-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KXNDShQdq/mxYrG/okT9pYHMhMhqIXR/1IJxa4s2fudU2iyBgN3s/td8B7u8aKTV h9gjI3pjZu9/btzwcZV0SA== 0000886128-99-000020.txt : 19990310 0000886128-99-000020.hdr.sgml : 19990310 ACCESSION NUMBER: 0000886128-99-000020 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990222 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENERGY RESEARCH CORP /NY/ CENTRAL INDEX KEY: 0000886128 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 060853042 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-14204 FILM NUMBER: 99561096 BUSINESS ADDRESS: STREET 1: 3 GREAT PASTURE RD CITY: DANBURY STATE: CT ZIP: 06813 BUSINESS PHONE: 2038256000 MAIL ADDRESS: STREET 1: 3 GREAT PASTURE ROAD CITY: DANBURY STATE: CT ZIP: 06813 8-K 1 FORM 8-K 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) 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. 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. 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. (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. 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. 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. 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. 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. 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. ENERGY RESEARCH CORPORATION PRO FORMA CONSOLIDATED INCOME STATEMENT Year Ended October 31, 1998 ($000, except per share amounts)
Historically Divestment Pro Forma Reported Evercel Adjustments Pro Forma ------------ ---------- ----------- --------- 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
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. ENERGY RESEARCH CORPORATION PRO FORMA CONSOLIDATED BALANCE SHEET Year Ended October 31, 1998 ($000)
Historically Divestment Pro Forma Reported Evercel Adjsutments Pro Forma ASSETS ------------ ------------ ------------- --------- 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 =========== =========== =========== ===========
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. 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 EX-2 2 DISTRIBUTION AGREEMENT BETWEEN ERC ANC EVERCEL DISTRIBUTION AGREEMENT BY AND BETWEEN ENERGY RESEARCH CORPORATION AND EVERCEL, INC. DATED AS OF FEBRUARY 16, 1999 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- 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- - 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. 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. 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). 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. 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. 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 (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 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 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 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 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. 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; (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 (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 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 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 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 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 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: (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 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 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 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 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] 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 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 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 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 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 Continuous Piercing Machine 04/01/87 Two Roll Amil Milder Calander 01/01/72 Calander Tension Stand 02/01/86 80 Ton Press 01/01/74 J. H. Wood 80 Ton Press 12/01/77 Hydraulic Cylinder for Press 10/01/81 Vertrod Heat Sealer 12" 01/01/79 High Speed Twin Shell Blender 02/01/76 Potentiostat/Galvanostat M 273 06/01/86 HP 4328A Milliohm Meter 12/01/87 4 1/2 Digit Multimeter 09/01/76 Expansion of Government Piercer 10/01/83 HP 3476A Multimeter 01/01/79 Modify Battery Cycler 10/01/91 Chart Recorder 3 Channel 11/01/90 Grieve 5A550 Shelf Oven 03/01/91 Electrode Rinsing System 10/27/92 Pneumatic Hopper for Electrode 10/31/92 Cool Flow Refrig Recirculator 12/31/92 Cell Cycler 04/01/94 2-10 Input Hybrid Bench Recorder 06/01/95 Welder and Accessories 07/01/95 Battery Testing System 10/01/95 Display Cabinet Battery Parts 12/01/95 Battery Testing Freezer 03/01/96 Voltage Monitoring Test Stand 10/01/96 Piercing Machine and Mods 05/01/97 Champ Bench Scale 09/01/97 Arbin Test System 4 Indp Chan 09/01/97 Ultrasonic 3000 Watt Welder 05/01/97 Horn Anvil Top and Bottom Cutter 01/01/97 Arbin Test System Mod #149268 05/01/97 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 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 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 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 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 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 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 SCHEDULE 1.01(c) EVERCEL LIABILITIES
SCHEDULE 1.01(d) ERC INTELLECTUAL PROPERTY ASSETS U.S. PATENTS AND PENDING U.S. PATENT APPLICATIONS Patent No. Issue Date File No. - --------- ---------- -------- 4,415,636 November 11, 1983 30512 4,546,058 October 8, 1985 32984 4,661,759 April 28,1987 40006 4,810,598 March 7, 1987 40067 4,976,904 December 11, 1990 40066 5,023,155 June 11, 1991 40110 5,264,305 November 23, 1993 B429-001 5,460,899 October 24, 1995 B429-010 5,556,720 September 17, 1996 B429-010 CIP 5,658,694 August 19, 1997 B429-021 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
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 EXHIBITS Exhibit A: Form of Services Agreement Exhibit B: Form of Tax Sharing Agreement Exhibit C: Form of License Assistance Agreement EX-99 3 EXHIBIT NO. 99 Contact: Rick Teller The Teller Group, LLP (781) 545-3600 e-mail: teller@bloomberg.net Joseph G. Mahler Evercel, Inc. (203) 825-6000 e-mail: erc!jmahler@attmail.com 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. ### -----END PRIVACY-ENHANCED MESSAGE-----