Joint Venture Contract

Exhibit 10.7


Confidential treatment has been requested for portions of this
document. Deleted portions are identified with a dotted line under
the deleted information.


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COOPERATIVE JOINT VENTURE CONTRACT


BETWEEN


XIAMEN THREE CIRCLES CO, LTD.


AND


ENERGY RESEARCH CORPORATION


FOR


THE ESTABLISHMENT


OF


XIAMEN THREE CIRCLES-ERC BATTERY CORP.,
LTD,


A


SINO-FOREIGN


MANUFACTURING JOINT VENTURE


Cooperative Joint Venture Contract
Between Xiamen Three Circles Co., Ltd.
and Energy Research Corporation


GENERAL PROVISIONS


In accordance with the "Law of the People's Republic of China on Chinese-Foreign Cooperative Joint Ventures" and other relevant Chinese laws and regulations and with the principles of equality and mutual benefits and through friendly consultations, China Xiamen Three Circles Co., Ltd. and Energy Research Corporation have agreed to jointly invest in establishing a manufacturing joint venture company in Xiamen City, Fujian Province, the People's Republic of China and hereby enter into this Contract as follows (the "Contract"):


PARTIES OF THE JOINT VENTURE


Article 1. Parties to this Contract are as follows:


XIAMEN THREE CIRCLES CO., LTD. ("PARTY A"), registered in Xiamen, China, having its legal address at 722 Xiahe Road, Xiamen, China.


Legal representative: Name: Lin Kewei
Title: Chairman
Nationality: Chinese


ENERGY RESEARCH CORPORATION ("PARTY B"), registered in the United States, having its legal address at Three Great Pasture Road, Danbury, Connecticut.


Legal representative: Name: Jerry Leitman
Title: President
Nationality: United States of America


ESTABLISHMENT OF THE JOINT VENTURE


Article 2. In accordance with the "Law of the People's Republic of China on Chinese- Foreign Cooperative Joint Ventures" and other relevant Chinese laws and regulations, both Party A and Party B agree to set up Xiamen Three Circles-ERC Battery Corp., Ltd. a manufacturing joint venture company (the "Joint Venture") in the People's Republic of China (hereinafter also referred to as "China").


Article 3. The name of the Joint Venture shall be Chinese Text in Chinese and Xiamen Three Circles-ERC Battery Corp. Ltd. in English. The legal


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address of the Joint Venture shall be at Gulangyu Industrial Zone, Yue Hua Dong, Xiamen City, Fujian Province.


Article 4. All activities of the Joint Venture shall be in compliance with and protected by the laws and pertinent rules and regulations of the People's Republic of China.


Article 5. The form of organization of the Joint Venture shall be a limited liability company with legal person status. Each Party's liability for the obligations of the Joint Venture and otherwise shall be limited in all respects to the extent of the funds it has actually contributed to the Joint Venture's registered capital. In no event and under no circumstances shall any Party's liability hereunder or otherwise exceed such amount. The profits of the Joint Venture shall be shared by the Parties in accordance with this Contract.


THE PURPOSE AND SCOPE OF BUSINESS


Article 6. The purpose for forming the Joint Venture is to commercialize certain technologies of Party B through the establishment of the Joint Venture and to enhance the economic cooperation in energy between China and the United States.


Article 7. The business scope of the Joint Venture shall be to (I) accept a license of the technology of Party B specified in the Technology Transfer and License Contract attached hereto as Annexure 1 (hereinafter referred to as the "TLC"), (ii) manufacture nickel zinc electrochemical power sources ("Batteries") with the technology received pursuant to the TLC, (iii) sell, lease or otherwise transfer the Batteries both inside and outside China in accordance hereof, and (iv) sub-license to third-parties the technology made available to the Joint Venture pursuant to the TLC.


Included in the business scope of the Joint Venture shall be the manufacture of Ni-Zn batteries for miner's lamps, two and three wheel vehicles, industrial traction equipment and off-road golf carts, boats, and all terrain vehicles.


It is expected that the annual sales value of the Joint Venture's Battery production shall be US ( ), ( )% of which will be sold in the foreign market.


TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL


Article 8. The total investment of the Joint Venture is US$( ). The registered capital of the Joint Venture is US$6,100,000. The difference between the registered capital of the Joint Venture and its total investment amount shall be provided to the Joint Venture either by the Parties, pro rata, in the form of additional capital contributions or shareholder loans or shall be provided to the Joint Venture in the form of loans by third party lenders.


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Article 9. The aggregate amount of registered capital to be contributed by Party A and Party B to the Joint Venture is US$6,100,000. Party A shall, in accordance with Article 10, contribute the Renminbi equivalent of US$3,019,500, accounting for 49.5% of the Joint Venture's registered capital ("Party A's Ownership Percentage") and Party B shall contribute US$3,080,500, accounting for 50.5% of the Joint Venture's registered capital ("Party B's Ownership Percentage").


Article 10. Party A shall, in accordance with Article 9, make its contribution to the registered capital of the Joint Venture in cash in Renminbi by reference to the middle rate for the exchange of United States dollars for Renminbi published by the People's Bank of China on the date of contribution and Party B shall make its contribution to the registered capital of the Joint Venture in cash in United States dollars on the basis of a letter of credit (the "Letter of Credit") executed with a bank by Party B in favor of the Joint Venture.


Article 11. The registered capital of the Joint Venture shall be contributed in a single installment by Party A and Party B in accordance with their respective Ownership Percentages within 3 months after the issuance of a business license to the Joint Venture. Party B shall provide the Joint Venture with the Letter of Credit at the earliest possible date following the issuance of a business license to the Joint Venture. Party A shall make its contribution to the registered capital of the Joint Venture in a single installment within twenty (20) days of the Joint Venture's receipt of the Letter of Credit produced by Party B. Party B's capital contribution shall be made in a single ro installment in accordance with the terms of the Letter of Credit.


Article 12. Transfer or assignment of all or part of a Party's Ownership Interest in the registered capital of the Joint Venture to a third party shall be permitted only with the consent of the other Party and the approval of the examination and approval authority.


Responsibilities of the Parties


Article 13. Party A shall be responsible for:


(a) handling such matters as filing with the relevant Chinese
departments applications for approval and registration of
establishment of the Joint Venture and obtaining of the
business license thereof;


(b) making its registered capital contribution to the Joint
Venture in cash within the time limit and in accordance with
Articles 9 to 11;


(C) assisting Party B's foreign personnel in obtaining their
entry -visas, work permits and in going through customs
procedures;


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(d) assisting the Joint Venture in obtaining land and facilities
deemed suitable by party B for the Joint Venture's
operations;


(e) assisting the Joint Venture, with the selection and purchase
of machinery, equipment and materials inside China;


(f) assisting the Joint Venture in marketing sales and
distributions of Batteries within China;


(g) handling other matters entrusted to it by the Board Of Joint
Venture; and


(h) pay taxes on its income as required by law.


Party B shall be responsible for:


(a) making its registered capital contribution to the Joint
Venture in cash within the time limit and in accordance with
Articles 9 to 11;


(b) assisting the Joint Venture with the selection and purchase
of machinery, equipment and materials outside China;


(C) assisting the Joint Venture in marketing, sales and
distribution of Batteries outside of China;


(d) assisting Joint Venture working personnel in obtaining visas
and in going through customs procedures for entrance to the
U.S. for necessary training;


(e) handling matters in respect of export licenses for
technology and other technology related matters set forth in
the TLC;


(f) handling other matters entrusted to it by the Board of
Directors of the Joint Venture; and


(g) pay taxes on its income as required by law.


LICENSE; BATTERY PRODUCTION; SUB-LICENSE; REVENUE


Article 14. The Joint Venture shall enter into and become a party to the TLC. Based on the Joint Venture's scope of business, it is anticipated that the Joint Venture will derive revenue principally from two sources: (I) "Net Sales" (as such term is defined in


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the TLC) of Batteries ("Battery Revenue") and (ii) from payments to the Joint Venture under sub-licenses of Party B's technology ("Sub-license Revenue"), including revenue received from the payment for the transfers of technology (Sub-license Transfer Revenue") and revenue received from the payment of royalties for use of such technology ("Sub-license Royalty revenue"). The Joint Venture shall deposit the funds it receives in respect of Battery Revenue into a bank account (the "Battery Revenue Account") and the funds it receives in respect of Sub-license Revenue into another bank account (the "Sub-license Revenue Account"). The Sub-license Revenue Account shall have two sub-accounts. Sub-account A ("Sub-account A") shall contain all Sub-license Transfer Revenue. Sub-account B ("Sub-account B") shall contain all Sub-license Royalty Revenue. The Joint Venture shall allocate the costs and expenses of producing Battery Revenue to the Battery Revenue Account and the costs of producing Sub-license Revenue to the Sub-license Revenue Account in accordance with appropriate accounting principles and such other guidelines as the Board of Directors of the Joint Venture may establish. The revenue available for distribution to the Parties from the Battery Revenue Account and the Sub-license Revenue Account, and all other revenue or funds available to the Joint Venture for distribution to the Parties, shall be distributed to the Parties in accordance with the priority specified in the schedule set forth in Article 33.


NON-COMPETITION


Article 15. The Parties hereby agree not to compete, whether directly or indirectly, with each other with respect to the Field (as defined in the TLC) of use of the technology to be provided under the TLC or with the business of the Joint Venture in China (including Hong Kong, Taiwan and Macau) and to cause their affiliated or associated companies and entities to be likewise bound not to compete, in each case for the duration of the Joint Venture's term and for two (2) years following the expiration or early termination of this Contract.


BOARD OF DIRECTORS


Article 16. The establishment of the Board of Directors of the Joint Venture shall take place on or after the date of the issuance of the business license to the Joint Venture.


Article 17. The Board of Directors of the Joint Venture shall consist of five Directors, two of whom shall be appointed by Party A and three of whom shall be appointed by Party B. The Chairman of the Board shall be appointed by Party B and the Vice Chairman by Party A. Each Director, Chairman and Vice Chairman shall be appointed for a term of three years and may serve consecutive terms if reappointed by the Party which originally appointed him.


Article 18. The highest governing authority of the Joint Venture shall be its Board of


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Directors (the "Board of Directors"). All decisions of the Board of Directors shall be made by a simple majority vote of the members of the Board of Directors, except for decisions regarding the following items that by law require the unanimous approval of the Board of Directors:


(a) amendment of the Joint Venture's Articles of Association;


(b) increase in the registered capital of the Joint Venture;


(C) merger or division or change in the legal form of organization
of the Joint Venture;


(d) termination and dissolution of the Joint Venture; and


(e) mortgage of all the assets of the Joint Venture.


The Joint Venture shall not take out any loans or incur any debts or use the assets of the Joint Venture as collateral without the prior approval of its Board of Directors in a duty adopted resolution.


Article 19. The Chairman of the Board of Directors shall be the legal representative of the Joint Venture. Should the Chairman be unable to perform his responsibilities and duties, he may authorize the Vice Chairman to represent him temporarily.


Article 20. The Board of Directors shall convene at least one meeting every year, provided that no meeting shall be held unless notice of such meeting has been waived or provided at the last known address, telex or fax of each director or given in accordance with Article 51 hereof. In principal, the location for holding such meeting shall alternate on an annual basis between the U.S. and China. No less than two-thirds (2/3) of the Board of Directors shall constitute a quorum, provided that no meeting of the Board of Directors shall be held for matters requiring the unanimous approval of the Board of Directors unless all Directors are present at such meeting. Meetings of the Board of Directors shall be called and presided over by the Chairman of the Board of Directors. The Chairman may convene interim meetings of the Board of Directors at the request of not less than one third of all Directors. The Chairman shall establish the agenda for Board of Directors' meetings and send a copy of the agenda to all the members of the Board of Directors no less than fourteen (14) days prior to such meetings. Minutes of all meetings shall be taken in English and Chinese, shall be signed by all the members of the Board of Directors and filed with the records of the Joint Venture.


OPERATION AND MANAGEMENT ORGANIZATION


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Article 21. The Joint Venture shall establish an operation and management organization responsible for the daily operations and management of the Joint Venture. The operation and management organization shall have a General Manager and a Deputy General Manager. The General ...