at the expense of the party entitled thereto) and
retain such Liability for the account of the party by whom such Liability is to
be assumed pursuant hereto, and take such other actions as may be reasonably
required in order to place the parties, insofar as reasonably possible, in the
same position as would have existed had such asset been transferred or such
Liability been assumed as contemplated hereby. As and when any such asset or
Liability becomes transferable, such transfer and assumption shall be effected
forthwith. The parties agree that, except as set forth in this Section 2.03, as
of the Distribution Date, each party hereto shall be deemed to have acquired
complete and sole beneficial ownership over all of the assets, together with all
rights, powers and privileges incidental thereto, and shall be deemed to have
assumed in accordance with the terms of
<PAGE>
this Agreement all of the Liabilities, and all duties, obligations and
responsibilities incidental thereto, which such party is entitled to acquire or
required to assume pursuant to the terms of this Agreement. The parties
expressly agree that ERC's interest in the Joint Venture Contract and the Three
Circles License Agreement (together, the "Three Circles Contracts") may not be
assigned to Evercel prior to obtaining the written consent and approval of ERC's
Chinese partner and the appropriate Chinese governmental authorities. Pending
receipt of these approvals, ERC and Evercel agree to enter into the License
Assistance Agreement in the form attached hereto as Exhibit C. Once such
consents and approvals have been obtained, ERC agrees to transfer and assign the
Three Circles Contracts to Evercel.
Section 2.04. COOPERATION RE: ASSETS
In the case that at any time after the Distribution Date, Evercel
reasonably determines that any of the ERC Retained Assets are essential for the
conduct of the Evercel Business, or ERC reasonably determines that any of the
Evercel Assets are essential for the conduct of the ERC Retained Business, and
the nature of such assets makes it impracticable for Evercel or ERC, as the case
may be, to obtain substitute assets or to make alternative arrangements on
commercially reasonable terms to conduct their respective businesses, and
reasonable provisions for the use thereof are not already included in the
Related Agreements, then Evercel (with respect to the Evercel Assets) and ERC
(with respect to the ERC Retained Assets) shall cooperate to make such assets
available to the appropriate party on commercially reasonable terms, as may be
reasonably required for such party to maintain normal business operations
(provided that such assets shall be required to be made available only until
such time as the other party may reasonably obtain substitute assets or make
alternative arrangements on commercially reasonable terms to permit it to
maintain normal business operations).
Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS
Each of the parties hereto understands and agrees that no party hereto is,
in this Agreement or in any other agreement or document contemplated by this
Agreement or otherwise, representing or warranting in any way (i) as to the
value or freedom from encumbrance of, or any other matter concerning, any assets
of such party or (ii) as to the legal sufficiency to convey title to any asset
transferred pursuant to this Agreement or any Related Agreement, including,
without limitation, any Conveyancing and Assumption Instruments. It is also
agreed and understood that there are no warranties, express or implied, as to
the merchantability or fitness of any of the assets either transferred to or
retained by the parties, as the case may be, and all such assets shall be "as
is, where is" and "with all faults" (provided, however, that the absence of
warranties shall have no effect upon the allocation of liabilities under this
Agreement). Similarly, each party hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of any
amendatory agreements and the making of any filings or applications contemplated
by this Agreement will satisfy the provisions of any or all applicable laws or
judgments or other instruments or agreements relating to such assets.
Notwithstanding the foregoing, the parties shall use their good faith efforts to
obtain all consents and approvals, to enter into all reasonable amendatory
agreements and to make all filings and applications which may be reasonably
required for the
<PAGE>
consummation of the transactions contemplated by this Agreement, and shall
take all such further reasonable actions as shall be reasonably necessary to
preserve for each of ERC and Evercel, to the greatest extent feasible, the
economic and operational benefits of the allocation of assets and liabilities
provided for in this Agreement. In case at any time after the Distribution Date
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary or desirable action.
Section 2.06. CONVEYANCING AND ASSUMPTION INSTRUMENTS
In connection with the Asset Transfers and the assumptions of Liabilities
contemplated by this Agreement, the parties shall execute or cause to be
executed by the appropriate entities the Conveyancing and Assumption Instruments
in such forms as the parties shall reasonably agree, including the assignment of
trademarks, patents, patent applications and other intellectual property rights.
Section 2.07. CASH MANAGEMENT
(a) Evercel shall establish and maintain a separate cash management system
and accounting records with respect to the Evercel Business effective as of
12:01 a.m. on the day following the Distribution Date; thereafter, (i) any
payments by ERC on behalf of Evercel in connection with the Evercel Business
(including, without limitation, any such payments in respect of Liabilities or
other obligations of Evercel under the Related Agreements) shall be recorded in
the accounts of Evercel as a payable to ERC; (ii) any payments by Evercel on
behalf of ERC in connection with the ERC Retained Business (including, without
limitation, any such payments in respect of Liabilities or other obligations of
ERC under the Related Agreements), shall be recorded in the accounts of ERC, as
a payable to Evercel; (iii) any cash payments received by ERC relating to the
Evercel Business or the Evercel Assets shall be recorded in the accounts of ERC,
as a payable to Evercel; (iv) any cash payments received by Evercel relating to
the ERC Retained Business or the ERC Retained Assets shall be recorded in the
accounts of Evercel as a payable to ERC; (v) ERC and Evercel shall make
adjustments for late deposits, checks returned for not sufficient funds and
other post-Distribution Date transactions as shall be reasonable under the
circumstances consistent with the purpose and intent of this Agreement; and (vi)
the net balance due to ERC or Evercel, as the case may be, in respect of the
aggregate amounts of clauses (i), (ii), (iii), (iv) and (v) shall be paid by ERC
or Evercel, as appropriate, as promptly as practicable. For purposes of this
Section 2.07 (a), the parties contemplate that the ERC Retained Business and the
Evercel Business, including but not limited to the administration of accounts
payable and accounts receivable, will be conducted in the normal course.
(b) All transactions contemplated in this Section 2.07 shall be subject to
audit by the parties, and any dispute thereunder shall be resolved by KPMG Peat
Marwick LLP (or, if KPMG Peat Marwick LLP is not available or the parties
mutually agree, by such other independent firm of certified public accountants
mutually acceptable to ERC and Evercel), whose decision shall be final and
unappealable.
Section 2.08. RETAINED LICENSE TO USE TECHNOLOGY
<PAGE>
Notwithstanding anything to the contrary contained in this Agreement,
Evercel acknowledges that ERC has licensed certain of the ERC Intellectual
Property Assets to the Joint Venture pursuant to the Three Circles License
Agreement. The Three Circles Contracts may require certain consents and
approvals prior to being transferred to Evercel. Therefore, without limitation
of the foregoing, following the transfer of the ERC Intellectual Property
Assets, pending the receipt of such consents and approvals, ERC shall retain a
non-exclusive license to use the ERC Intellectual Property Assets for the sole
purpose of fulfilling its obligations under the Three Circles Contracts. Evercel
agrees to promptly from time to time, but at least once a year, disclose to ERC
any know-how or patents of Evercel arising or issued after the Distribution Date
necessary for ERC to fulfill its obligations under such contracts.
Notwithstanding the foregoing, with respect to the Three Circles Contracts, upon
receipt of the necessary approvals as described in Section 2.03 hereof,
Evercel's obligations under this Section 2.08 shall terminate.
Section 2.09 AGREEMENT NOT TO COMPETE
ERC agrees not to participate, directly or indirectly, as principal, owner,
part-owner, partner, or in any other capacity, including as a passive
stockholder, partner or beneficial owner, in any business which owns, controls,
manages or otherwise operates a business which competes directly with the
Evercel Business. ERC and Evercel understand and acknowledge, however, that ERC
has formed a joint venture, called the Xiamen-ERC Technology Company, Limited
(the "Technology Joint Venture"), to develop and commercialize various advanced
electrochemical technologies, including battery technologies. ERC agrees that it
will endeavor to obtain amendments to the joint venture contract and articles of
association for the Technology Joint Venture to add Evercel as a party to the
Technology Joint Venture. Until Evercel becomes a party to the Technology Joint
Venture, however, ERC and Evercel agree that the Technology Joint Venture will
not undertake any projects involving battery technology without Evercel's prior
consent.
Section 2.10 CERTAIN MATTERS REGARDING EMPLOYEES
(a) Reference is made to the Option Agreement entered into between ERC and
Jerry D. Leitman ("Leitman"), dated as of August 1, 1997 (the "Option
Agreement"). Pursuant to the terms of the Option Agreement, Evercel agrees to
issue one share of Evercel Common Stock to Leitman for every three shares of ERC
Common Stock which he purchases from ERC from time to time pursuant to his
exercise of options granted by the Option Agreement. The exercise price received
from Leitman with respect to his exercise of options pursuant to the Option
Agreement will be allocated between ERC and Evercel proportionately, based upon
the fair market value of shares of each company immediately after the
Distribution. Evercel agrees to register under the Securities Act of 1933, as
amended, the shares of Evercel Common Stock to be issued to Leitman pursuant to
the exercise of the options granted by the Option Agreement.
(b) In addition, Evercel agrees to issue to Leitman a non-transferable
option (the "Evercel Option") to acquire 83,333 shares of Evercel Common Stock
exercisable at the Rights Offering purchase price (currently expected to be
$6.00 per share). Evercel agrees that the Evercel Option will be issued pursuant
to Evercel's 1998 Equity Incentive Plan and will be
<PAGE>
exercisable during the Rights Offering and will terminate at the end of the
Rights Offering. The Evercel Option will be exercisable to acquire 33,333 vested
shares and 50,000 restricted (unvested) shares. The restricted (unvested) shares
acquired pursuant to the Evercel Option will vest in accordance with the vesting
schedule set forth in the Option Agreement. Evercel further agrees to allow
Leitman to exercise the Evercel Option with respect to the 50,000 restricted
(unvested) shares by issuing to Evercel a nonrecourse note (the "Note") in the
amount of the total exercise price. The Note shall provide that, at such time as
these restricted (unvested) shares would otherwise vest, Leitman may repay the
applicable installment of the Note (i.e. the Note shall be payable in three
installments corresponding to the three remaining vesting dates set forth in the
Option Agreement). However, until the applicable installment of the Note is
repaid, the shares will remain restricted. In the event the Note is not fully
repaid by August 4, 2001, the shares shall be forfeited to the Company for no
consideration.
(c) Evercel agrees to issue to Joseph G. Mahler a non-transferable option
to acquire 16,666 shares of Evercel Common Stock exercisable at the Rights
Offering purchase price (currently expected to be $6.00 per share). Evercel
agrees that this option will be issued pursuant to Evercel's 1998 Equity
Incentive Plan and will vest in 25% installments over a four year period
beginning on December 11, 1999.
<PAGE>
ARTICLE III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES
Except as set forth in the Services Agreement, the Tax Sharing Agreement or
the other Related Agreements, effective as of and after the Distribution Date,
(a) Evercel shall assume, pay, perform and discharge in due course all of the
Evercel Liabilities, and (b) ERC shall pay, perform and discharge in due course
all of the ERC Retained Liabilities.
ARTICLE IV. THE DISTRIBUTION
Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION
(a) ERC and Evercel shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the transactions
contemplated by this Agreement and the Related Agreements.
(b) ERC and Evercel shall use all reasonable efforts to obtain any
third-party consents or approvals necessary or desirable in connection with the
transactions contemplated hereby ("Consents").
(c) ERC and Evercel will use all reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary or
desirable under applicable law, to consummate the transactions contemplated
under this Agreement and the Related Agreements.
Section 4.02. ERC BOARD ACTION; CONDITIONS PRECEDENT TO THE DISTRIBUTION
The ERC Board shall, in its discretion, establish any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall have been satisfied:
(a) The transactions contemplated by Sections 2.01 and 2.02 shall have been
consummated in all material respects;
(b) ERC and Evercel shall have obtained all Consents, the failure of which
to obtain would not, in the sole judgment of the ERC Board, have a material
adverse effect on ERC or Evercel;
(c) The Registration Statement on Form SB-2 under the Securities Act filed
by Evercel shall have been declared effective by the Commission;
(d) ERC and Evercel shall have entered into the Related Agreements to which
they are a party;
<PAGE>
(e) ERC and the Company shall have received an opinion of counsel
satisfactory to the ERC Board to the effect that the Distribution will qualify
as a tax free spin-off under Sections 355 and 368(a)(1)(D) of the Internal
Revenue Code of 1986, as amended.
PROVIDED, HOWEVER, that (i) any such condition may be waived by the ERC
Board in its sole discretion, and (ii) the satisfaction of such conditions shall
not create any obligation on the part of ERC or any other party hereto to effect
the Distribution or in any way limit ERC's power of termination set forth in
Section 9.07 or alter the consequences of any such termination from those
specified in such Section; and
PROVIDED, FURTHER, that ERC has entered into the Nan Ya License Agreement
and the Three Circles Contracts with certain Chinese and/or Taiwanese entities.
The parties acknowledge that the Joint Venture Contract does require consent,
and the Nan Ya License Agreement and the Three Circles License Agreement may
require consent, of the other parties to such contracts in order for ERC to
transfer them to Evercel. It is understood and agreed by the parties that such
Consents may not be obtained prior to the Transfer Date or the Distribution Date
and such Consents shall not be conditions precedent to the Distribution
Section 4.03. THE DISTRIBUTION
On the Distribution Date, subject to the conditions and rights of
termination set forth in this Agreement, ERC shall deliver to the Agent all of
the then outstanding shares of Evercel Common Stock owned by ERC and shall
instruct the Agent to distribute to the Holders one share of Evercel Common
Stock for every three shares of ERC Common Stock held as of the Distribution
Record Date, provided that such Evercel Common Stock shall be subject to a
restriction such that it may not be sold or otherwise disposed of prior to the
date on which the Rights Agent for the Rights Offering delivers to Evercel final
notice of the number of shares of Evercel Common Stock subscribed for in the
Rights Offering (the "Closing Date"). As soon as practicable following the
Closing Date of the Rights Offering, the Agent shall deliver certificates
representing the Evercel Common Stock to the Holders.
ARTICLE V.
INDEMNIFICATION
Section 5.01. INDEMNIFICATION BY ERC
Except as otherwise expressly set forth in a Related Agreement, ERC shall
indemnify, defend and hold harmless Evercel and its directors, officers,
employees, agents and Affiliates and each of the heirs, executors, successors
and assigns of any of the foregoing (the "Evercel Indemnitees") from and against
the ERC Retained Liabilities and any and all losses, Liabilities, damages,
including, without limitation, the costs and expenses of any and all Actions,
threatened Actions, demands, assessments, judgments, settlements and compromises
relating to the ERC Retained Liabilities and attorneys' fees and any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any such Actions or threatened Actions
<PAGE>
(collectively, "Evercel Indemnifiable Losses"and, individually, an "Evercel
Indemnifiable Loss") of the Evercel Indemnitees arising out of or due to the
failure or alleged failure of ERC or any of its Affiliates (i) prior to or after
the Distribution Date to pay, perform or otherwise discharge in due course any
of the ERC Retained Liabilities, or (ii) comply with the provisions of Section
6.01.
Section 5.02. INDEMNIFICATION BY EVERCEL
Except as otherwise expressly set forth in a Related Agreement, Evercel
shall indemnify, defend and hold harmless ERC and each of its respective
directors, officers, employees, agents and Affiliates and each of the heirs,
executors, successors and assigns of any of the foregoing (the "ERC
Indemnitees") from and against the Evercel Liabilities and any and all losses,
Liabilities, damages, including, without limitation, the costs and expenses of
any and all Actions, threatened Actions, demands, assessments, judgments,
settlements and compromises relating to the Evercel Liabilities and attorneys'
fees and any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any such Actions or threatened Actions
(collectively, "ERC Indemnifiable Losses" and, individually, an "ERC
Indemnifiable Loss") of the ERC Indemnitees arising out of or due to the failure
or alleged failure of Evercel or any of its Affiliates (i) prior to or after the
Distribution Date to pay, perform or otherwise discharge in due course any of
the Evercel Liabilities or (ii) comply with the provisions of Section 6.01. The
"Evercel Indemnifiable Losses," and the "ERC Indemnifiable Losses" are
collectively referred to as the "Indemnifiable Losses."
Section 5.03. INSURANCE PROCEEDS
The amount which any party (an "Indemnifying Party") is or may be required
to pay to any other Person (an "Indemnitee") pursuant to Section 5.01 or Section
5.02 shall be reduced (including, without limitation, retroactively) by any
Insurance Proceeds or other amounts actually recovered by or on behalf of such
Indemnitee in reduction of the related Indemnifiable Loss. If an Indemnitee
shall have received the payment required by this Agreement from an Indemnifying
Party in respect of an Indemnifiable Loss and shall subsequently actually
receive Insurance Proceeds, or other amounts in respect of such Indemnifiable
Loss as specified above, then such Indemnitee shall pay to such Indemnifying
Party a sum equal to the amount of such Insurance Proceeds or other amounts
actually received.
Section 5.04. PROCEDURE FOR INDEMNIFICATION
(a) Except as may be set forth in a Related Agreement, if an Indemnitee
shall receive notice or otherwise learn of the assertion by a Person (including,
without limitation, any governmental entity) who is not a party to this
Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; provided that the failure of any Indemnitee to give notice as
required by this Section 5.04 shall not relieve the Indemnifying Party of its
obligations under this Article V, except to the extent that such Indemnifying
Party is prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.04(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within 30 days after
receipt of such notice from the Indemnitee, the Indemnifying Party shall be
deemed to have elected not to assume responsibility for such Third-Party Claim),
and such Indemnitee shall cooperate in the defense or settlement or compromise
of such Third-Party Claim. After notice from an Indemnifying Party to an
Indemnitee of its election to assume responsibility for a Third-Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying Party) subsequently incurred by such Indemnitee in
connection with the defense thereof; provided that if the defendants in any such
claim include both the Indemnifying Party and one or more Indemnitees and in
such Indemnitees' reasonable judgment a conflict of interest between such
Indemnitees and such Indemnifying Party exists in respect of such claim, such
Indemnitees shall have the right to employ separate counsel and in that event
the reasonable fees and expenses of such separate counsel (but not more than one
separate counsel reasonably satisfactory to the Indemnifying Party) shall be
paid by such Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 5.01 or 5.02, as the case may be) such Indemnitee may defend or (subject
to the following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
claim without prior written notice to the Indemnifying Party, which shall have
the option within ten days following the receipt of such notice (i) to
disapprove the settlement and assume all past and future responsibility for the
claim, including reimbursing the Indemnitee for prior expenditures in connection
with the claim, or (ii) to disapprove the settlement and continue to refrain
from participation in the defense of the claim, in which event the Indemnifying
Party shall have no further right to contest the amount or reasonableness of the
settlement if the Indemnitee elects to proceed therewith, or (iii) to approve
the amount of the settlement, reserving the Indemnifying Party's right to
contest the Indemnitee's right to indemnity, or (iv) to approve and agree to pay
the settlement. In the event the Indemnifying Party makes no response to such
written notice from the Indemnitee, the Indemnifying Party shall be deemed to
have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to compromise any
Third-Party Claim, the Indemnitee shall make available to such Indemnifying
Party any personnel and any books, records or other documents within its control
or which it otherwise has the ability to make available that are necessary or
appropriate for such defense.
(d) Notwithstanding anything else in this Section 5.04 to the contrary, an
Indemnifying Party shall not settle or compromise any Third-Party Claim unless
such settlement or compromise contemplates as an unconditional term thereof the
giving by such claimant or plaintiff
<PAGE>
to the Indemnitee of a written release from all liability in respect of
such Third-Party Claim (and provided further that such settlement may not
provide for any non-monetary relief by Indemnitee without the written consent of
Indemnitee). In the event the Indemnitee shall notify the Indemnifying Party in
writing that such Indemnitee declines to accept any such settlement or
compromise, such Indemnitee may continue to contest such Third-Party Claim, free
of any participation by such Indemnifying Party, at such Indemnitee's sole
expense. In such event, the obligation of such Indemnifying Party to such
Indemnitee with respect to such Third-Party Claim shall be equal to (i) the
costs and expenses of such Indemnitee prior to the date such Indemnifying Party
notifies such Indemnitee of the offer to settle or compromise (to the extent
such costs and expenses are otherwise indemnifiable hereunder) plus (ii) the
lesser of (A) the amount of any offer of settlement or compromise which such
Indemnitee declined to accept and (B) the actual out-of-pocket amount such
Indemnitee is obligated to pay subsequent to such date as a result of such
Indemnitee's continuing to pursue such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not result
from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement.
(f) In addition to any adjustments required pursuant to Section 5.03, if
the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third-Party Claim against any claimant or plaintiff asserting
such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim. Section 5.05. REMEDIES
CUMULATIVE
The remedies provided in this Article V shall be cumulative and shall not
preclude assertion by any Indemnitee of any other rights or the seeking of any
and all other remedies against any Indemnifying Party.
Section 5.06. SURVIVAL OF INDEMNITIES
<PAGE>
The obligations of each of ERC and Evercel under this Article V shall
survive the sale or other transfer by it of any assets or businesses or the
assignment by it of any Liabilities with respect to any Indemnifiable Loss of
the other related to such assets, businesses or Liabilities.
ARTICLE VI.
CERTAIN ADDITIONAL MATTERS
Section 6.01. CERTAIN POST-DISTRIBUTION TRANSACTIONS
(a) EVERCEL. Evercel shall comply with each representation and statement
made, or to be made, to any taxing authority in connection with any ruling
obtained, or to be obtained, by ERC and Evercel acting together, from any such
taxing authority with respect to any transaction contemplated by this Agreement.
(b) ERC. ERC shall comply with each representation and statement made, or
to be made, to any taxing authority in connection with any ruling obtained, or
to be obtained, by ERC and Evercel acting together, from any such taxing
authority with respect to any transaction contemplated by this Agreement.
Section 6.02. NOTICES BY ERC
ERC shall provide notice of the Distribution to all holders of its
securities, or options, rights or warrants convertible into its securities, as
may be required by ERC's Certificate of Incorporation or Bylaws or any agreement
to which ERC is a party.
ARTICLE VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. PROVISION OF CORPORATE RECORDS
(a) Except as may otherwise be provided in a Related Agreement, ERC shall
deliver to Evercel as soon as practicable following the Distribution Date, to
the extent not previously delivered in connection with the transactions
contemplated in Article II, the Evercel Books and Records in its possession,
except to the extent such items are already in the possession of Evercel. The
Evercel Books and Records shall be the property of Evercel, but shall be
available to ERC for review and duplication until ERC shall notify Evercel in
writing that such records are no longer of use to ERC.
(b) Except as otherwise provided in a Related Agreement, Evercel shall
deliver to ERC as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, the ERC Books and Records in its possession, except to the extent
such items are already in the possession of ERC. The ERC Books and Records shall
be the property of ERC, but shall be available to Evercel for review and
<PAGE>
duplication until Evercel shall notify ERC in writing that such records are no
longer of use to Evercel.
Section 7.02. ACCESS TO INFORMATION
Except as otherwise provided in a Related Agreement, from and after the
Distribution Date, ERC shall afford to Evercel and its authorized accountants,
counsel and other designated representatives reasonable access (including using
reasonable efforts to give access to persons or firms possessing information)
and duplicating rights during normal business hours to all records, books,
contracts, instruments, computer data and other data and information relating to
pre-Distribution operations (collectively, "Information") within ERC's
possession insofar as such access is reasonably required by Evercel for the
conduct of its business, subject to appropriate restrictions for classified or
Privileged Information. Similarly, except as otherwise provided in a Related
Agreement, Evercel shall afford to ERC and their authorized accountants, counsel
and other designated representatives reasonable access (including using
reasonable efforts to give access to persons or firms possessing information)
and duplicating rights during normal business hours to Information within
Evercel's possession, insofar as such access is reasonably required by ERC for
the conduct of its business, subject to appropriate restrictions for classified
or Privileged Information. Information may be requested under this Article VII
for the legitimate business purposes of either party, including, without
limitation, audit, accounting, claims (including claims for indemnification
hereunder), litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations and for performing this Agreement and the
transactions contemplated hereby.
Section 7.03. PRODUCTION OF WITNESSES
At all times from and after the Distribution Date, each of ERC and Evercel
shall use reasonable efforts to make available to the others, upon written
request, its and its Subsidiaries officers, directors, employees and agents as
witnesses to the extent that such persons may reasonably be required in
connection with any Action.
Section 7.04. REIMBURSEMENT
Except to the extent otherwise contemplated in any Related Agreement, a
party providing Information or witness services to another party under this
Article VII shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payments of such amounts, relating to
supplies, disbursements and other out-of-pocket expenses (at cost) and direct
and indirect expenses of employees who are witnesses or otherwise furnish
assistance (at cost), as may be reasonably incurred in providing such
Information or witness services.
Section 7.05. RETENTION OF RECORDS
Except as otherwise required by law or agreed to in a Related Agreement or
otherwise in writing, each of ERC and Evercel may destroy or otherwise dispose
of any of the Information, which is material Information and is not contained in
other Information retained by ERC or Evercel, as the case may be, at any time
after the sixth anniversary of this Agreement, provided
<PAGE>
that, prior to such destruction or disposal, (a) it shall provide no less
than 90 or more than 120 days prior written notice to the other, specifying in
reasonable detail the Information proposed to be destroyed or disposed of and
(b) if a recipient of such notice shall request in writing prior to the
scheduled date for such destruction or disposal that any of the Information
proposed to be destroyed or disposed of be delivered to such requesting party,
the party proposing the destruction or disposal shall promptly arrange for the
delivery of such of the Information as was requested at the expense of the party
requesting such Information.
Section 7.06. CONFIDENTIALITY
Each of ERC, Evercel and their respective Subsidiaries shall hold, and
shall cause its employees, consultants and advisors to hold, in strict
confidence, all Information concerning the other parties hereto in its
possession or furnished by the other parties or the other parties'
representatives pursuant to this Agreement (except to the extent that such
Information has been (i) in the public domain through no fault of such party or
(ii) later lawfully acquired from other sources by such party), and subject to
Section 7.07, each party shall not release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, rating
agencies, bankers and other consultants and advisors, unless compelled to
disclose by judicial or administrative process or, as reasonably advised by its
counsel or by other requirements of law, or unless such Information is
reasonably required to be disclosed in connection with (x) any litigation with
any third-parties or litigation between ERC and Evercel or any of them, (y) any
contractual agreement to which ERC or Evercel or any of them are currently
parties, or (z) in exercise of any party's rights hereunder.
Section 7.07. PRIVILEGED MATTERS
ERC and Evercel recognize that legal and other professional services that
have been and will be provided prior to the Distribution Date have been and will
be rendered for the benefit of each of ERC and Evercel and that each of ERC and
Evercel should be deemed to be the client for the purposes of asserting all
Privileges. To allocate the interests of each party in the Privileged
Information, the parties agree as follows:
(a) ERC shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the ERC Retained Business, whether or not the Privileged Information
is in the possession of or under the control of ERC or Evercel. ERC shall also
be entitled, in perpetuity, to control the assertion or waiver of all Privileges
in connection with Privileged Information that relates solely to the subject
matter of any claims constituting ERC Retained Liabilities, now pending or which
may be asserted in the future, in any lawsuits or other proceedings initiated
against or by ERC, whether or not the Privileged Information is in the
possession of or under the control of ERC or Evercel.
(b) Evercel shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the Evercel Business, whether or not the Privileged Information is in
the possession of or under the control of ERC or Evercel. Evercel shall also be
entitled, in perpetuity, to control the assertion or waiver of all Privileges in
connection with Privileged Information which relates solely to the subject
matter of any claims constituting Evercel Liabilities, now pending or which may
be asserted in the future, in any lawsuits or other proceedings initiated
against or by Evercel, whether or not the Privileged Information is in the
possession of Evercel or under the control of ERC or Evercel.
(c) ERC and Evercel agree that they shall have a shared Privilege, with
equal right to assert or waive, subject to the restrictions in this Section
7.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings,
litigation, disputes or other matters which involve each of ERC and Evercel in
respect of which ERC and Evercel retain any responsibility or liability under
this Agreement shall be subject to a shared Privilege.
(d) No party may waive any Privilege which could be asserted under any
applicable law, and in which any other party has a shared Privilege, without the
consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within 20 days after notice upon the other party
requesting such consent.
(e) In the event of any litigation or dispute between ERC and Evercel, or
any of them, any party may waive a Privilege in which any other party has a
shared Privilege, without obtaining the consent of the other party, provided
that such waiver of a shared Privilege shall be effective only as to the use of
Information with respect to the litigation or dispute between such parties, and
shall not operate as a waiver of the shared Privilege with respect to
third-parties.
(f) If a dispute arises between the parties regarding whether a Privilege
should be waived to protect or advance the interest of any party, each party
agrees that it shall negotiate in good faith, shall endeavor to minimize any
prejudice to the rights of the other parties, and shall not unreasonably
withhold consent to any request for waiver by the other parties. Each party
specifically agrees that it will not withhold consent to waiver for any purpose
except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other request
which arguably calls for the production or disclosure of Information subject to
a shared Privilege or as to which any other party has the sole right hereunder
to assert a Privilege, or if any party obtains knowledge that any of its current
or former directors, officers, agents or employees have received any subpoena,
discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(h) The transfer of the Evercel Books and Records and the ERC Books and
Records and other Information between ERC, Evercel and their respective
Subsidiaries is made in reliance on the agreement of ERC and Evercel, as set
forth in Sections 7.06 and 7.07, to maintain the confidentiality of Privileged
Information and to assert and maintain all applicable Privileges. The access to
information being granted pursuant to Sections 7.01 and 7.02, the agreement to
provide
<PAGE>
witnesses and individuals pursuant to Section 7.03 and the transfer of
Privileged Information between ERC, Evercel and their respective Subsidiaries
pursuant to this Agreement shall not be deemed a waiver of any Privilege that
has been or may be asserted under this Agreement or otherwise.
ARTICLE VIII.
INSURANCE
Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE EVERCEL ASSETS
Without limiting the generality of the definition of the Evercel Assets set
forth in Section 2.01 or the effect of Section 2.01, the Evercel Assets shall
include (a) any and all rights of an insured party under each of the Shared
Policies, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer, with respect to all injuries,
losses, liabilities, damages and expenses incurred or claimed to have been
incurred on or prior to the Distribution Date by any party in or in connection
with the conduct of the Evercel Business or, to the extent any claim is made
against Evercel or any of its Subsidiaries, the ERC Retained Business, and which
injuries, losses, liabilities, damages and expenses may arise out of insured or
insurable occurrences or events under one or more of the Shared Policies;
PROVIDED, HOWEVER, that nothing in this Section 8.01 shall be deemed to
constitute (or to reflect) the assignment of the Shared Policies, or any of
them, to Evercel, and (b) the Evercel Policies.
Section 8.02. POST-DISTRIBUTION DATE CLAIMS
If, subsequent to the Distribution Date, any person, corporation, firm or
entity shall assert a claim against Evercel with respect to any injury, loss,
liability, damage or expense incurred or claimed to have been incurred on or
prior to the Distribution Date in or in connection with the Distribution or the
conduct of the Evercel Business or, to the extent any claim is made against
Evercel or any of its Subsidiaries, the ERC Retained Business, and which injury,
loss, liability, damage or expense may arise out of insured or insurable
occurrences or events under one or more of the Shared Policies, ERC shall at the
time such claim is asserted be deemed to assign, without need of further
documentation, to Evercel any and all rights of an insured party under the
applicable Shared Policy with respect to such asserted claim, specifically
including rights of indemnity and the right to be defended by or at the expense
of the insurer; provided, however, that nothing in this Section 8.02 shall be
deemed to constitute (or to reflect) the assignment of the Shared Policies, or
any of them, to Evercel.
Section 8.03. ADMINISTRATION AND RESERVES
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:
<PAGE>
(i) Evercel shall be entitled to any reserves established by ERC or any of
its Subsidiaries, or the benefit of reserves held by any insurance carrier, with
respect to the Evercel Liabilities; and
(ii) ERC shall be entitled to any reserves established by ERC or any of its
Subsidiaries, or the benefit of reserves held by any insurance carrier, with
respect to the ERC Retained Liabilities.
(b) INSURANCE PREMIUMS. Evercel shall have the right but not the obligation
to pay the premiums, to the extent that ERC does not pay premiums with respect
to the ERC Retained Liabilities (retrospectively-rated or otherwise), with
respect to Shared Policies and the Evercel Policies, as required under the terms
and conditions of the respective Policies, whereupon ERC shall forthwith
reimburse Evercel for that portion of such premiums paid by Evercel as are
attributable to the ERC Retained Liabilities.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received with
respect to claims, costs and expenses under the Policies shall be paid to
Evercel with respect to the Evercel Liabilities and to ERC with respect to the
ERC Retained Liabilities. Payment of the allocable portions of indemnity costs
of Insurance Proceeds resulting from the liability policies will be made to the
appropriate party upon receipt from the insurance carrier. In the event that the
aggregate limits on any Shared Policies are exceeded, the parties agree to
provide an equitable allocation of Insurance Proceeds received after the
Distribution Date based upon their respective bona fide claims. The parties
agree to use their best efforts to cooperate with respect to insurance matters.
Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE
In the event that Insured Claims of ERC and Evercel exist relating to the
same occurrence, such parties agree to jointly defend and to waive any conflict
of interest necessary to the conduct of that joint defense. Nothing in this
Section 8.04 shall be construed to limit or otherwise alter in any way the
indemnity obligations of the parties to this Agreement, including those created
by this Agreement, by operation of law or otherwise.
ARTICLE IX.
MISCELLANEOUS
Section 9.01. COMPLETE AGREEMENT; CONSTRUCTION
This Agreement, including the Schedules and Exhibits and the Related
Agreements and other agreements and documents referred to herein, constitutes
the entire agreement and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral, between the parties
hereto with respect to the subject matter hereof, so that no such external or
separate agreement relating to the subject matter of this Agreement shall have
any effect or be binding, unless the same is referred to specifically in this
Agreement or is executed by the parties
<PAGE>
after the date hereof. Notwithstanding any other provisions in this
Agreement to the contrary, in the event and to the extent that there shall be a
conflict between the provisions of this Agreement and the provisions of the
Related Agreements, the Related Agreements shall control.
Section 9.02. EXPENSES
Except as otherwise set forth in this Agreement or any Related Agreement,
all costs and expenses in connection with the preparation, execution, delivery
and implementation of this Agreement, the Distribution and with the consummation
of the transactions contemplated by this Agreement shall be charged to the party
for whose benefit the expenses are incurred, with any expenses which cannot be
allocated on such basis to be split equally between the parties. Notwithstanding
the foregoing, Evercel agrees to pay and/or reimburse ERC for any and all
expenses incurred by ERC pursuant to the License Assistance Agreement.
Section 9.03. GOVERNING LAW
This Agreement and the rights and obligations of the parties hereunder
shall be governed by the laws of the State of Connecticut, without regard to the
principles of choice of law thereof, except with respect to matters of law
concerning the internal corporate affairs of any corporate entity which is a
party to or subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall govern.
Section 9.04. NOTICES
Notices shall be sent to the parties at the following addresses:
Energy Research Corporation
3 Great Pasture Road
Danbury, Connecticut 06813
Evercel, Inc.
3 Great Pasture Road
Danbury, Connecticut 06813
Notices may be hand-delivered or sent by certified mail, return receipt
requested, Federal Express or comparable overnight delivery service, or
facsimile. Notice shall be deemed received at the time delivered by hand, on the
fourth business day following deposit in the U.S. mail, and on the first
business day following deposit with Federal Express or other delivery service,
or upon transmission by facsimile. Any party to this Agreement may change its
address for notice by giving written notice to the other party at the address
and in accordance with the procedures provided above.
Section 9.05. AMENDMENTS; WAIVERS
No termination, cancellation, modification, amendment, deletion, addition
or other change in this Agreement, or any provision hereof, or waiver of any
right or remedy herein provided, shall be effective for any purpose unless such
change or waiver is specifically set forth in a writing
<PAGE>
signed by the party or parties to be bound thereby. The waiver of any right
or remedy with respect to any occurrence on one occasion shall not be deemed a
waiver of such right or remedy with respect to such occurrence on any other
occasion.
Section 9.06. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. This Agreement shall
not be assigned without the express written consent of each of the parties
hereto.
Section 9.07. TERMINATION
This Agreement may be terminated and the Distribution abandoned at any time
prior to the Distribution Date by and in the sole discretion of the ERC Board
without the approval of Evercel. In the event of such termination, no party
shall have any liability to any other party pursuant to this Agreement.
Section 9.08. NO THIRD-PARTY BENEFICIARIES
Except for the provisions of Article V relating to Indemnities, this
Agreement is solely for the benefit of the parties hereto and their respective
Subsidiaries and Affiliates and should not be deemed to confer upon
third-parties any remedy, claim, Liability, reimbursement, claim of action or
other right in excess of those existing without reference to this Agreement.
Section 9.09. TITLES AND HEADINGS
Titles and headings to sections herein are inserted for the convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
Section 9.10. EXHIBITS AND SCHEDULES
The Exhibits and Schedules shall be construed with and as an integral part
of this Agreement to the same extent as if the same had been set forth verbatim
herein.
Section 9.11. LEGAL ENFORCEABILITY
In the event that one or more of the terms or provisions of this Agreement
or the application thereof to any person(s) or in any circumstance(s) shall, for
any reason and to any extent be found by a court of competent jurisdiction to be
invalid, illegal or unenforceable, such court shall have the power, and hereby
is directed, to substitute for or limit such invalid term(s), provision(s) or
application(s) and to enforce such substituted or limited terms or provisions,
or the application thereof. Subject to the foregoing, the invalidity, illegality
or enforceability of any one or more of the terms or provisions of this
Agreement, as the same may be amended from time to time, shall not affect the
validity, legality or enforceability of any other term or provision hereof. Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any such prohibition or unenforceability in
<PAGE>
any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. Without prejudice to any rights or remedies
otherwise available to any party hereto, each party hereto acknowledges that
damages would be an inadequate remedy for any breach of the provisions of this
Agreement and agrees that the obligations of the parties hereunder shall be
specifically enforceable.
Section 9.12. ARBITRATION OF DISPUTES
(a) Any controversy or claim arising out of this Agreement, or any breach
of this Agreement, including any controversy relating to a determination of
whether specific assets constitute Evercel Assets or ERC Retained Assets or
whether specific Liabilities constitute Evercel Liabilities or ERC Retained
Liabilities, shall be settled by arbitration in accordance with the Rules of the
American Arbitration Association then in effect, as modified by this Section
9.12 or by the further agreement of the parties.
(b) Such arbitration shall be conducted in Connecticut.
(c) Any judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The arbitrators shall have the
authority to award to the prevailing party its attorneys' fees and costs
incurred in such arbitration. The arbitrators shall not, under any
circumstances, have any authority to award punitive, exemplary or similar
damages, and may not, in any event, make any ruling, finding or award that does
not conform to the terms and conditions of this Agreement.
(d) Nothing contained in this Section 9.12 shall limit or restrict in any
way the right or power of a party at any time to seek injunctive relief in any
court and to litigate the issues relevant to such request for injunctive relief
before such court (i) to restrain any other party from breaching this Agreement
or (ii) for specific enforcement of this Section 9.12. The parties agree that
any legal remedy available to a party with respect to a breach of this Section
9.12 will not be adequate and that, in addition to all other legal remedies,
each party is entitled to an order specifically enforcing this Section 9.12.
(e) The parties hereby consent to the jurisdiction of the federal courts
located in Hartford, Connecticut for all purposes under this Agreement.
(f) Neither the parties nor the arbitrators may disclose the existence or
results of any arbitration under this Agreement or any evidence presented during
the course of the arbitration without the prior written consent of the parties,
except as required to fulfill applicable disclosure and reporting obligations,
or as otherwise required by law.
(g) Except as provided in Section 9.12(c), each party shall bear its own
costs incurred in the arbitration. If any party refuses to submit to arbitration
any dispute required to be submitted to arbitration pursuant to this Section
9.12, and instead commences any other proceeding, including, without limitation,
litigation, then the party who seeks enforcement of the obligation to arbitrate
shall be entitled to its attorneys' fees and costs incurred in any such
proceeding.
Section 9.13. COUNTERPARTS
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
together shall be deemed to be an original and all of which together shall be
deemed to constitute one and the same agreement.
Section 9.14. RELATIONSHIP OF PARTIES
Nothing in this Agreement shall be deemed or construed by the parties or
any third party as creating the relationship of principal and agent, partnership
or joint venture between the parties, it being understood and agreed that no
provision contained herein, and no act of the parties, shall be deemed to create
any relationship between the parties other than the relationship set forth
herein.
Section 9.15. FURTHER ACTION
Evercel and ERC each shall cooperate in good faith and take such steps and
execute such papers as may be reasonably requested by the other party to
implement the terms and provisions of this Agreement.
Section 9.16. PREDECESSORS AND SUCCESSORS
To the extent necessary to give effect to the purposes of this Agreement,
any reference to any corporation shall also include any predecessor or successor
thereto, by operation of law or otherwise.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
ENERGY RESEARCH CORPORATION
By: \s\ Jerry D. Leitman
---------------------------
Name: Jerry D. Leitman
Title: President and
Chief Financial Officer
EVERCEL, INC.
By: \s\ Allen Charkey
---------------------------
Name: Allen Charkey
Title: Executive Vice President
and Chief Operating Officer
<PAGE>
SCHEDULES
Schedule 1.01(a): ERC Personal Property Assets
Schedule 1.01(b): ERC Contracts
Schedule 1.01(c): Evercel Liabilities
Schedule 1.01(d): ERC Intellectual Property Assets
Schedule 1.01(e): Evercel Employees
<PAGE>
SCHEDULE 1.01(a)
ERC PERSONAL PROPERTY ASSETS
Description Acquisition Date
----------- ----------------
HP 6291A Power Supply 01/01/79
HP 6296A Power Supply 01/01/79
Mettler PC 4400 Balance 06/01/80
Dispatch Oven 01/01/79
Potentiostat Model 371 01/01/79
Polarographic Analyzer System 11/01/82
Power Supply DCR20-115B 11/01/82
Drying Racks 08/01/82
Mettler Balance Model PN1210 11/01/82
RE0091 X-Y Recorder 10/01/84
EG&G Par C MD 175 Programmer 11/01/82
Simpson 462 Digital Multimeter 01/01/79
Omega RD-115-T-AR12 Chart Recorder 08/01/87
HP 6263B Power Supply 01/01/75
Potentiostat/Galvanostat 11/01/82
Omega 595 Strip Chart Recorder 06/01/84
DCR 60-30B Power Supply 01/01/79
Unitron TM-25-544 Microscope 01/01/79
Thermolyne Oven 124 01/01/79
QRD 40-75 Power Supply 01/01/79
HP 6260B Power Supply 01/01/75
Linear 595 Chart Recorder 03/01/82
Omega Chart Recorder Model 595 04/01/88
Omega Chart Recorder 09/01/86
Diarco Shear #1 01/01/79
Power Supply DCR60-45B 11/01/82
HP Mod 6433B DC Power Supply 01/01/72
Power Supply QRD 15-2 11/01/82
QRD15-2 Power Supply 01/01/79
<PAGE>
Large Dough Mixer 01/01/79
Digital Multimeter 01/01/79
Linear 595 Chart Recorder 08/01/84
HP 6267B Power Supply 02/01/89
Model 461-2 Digital Multimeter 01/01/79
Fluke 75 Multimeter 01/01/79
Omega RD115-T AR12 Recorder 01/01/79
K-Tron Model LWF Loss In Feed 06/01/89
Kneader/Extruder w/Heat, Dies 02/01/83
Upgrade Buss Extruder 12/01/87
Dispatch Oven 01/01/79
Dispatch Oven 01/01/79
Rolling Mill 07/01/76
16" Electrode Rolling Mill 12/01/78
16" Electrode Rolling Mill 12/01/79
Revise 16" Rolling Mill to 20" 06/01/87
Control System for Rolling Mill 12/01/80
Oil Seals/Lab on Rolling Mill 02/01/80
Modify 20" Rolling Mill 01/01/90
Diarco #3 Shear 01/01/79
Linear 595 3 Pen Chart Recorder 01/01/79
Fluke 77 Multimeter 01/01/79
Weighing Scale and Scoop 02/01/76
Rolling Mill 01/01/79
Rolling Mill 01/01/79
Double Arm Sigma Blade Mixer 11/01/75
Ross Double Planetary Mixer 06/01/73
Rolling Mill 01/01/79
Rolling Mill 01/01/79
Photo Meter Digital 08/01/79
Illuminance Probe 11/01/79
DCB 40-125A Power Supply 01/01/79
<PAGE>
Steromicroscope, Wild 01/01/79
Power Supply DCR40-13B 10/01/85
179A Trms Multimeter 01/01/79
Power Supply DCR40-13B 10/01/85
Model 177 Digital Multimeter 12/01/85
Schulz Power Supply 01/01/79
ACDC Mod EL 750 Electronic Load 01/01/79
ACDC Mod EL750 Electronic Load 01/01/79
Power Supply QRD15-2 Sorensen 11/01/82
Thelco Lab Oven Model 4 01/01/79
DCR40-13B Power Supply 01/01/79
Digital Multimeter Data Precis. 01/01/79
Fluke 8050A Digital Multimeter 01/01/79
HP DC Power Supply 09/01/84
Sorensen Power Supply DCR80-6B 02/01/85
Power Supply DCR10-170B 11/01/82
Omega Chart Recorder Model 595 04/01/88
Linear 595 Chart Recorder 03/01/82
Fluke 8050A O M M 01/01/79
Diarco #2 Hand Notcher 12/01/78
Benchmaster Press #151 08/01/78
Benchmaster Punch Press #152 01/01/79
Diarco #4 Shear 01/01/79
Gruenberg 400 C Oven 01/01/79
Stock Stand Model P-10 09/01/84
2 Ft Shear #4, Dedgro 09/01/76
Profab Corner Radius Mach #900 08/01/85
Rosenthal Variable Shelter 10/01/85
Punch Press 09/01/76
Rolling Mill 01/01/79
Crosshead Extruder for Buss 02/01/84
80-12B Power Supply 01/01/79
<PAGE>
Continuous Piercing Machine 04/01/87
Two Roll Amil Milder Calander 01/01/72
Calander Tension Stand 02/01/86
80 Ton Press 01/01/74
J. H. Wood 80 Ton Press 12/01/77
Hydraulic Cylinder for Press 10/01/81
Vertrod Heat Sealer 12" 01/01/79
High Speed Twin Shell Blender 02/01/76
Potentiostat/Galvanostat M 273 06/01/86
HP 4328A Milliohm Meter 12/01/87
4 1/2 Digit Multimeter 09/01/76
Expansion of Government Piercer 10/01/83
HP 3476A Multimeter 01/01/79
Modify Battery Cycler 10/01/91
Chart Recorder 3 Channel 11/01/90
Grieve 5A550 Shelf Oven 03/01/91
Electrode Rinsing System 10/27/92
Pneumatic Hopper for Electrode 10/31/92
Cool Flow Refrig Recirculator 12/31/92
Cell Cycler 04/01/94
2-10 Input Hybrid Bench Recorder 06/01/95
Welder and Accessories 07/01/95
Battery Testing System 10/01/95
Display Cabinet Battery Parts 12/01/95
Battery Testing Freezer 03/01/96
Voltage Monitoring Test Stand 10/01/96
Piercing Machine and Mods 05/01/97
Champ Bench Scale 09/01/97
Arbin Test System 4 Indp Chan 09/01/97
<PAGE>
Ultrasonic 3000 Watt Welder 05/01/97
Horn Anvil Top and Bottom Cutter 01/01/97
Arbin Test System Mod #149268 05/01/97
2 Sorensen Power Supply 0-80V 03/01/98
Solvent Pump Delivery System 03/01/98
Ph Adjustment System 03/01/98
Aluminum Welded Dry Cabinet 03/01/98
Electric Scooter and Cycle 03/01/98
25241-0045 Model 45 Vacuum Pump 06/01/98
1500 Lb Trailer/Ramps and Lights 06/01/98
Install/Access for Battery Cycler 03/01/89
4 Post Car Lift and Cement Pad 06/01/98
Power Supply 0-6V DC 06/01/95
Battery Display Cabinet 03/01/97
Replace Transmission Frnch Mil 01/01/97
Bookcase w/Glass Doors, Black 01/01/79
Side Arm Chair, Black 04/01/83
Side Arm Chair, Black 04/01/83
Steelcase 5 Drawer File Cabinet 04/01/83
Work Table, Black w/Walnut 01/01/79
Bookcase, Black 01/01/79
Bookcase, Black 01/01/79
Drafting Board 01/01/79
Executive Desk, Black w/Walnut 01/01/79
Bookcase, Walnut 04/01/88
Highback Swivel Tilt Chair 04/01/88
Executive Desk, Black w/Walnut 01/01/79
4 Drawer File Cabinet, Black 01/01/79
Bookcase, Black 01/01/79
Folding Table, Oak Top 08/01/88
4 Drawer File Cabinet, Black 01/01/79
Lab Stool, Upholstered w/Casters 01/01/86
Storage Cabinet, Grey 01/01/79
Safety Storage Cabinet, Yellow 01/01/79
Storage Cabinet, Grey 01/01/79
<PAGE>
Storage Cabinet, Black 08/01/83
4 Drawer File Cabinet, Black 01/01/79
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Captain Chair 01/01/91
Office Furniture, Battery Area 06/01/98
Office Furniture, C. Huang 06/01/98
Office Furniture, K. Bates 04/01/98
Cell Case and Cover Mold 06/01/78
Tooling for Cell Case and Cover 12/01/77
Tooling Ni-Cd Miners Battery 06/01/82
Tooling Ni-Cd Miners Battery 12/01/79
Battery Case Injection Mold 10/01/82
Battery Cover Injection Mold 10/01/82
Special Znbr Tooling at Vendor 11/01/82
Steel Rule Die 11/01/82
3 Cavity Molds/Miners Battery 02/01/84
Cavity Mold/30 AH Cell Case 07/01/83
Case Mold 07/01/77
2 Single Cavity Injection Molds 04/01/86
Steel Stamp Tool/Miners Ni-Cd 01/01/85
Tooling/Stamp Tabs Ni-Cd Battery 04/01/85
Mod/Case/Cover Mold Miners Battery 05/01/85
Single Cavity Injection Mold 04/01/86
Tooling 8000 AG Ni-Cd Tabs 12/01/86
<PAGE>
Injection Mold/Zinc Battery 04/01/89
Compression Mold/Bipolm Plates 05/01/89
Mold/Battery Flash Arrestor Ni 01/01/89
Battery Case and Cover Mold 08/01/95
Panasonic KX-P1091 Printer 01/01/79
Personal Computer and Monitor 08/31/92
Hirez VGA and DeskJet 500C Printer 10/31/92
Gateway P5-75 09/01/95
Gateway P5-120 PC 01/01/96
Gateway 2000 P-5 133 PC 09/01/96
Gateway 300MHz PC InkJet Printer 06/01/98
Gateway GP6-300 PC 06/01/98
Monitor 08/01/98
Gateway G6-300 PC 06/01/98
Install 1 4000 Amp Trans Switch 12/01/93
Map Assist Software 09/01/91
Elec Hook Up EV Battery Test 06/01/98
Mettler Top Loading Elec Scale 04/01/98
Battery Insulation Test 04/01/98
Rosenthal Sheeting System 06/01/98
Kras VSK083 Press 06/01/98
AU50R Pneumatic Torque/Screw 06/01/98
Helium Leak Test System 06/01/98
BT2043 Computer Control Cycler 06/01/98
19 Cubic Ft Incubator 08/01/98
20KHz Titanium Bar Horn 09/01/98
Inert Atmosphere Furnace, Small 09/01/98
Two Dry Material Blenders 10/01/98
Miniflex and Portable XRD System 09/01/98
3 Gateway GP6-400MHz PCs 10/01/98
Surftest Test 10/01/98
Appro # 151102 07/01/98
<PAGE>
Appro # 151-126 10/01/98
Appro # 151-104 08/01/98
Appro # 151106 07/01/98
Appro # 151-109 07/01/98
Appro # 151-055 10/01/98
Appro # 151-130 10/01/98
Appro # 151-096 09/01/98
Appro # 151-143 SB 151-143 10/01/98
Appro # 153-111 10/01/98
Appro # 154054 07/01/98
Two Modular Work Stations 10/01/98
<PAGE>
SCHEDULE 1.01(b)
ERC CONTRACTS
Technology Transfer and License Agreement for Ni-Zn Battery Technology
among Xiamen Three Circles Co., Ltd. (formerly Xiamen Daily-Used Chemicals Co.,
Ltd.), Nan Ya Plastics Corporation and ERC dated February 21, 1998.
Employment Agreement by and between ERC and Allen Charkey, dated as of
December 15, 1998. BATTERY GROUP CONFIDENTIALITY AGREEMENTS (BY DATE)
NAME EFFECTIVE DATE
- ---- --------------
Proslovia Inc. 7/7/98
Talisman International of Ohio 6/6/98
Currie Technologies 5/26/98
Dukane Corp. 5/15/98
Bell Technologies 5/5/98
BM - Battery Machinw 4/30/98
G.E. Schmidt 4/16/98
Miyachi Corp 4/7/98
Audi AG 4/3/98
Electro Energy Inc. 3/31/98
Orbel Corp. 3/30/98
Texmax 3/23/98
Arbin Inc. 3/23/98
Lewis Corp. 3/18/98
Hibar Systems Limited 3/17/98
IMD Corp. 3/17/98
Charles Ross & Son 3/17/98
Despatch Industries 3/17/98
Bodine Assemble & Test System 2/23/98
Zentrum For Sonnergie-und Wasserstroff 2/16/98
<PAGE>
Beacon Group 2/10/98
BST Systems Corp. 12/19/97
Nan Ya Plastics Co. 11/14/97
Danstep Associates 2/11/97
Courtaulds Fibres 06/17/96
Eveready Battery Co., Inc. 11/26/96
MATEC/BEWAG, Berlin 11/25/98
MATEC/GEW, Wilhelmshaven 11/25/98
MATEC/Wilhelmshaven 11/25/98
MATEC/VASA Energy, Hamburg 11/25/98
INMETCO 11/17/98
City of Xiamen, City 11/14/98
Rechargable Battery Corp. 11/11/98
Richel Inc. 11/6/98
Electro Energy Inc. 11/6/98
Yardney Technical Products 11/2/98
Garlock Inc. 10/30/98
Jaygo Inc. 10/30/98
CELGARD LLC 10/27/98
The Guest Co. 10/22/98
Maccor Inc. 10/22/98
Mauricio Rizikow 10/22/98
Jet Puverizer 10/22/98
Firing Circuits Inc. 10/15/98
Vernay Laboratories 8/18/98
Aero Vironment Inc. 9/17/98
Computer Aided Engineering 8/13/98
Straton Industries 8/13/98
H.C. Starck Business Group 8/7/98
All Battery consultants 8/7/98
Celgard 8/6/98
Mitsubishi Bank & Trust Corp. 7/7/98
<PAGE>
BATTERY TEST AGREEMENTS
(BY DATE)
NAME EFFECTIVE DATE
- ---- --------------
NEOCON Technologies Inc. 11/30/98
Honda R&D Americas 10/13/98
Center for Hydrogen & Solar Research 7/28/98
ZAP Power System 7/22/98
EV Global Motors Co. 6/15/98
Charger Electric Bicycle Co. 6/17/98
Currie Technologies 5/26/98
Cannondale Corp. 8/5/98
PIVCO 3/3/98
Bodine Assembly & Test Systems 3/3/98
Bay Resource Corporation 2/26/98
Daimler Benz AG 8/7/97
Aero Vironment Inc. 9/17/96
Toro MFG. Corp. 9/12/96
Alvin J. Salkind 4/12/95
Electric Bicycle Co. 7/25/93
BATTERY SERVICE AGREEMENTS
(BY DATE)
NAME EFFECTIVE DATE
- ---- --------------
MATEC (Marketing and Techology Consult GmbH) 10/6/98
BATTERY MEMORANDUM OF UNDERSTANDING
(BY DATE)
NAME EFFECTIVE DATE
- ---- --------------
TRAPOS (Transport Systemetecnic AG) 10/27/98
<PAGE>
SCHEDULE 1.01(c)
EVERCEL LIABILITIES
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.01(d)
ERC INTELLECTUAL PROPERTY ASSETS
U.S. PATENTS AND PENDING U.S. PATENT APPLICATIONS
Patent No. Issue Date File No.
- --------- ---------- --------
<S> <C> <C>
4,415,636 November 11, 1983 30512
4,546,058 October 8, 1985 32984
4,661,759 April 28,1987 40006
4,810,598 March 7, 1987 40067
4,976,904 December 11, 1990 40066
5,023,155 June 11, 1991 40110
5,264,305 November 23, 1993 B429-001
5,460,899 October 24, 1995 B429-010
5,556,720 September 17, 1996 B429-010 CIP
5,658,694 August 19, 1997 B429-021
Patent Appln. No. Filing Date File No.
08/722,605 September 27, 1996 B429-019
08/828,801 March 27, 1997 B429-026
09/148,451 September 4, 1998 B429-029
</TABLE>
<PAGE>
SCHEDULE 1.01(e)
EVERCEL EMPLOYEES
Permanent Employees Temporary Employees
- ------------------- -------------------
Kathy Bates Steve Elam
Fernando Bico Maria Quiroz
Allen Charkey Jeff Gardner
William Clark Vincent Marra
Elio Ferreira George Tirado
Lieng Nguyen Elaine Vargas
Jacqueline Nguyen Estelle Barnes
John Rotondo
Glen Bowling
Olivia Saraiva
Mike Nyce
Keith Williams
Virgil Handberry
James DeCarvalho
Phil Napoli
Richard Howard
<PAGE>
EXHIBITS
Exhibit A: Form of Services Agreement
Exhibit B: Form of Tax Sharing Agreement
Exhibit C: Form of License Assistance Agreement
Contact: Rick Teller
The Teller Group, LLP
(781) 545-3600
e-mail: [email protected]
Joseph G. Mahler
Evercel, Inc.
(203) 825-6000
e-mail: [email protected]
FOR IMMEDIATE RELEASE
---------------------
ENERGY RESEARCH CORPORATION ANNOUNCES
SPIN-OFF OF EVERCEL
Danbury, Connecticut, February 23, 1999 -- Energy Research Corporation
(AMEX:ERC) announced today that it has effected a spin-off to its stockholders
of 100% of the shares of Evercel, Inc. ("Evercel"), formerly a wholly-owned
subsidiary of ERC. ERC has transferred to Evercel the principal assets and
liabilities of ERC's battery business group. Evercel will continue to engage in
the development and commercialization of a patented, nickel-zinc ("Ni-Zn")
rechargeable battery, as well as the research and design of other advanced
battery technologies. ERC will continue to operate its fuel cell business.
On February 22, 1999, ERC distributed to its stockholders in a tax-free
distribution (the "Distribution") one share of Evercel Common Stock for every
three shares of ERC Common Stock held on February 19, 1999. Fractional shares of
Evercel common stock were not issued in the Distribution. A cash payment will be
made to stockholders otherwise entitled to a fractional share of Evercel Common
Stock as a result of the Distribution. Shares of Evercel Common Stock received
in the Distribution may not be sold or otherwise disposed of prior to the
closing of the rights offering currently being conducted by Evercel.
In order to fund its commercialization efforts, immediately after the
Distribution, Evercel granted at no cost to holders of its Common Stock,
transferable subscription rights ("Rights") to subscribe for and purchase an
additional share of Evercel's Common Stock (the "Rights Offering"). Each holder
of Evercel's Common Stock received one Right for each share of Common Stock held
of record immediately following the Distribution. Each Right is exercisable,
until March 22, 1999, to purchase one share of Common Stock of Evercel at a
purchase price of $6.00 per share.
-MORE-
ENERGY RESEARCH CORPORATION
ANNOUNCES SPIN-OFF OF EVERCEL
PAGE TWO
The ERC Board decided to effect the Distribution because it believes that
it is in the best interests of both businesses that they be separated. The
battery business of Evercel and the fuel cell business of ERC have distinctly
different investment, operating and financial characteristics. The two
businesses attract investors with different investment objectives, and the ERC
Board believes that the separate operation of the two businesses enhances the
ability of each business to attract capital. The spin-off of Evercel will allow
each company to more appropriately undertake capital requirements and investment
decisions and to pursue separate business strategies. The spin-off will also
allow investors to invest in either business without consideration of the other.
Loeb Partners Corporation and Burnham Securities Inc. will act as standby
underwriters for any shares of Evercel Common Stock that are not purchased in
the Rights Offering. The standby underwriters intend to sell any such remaining
shares to the public following the closing of the Rights Offering which is
expected to occur on or about April 5, 1999. Evercel has applied to have its
Common Stock listed for quotation on the Nasdaq SmallCap Market under the symbol
"EVRC" and the Boston Stock Exchange under the symbol "EVL" following the
closing of the Rights Offering.
Evercel believes that its Ni-Zn battery technology offers high energy
density, long cycle life and low material costs, resulting in a low weight, high
power battery with a substantial price advantage over other comparable
technologies. Evercel's strategic goals are to rapidly commercialize its Ni-Zn
technology, maintain and increase its technological leadership in Ni-Zn, develop
new battery businesses which build on its Ni-Zn technology and continue to
develop other advanced battery technologies.
The Rights Offering is being made only by means of a Prospectus delivered
to stockholders concurrently with the Distribution. A copy of the prospectus
relating to the transactions described in this press release may be obtained
from Joseph Mahler, Chief Financial Officer, 3 Great Pasture Road, Danbury,
Connecticut 06813.
This press release contains forward-looking statements concerning the
rights offering to Evercel's stockholders and concerning Evercel's business.
There are a variety of factors which could cause actual events to differ
materially from those projected in the forward-looking statements, including
without limitation, (i) the risk that the rights offering may not be completed
as the result of future developments in Evercel's business, failure to obtain
necessary government approvals, legal opinions, or third party consents or other
developments, (ii) unanticipated costs and expenses or other events affecting
Evercel's business, (iii) the risk that Evercel may not obtain state or other
regulatory clearances on a timely basis, if at all, and (iv) other risks listed
in the Evercel Prospectus.
###
