UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended AUGUST 31, 1997 Commission File No.00019678
- ----------------------------------------------------------------------------
ETS INTERNATIONAL, INC.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1414643
- ----------------------------------------------------------------------------
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1401 Municipal Road, NW, Roanoke, Virginia 24012
- ----------------------------------------------------------------------------
(Address) (Zip Code)
Registrant's telephone number, including area code (540) 265-0004
- ----------------------------------------------------------------------------
Not Applicable
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to the filing
requirements for the past 90 days.
Yes x No
-------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the close of the period covered by this report.
Class Number of Shares Outstanding
- ----------------------------- ----------------------------
Common Stock 15,230,206
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE><CAPTION>
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997 MAY 31, 1997
--------------- ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 471,472 $ 94,734
Accounts receivable:
Trade (net of allowance of $118,956
in 1998 and $119,424 in 1997 3,915,952 4,809,128
U.S. Government agencies 138,308 79,661
Other 271,778 151,341
---------- ----------
4,326,038 5,040,130
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,405,274 1,325,954
Notes receivable from officers 65,896 64,694
Inventory 929,449 771,788
Prepaid expenses 525,124 516,974
---------- ----------
Total current assets 7,723,253 7,814,274
Property, plant and equipment:
Furniture and fixtures 989,880 984,463
Laboratory equipment 2,844,365 2,829,277
Machinery, tools and equipment 3,200,862 3,138,372
Vehicles 1,854,346 1,845,518
Leasehold improvements 788,475 788,051
---------- ----------
9,677,928 9,585,681
Less accumulated depreciation 6,690,739 6,505,254
---------- ----------
Property, plant and equipment, net 2,987,189 3,080,427
Other assets:
Goodwill (net of accumulated amortization
of $32,317 in 1998 and $28,091 in 1997) 222,901 227,155
Notes receivable from officers 349,314 344,152
Prepublication costs (net of accumulated
amortization of $329,306 in 1998 and
$322,646 in 1997) 202,231 208,890
Cash surrender value of life insurance, net 26,866 142,728
Patents granted (net of accumulated
amortization of $34,886 in 1998 and
$33,190 in 1997) 75,850 77,546
Patents pending 67,233 65,905
Other assets 245,528 343,472
---------- ----------
1,189,923 1,409,848
---------- ----------
$11,900,365 $12,304,549
========== ==========
/TABLE
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, 1997 MAY 31, 1997
--------------- ------------
(unaudited) (audited)
<S> <C> <C>
Current liabilities:
Bank overdraft $ 0 $ 44,560
Notes payable to bank 89,837 89,837
Note Payable to stockholders 2,000,000 2,000,000
Notes Payable to affiliates 284,159 289,159
Current portion of long-term debt 437,751 493,012
Accounts payable 2,633,064 3,198,194
Accrued expenses and other liabilities 576,722 431,467
Common stock to be repurchased (including
interest of $38,750) 269,565 shares;
issued and outstanding 426,250 409,642
---------- ----------
Total Current liabilities 6,447,783 6,955,871
Long-term debt 721,281 861,673
Notes payable to affiliates 185,000 201,458
Deferred gain on sale/leaseback 659,334 735,412
---------- ----------
Total Liabilities 8,013,398 8,754,414
Common stock subject to repurchase agreement,
269,565 shares; issued and outstanding 0 387,500
Stockholders' equity:
Preferred stock, no par value; authorized
5,000,000 shares, none issued and
outstanding 0 0
Common stock, no par value; authorized
30,000,000 shares; issued and outstanding
15,230,206 and 14,215,823 at August 31,
1997 and May 31, 1997, respectively 5,656,647 5,002,129
Retained earnings (accumulated deficit) (1,769,680) (1,839,494)
---------- ----------
Total stockholders' equity 3,886,967 3,162,635
---------- ----------
$11,900,365 $12,304,549
========== ==========
</TABLE>
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Contract revenues:
U.S. Government agencies $ 165,055 $ 151,009
Commercial 5,989,133 6,088,979
---------- ----------
6,154,188 6,239,988
Cost of goods and services 4,788,229 5,052,117
---------- ----------
Gross profits 1,365,959 1,187,871
Selling, general and
administrative expenses 949,540 1,007,817
---------- ----------
Net operating income 416,419 180,054
Miscellaneous income 12,043 9,033
Interest expense (358,648) (87,966)
---------- ----------
Net income $ 69,814 $ 101,121
========== ==========
Net Income per common share:
Primary .00 .01
Fully diluted .00 .01
Average shares of common stock used
for the above calculation:
Primary 15,805,181 12,613,472
Fully diluted 15,806,115 12,613,472
</TABLE>
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY QUARTER ENDED AUGUST 31, 1997
Retained
Earnings
Common Stock (Accumulated
Shares Amount Deficit)
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Balances at May 31, 1997 14,215,823 $ 5,002,129 $(1,839,494)
Conversion of convertible debentures 724,818 257,018
Proceeds from exercise of employee
stock options 20,000 10,000
Cancellation of previous agreement to
Repurchase stock issued pursuant to
an asset purchase 269,565 387,500
Net Income 69,814
---------- ---------- -----------
Balances at August 31, 1997 15,230,206 $ 5,656,647 $(1,769,680)
</TABLE>
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 69,814 $ 101,121
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 206,380 212,803
Amortization of convertible debentures
discount 207,076
Amortization of deferred gain on
sale/leaseback (76,078) (76,077)
Increase or decrease in operating assets
and liabilities:
Accounts receivable 714,092 (670,593)
Costs and estimated earnings in excess of
billings on uncompleted contracts (79,320) (75,479)
Inventories (157,661) (63,593)
Prepaid expenses (8,150) (19,586)
Accounts payable (565,130) 402,303
Accrued expenses and other liabilities 168,883 (26,453)
Cash surrender value of life insurance,net 115,862 (5,149)
Other Assets 89,656 9,719
---------- ----------
Net cash provided by (used in)
operating activities 685,424 (210,984)
Cash flows from investing activities:
Purchase of property, plant and equipment (92,247) (203,884)
Patent Cost Incurred (1,328) (2,298)
---------- ----------
Net cash used in investing activities (93,575) (206,182)
Cash flows from financing activities:
Bank overdraft (44,560) (8,746)
Notes receivable from officers (increase)
decrease (6,364) 12,117
Notes payable increase (decrease) 0 300,178
Proceeds from long-term debt 0 53,000
Principal payments on long-term debt (152,729) (85,578)
Proceeds from issuance of common stock 10,000 -
Notes payable to affiliates increase (21,458) 107,942
---------- ----------
Net cash provided by financing activities (215,111) 378,913
---------- ----------
Increase (decrease) in cash and cash equivalents 376,738 (38,253)
Cash and cash equivalents at beginning of year 94,734 121,713
Cash and cash equivalents at end of period $ 471,472 $ 83,460
========== ==========
/TABLE
<PAGE>
Supplemental disclosures of cash flow information and noncash investing
activities: Interest paid on notes payable and long-term debt was $238,525
and $87,966 for the three months ended August 31, 1997 and 1996 respectively.
Capital lease obligations of $0 and $ 0 were incurred during the first
quarter of fiscal 1998 and 1997 respectively for vehicles, furniture and
fixtures and laboratory equipment.
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information as set forth in Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all necessary adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months
ended August 31, 1997 are not necessarily indicative of the results that may
be expected for the year ending May 31, 1998.
NOTE B--PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ETS
International, Inc. and its wholly-owned subsidiaries, ETS, Inc., ETS
Analytical Services, Inc. and ETS Water And Waste Management, Inc.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
NOTE C--EARNINGS PER SHARE
Earnings per share have been computed on the basis of the weighted average
number of shares outstanding, after giving appropriate effect for common
stock issued. Stock options and warrants have been included as common stock
equivalents when they result in dilution of earnings per share.
NOTE D--BUSINESS COMBINATION
(None)
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
the Company's forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the
Company's business include the following: (i) changes in legislative
enforcement and direction, (ii) unusually bad weather conditions, (iii)
unanticipated delays in contract execution, (iv) sudden loss of key
personnel, (v) abrupt changes in competition, and (vi) abrupt changes in
market opportunities.
Results of operations
Introduction
A few relatively large contracts in any one business segment in any
fiscal year can make any segment generate relatively large revenues in that
year. Because disproportionate generation of income has occurred
periodically throughout the existence of ETSI, the Company's strategy has
been to offer a variety of services and maintain a flexible staff capable of
executing different tasks. Services are tied to different markets, such as
new pollution control equipment expenditures by industry, government funding
or legislative enforcement. In addition, ETSI continually markets its
services through brochures, seminars and attendance at trade shows and
conferences and by telemarketing. ETSI attempts to increase its business in
the aggregate. As the United States experiences economic and legislative
cycles, the demand for each of the Company's services fluctuates accordingly.
Likewise, economic cycles in countries such as Taiwan and Korea can influence
the foreign demand for ETSI's products and services.
ETSI has divided its revenues into four meaningful categories:
(a) services - encompassing field and analytical testing, regulatory
assistance and monitoring; (b) consulting /engineering - encompassing
consulting and engineering services and educational areas; (c) products; and
(d) construction.
First Quarter Fiscal 1998 Compared to First Quarter Fiscal 1997
Revenues for the first quarter of 1998 were $6,154,188 compared to
$6,239,988 for the first quarter of fiscal 1997.
Total testing service revenues were $1,052,440 for the current quarter
for a 25% decrease from the revenues reported for the first quarter of fiscal
1997 of $1,402,653. This decrease in large part was due to the continued
reduction in the quantity of services contracted out by industrial customers
in the face of significantly relaxed regulatory enforcement in the geographic
areas served by the Company and the Company's lack of a complete sales force.
Field testing revenues were $384,567 compared to $523,695 for a 27% decrease.
Source testing activities, while still very low compared to past years, are
<PAGE>
anticipated to pick up. Major customers for the first quarter of fiscal 1998
included a waste incinerator plant, a utility power plant, a hazardous waste
incinerator firm and an environmental engineering firm. Regulatory
assistance revenues for the first quarter of fiscal 1998 were $45,067
compared to $71,874 for a decrease of 37%. While these services are down
from the previous year first quarter, there currently are a number of short-
term projects in progress. Major customers included a steel manufacturer
which accounted for 64% of the total. Monitoring services for the current
quarter were $60,840 compared to $19,800 for the previous years' first
quarter for a 207% increase. This increase is the result of contracts with
two major customers, a chemical plant and a sanitation plant.
Revenues for analytical laboratory services for the quarter were
$561,966 compared to $787,284 for the first quarter of fiscal 1997 for a 29%
decrease. Revenues in the lab were extremely disappointing as the revenues
from the environmental engineering contractors relating to site remediation
activities were the lowest they have been in recent years, and industrial
revenues were basically flat. Government revenues from the EPA Office of
Water were up for the quarter. In response to the losses, the Richmond
laboratory was scaled back to only a skeleton operation to reduce cost.
Samples received in Richmond are transferred to the Roanoke laboratory for
performance.
Revenues for products were $203,156 for the current quarter compared to
$6,239, representing the start-up of the Taiwan order received during this
first quarter to supply three of the Company's LEC systems for a value of
approximately $7,000,000. A definitive contract has been negotiated with
respect to this order.
Consulting and engineering revenues for the fiscal 1998 current quarter
were $100,170 compared to $83,935 for an increase of 19%. Revenues for the
consulting area were $6,469 compared to $3,282 for the prior year first
quarter. Engineering revenues, although above expectations, were $64,655
compared to $75,813, for a decrease of 15%. The major customer for the
current quarter was an iron foundry and a medical waste incinerator company
which accounted for 76% of the engineering service revenues. In-house
revenues representing book sales were $4,847 for the current quarter compared
to $4,175 for the first quarter of fiscal 1997. Seminar revenues for the
current quarter were $24,199 compared to $665 for the same period of fiscal
1997 and were derived from a baghouse seminar conducted for a Korean
engineering firm.
Construction revenues for the first quarter of fiscal 1998 were
$4,798,422 compared to $4,747,161. Commercial irrigation activities were
stronger and the service department continues to show strong performance.
Construction activities in Florida, while down in revenues from the first
quarter of fiscal 1997, are currently strong, and management anticipates
satisfactory activities for the remainder of the year. The construction
companies received $2,225,000 in new orders for the first quarter of fiscal
1998.
Cost of goods and services for the quarter were $4,788,229 or 78% of
the total revenues for the current quarter compared to $5,052,117 or 81% of
the fiscal 1997 first quarter revenues. Gross profits for the quarter were
$1,365,959 or 22% of the total revenues compared to $1,187,871 or 19% of the
total revenues for the same period of fiscal 1997. This decrease in cost of
goods and services and increase in gross profits represents an effort in
cutting cost and the sale of more profitable contracts.
<PAGE>
Selling, general and administration expenses for first quarter of
fiscal 1998 were $949,540 or 15% of total revenues compared to $1,007,187 or
16% of the fiscal 1997 first quarter revenues. The first quarter expenses
are generally higher due to the costs of auditing and SEC filings for the
year-end reports.
Miscellaneous income for the quarter was $12,043 compared to $9,033 for
the same period of fiscal 1997 representing interest income. Interest
expense for the current quarter was $358,648 compared to $87,966 for the
first quarter of fiscal 1997. The current quarter increase includes the
interest expense on notes, leases and loans of $140,664 and interest and
amortization in the amount of $217,984 associated with the convertible
debentures financing.
Net income for the current quarter was $69,814 compared to $101,121 for
the same period of fiscal 1997. The construction companies generated income
during the current quarter of $364,251 while the environmental operations had
losses of $294,437. Losses in the analytical laboratory are anticipated to
continue for the next two quarters. Additional actions to reduce or
eliminate losses are being reviewed by the Company.
Liquidity And Capital Resources As Of The End Of The First Quarter of
Fiscal Year 1998
During the first quarter of fiscal 1998, proceeds were received from
the exercise of employee stock options to purchase 20,000 shares of the
Company's common stock at an aggregate price of $10,000. Additionally, there
were 724,818 shares of common stock issued in connection with the conversion
of convertible debentures with an equity book value of $257,018. These
debentures were issued in connection with a Regulation S Convertible
Debentures Purchase Agreement dated as of February 28, 1997.
ETSI maintains a note with Thomas Marmon, a member of the Board of
Directors, which replaced the bank's line of credit during the third quarter
of fiscal 1997 in the amount of $2,500,000. The current advance under the
note is in the amount of $2,000,000. The note calls for fixed monthly
interest of $25,000 over a two-year term, subject to call by the holder upon
60 days notice and is secured by the assets of the Company and its
subsidiaries. The Company may repay the note at any time without penalty.
The second quarter of fiscal 1998 may see improved revenues and income.
The construction companies currently anticipate relatively the same results
as the first quarter, but the overall construction activities in the Richmond
and Florida areas look strong for the foreseeable future. Activities in the
field testing area are expected to improve to show at least a break even for
the second quarter.
The net cash provided by operating activities of $685,424 included the
net income of $69,814, decrease in accounts receivable of $714,092,
depreciation of $206,380, amortization of convertible debenture discount of
$207,076, cash from life insurance surrender value of $115,862 and other
assets and accrued liabilities of $258,539. These were offset by cash used
in decrease in accounts payable of $565,130, increase in inventory of
$157,661, decrease in deferred gain on sale/leaseback agreement of $76,078,
increase in costs and estimated earnings in excess of billings on uncompleted
contracts of $79,320 and increase in prepaid expenses of $8,150. Net cash
used in investing activities included the purchase of property, plant and
equipment and patent cost of $93,575. Components of net cash provided by
financing of $215,111 included a bank draft of $44,560, decrease in notes
<PAGE>
receivable from officers of $6,364, principal payment on long-term debt of
$152,729 and increase in notes payable to affiliates of $21,458 less proceeds
from issuance of common stock of $10,000. Net cash and cash equivalents at
August 31, 1997 was $471,472, compared to $83,460 at August 31, 1996.
New orders received for the first quarter of fiscal 1998 were
$13,486,169 compared to $4,966,475 for the first quarter of fiscal 1997. The
current quarter new orders reflects the order received from China Steel
Company for three LEC systems to be installed in Taiwan at an approximate
value of $7,000,000. Backlog at August 31, 1997 was $15,396,408 compared to
$5,609,988 at August 31, 1996. In addition to the backlog, ETSI held open
task orders from various clients, principally government agencies. If all
the work under these open orders is authorized, the Company estimates it
contract backlog would increase by $468,310 for a total of $15,864,718
compared to a total contract value of $7,337,189 at the end of the first
quarter of fiscal 1997.
Most of ETSI's contracts are of short-term duration and are completed
within a few months of the order or award. Certain contracts such as those
from utilities are annual and are completed in stages against task orders.
Government agencies often issue open orders for which subsequent task orders
are issued. There are no conditions precedent to the issuance of task
orders, and they are issued pursuant to the specific orders of the client for
the service. Experience shows that substantially all open orders ultimately
result in task orders and at times have exceeded the amount of the open
order. There can be no assurance that existing contracts or future orders
containing open orders will result in task orders covering the entire
contractual amounts. ETSI is not aware of any significant unrecognized cost
to complete any open contract.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
Pursuant to a Regulation S Convertible Debentures Purchase Agreement,
during the first quarter of fiscal 1998, the Company issued 724,818 shares of
its common stock in connection with the conversion of the debentures with a
face value of $257,018.
Pursuant to the terms of a repurchase agreement executed in connection
with the purchase of assets from Olympic Industries, Inc., ETSI had certain
obligations to repurchase up to 539,130 shares of the Company's common stock
at $1.43 per share. This obligation to repurchase has been booked as a debt
of the Company rather than equity. By agreement dated July 21, 1997, it was
determined that ETSI would pay for 269,565 shares (the "Repurchased Shares"),
which totaled $387,500 plus an extension fee of $38,750, in cash, and the
obligation to repurchase the remaining shares was terminated. The Company
has paid $38,750. At August 31, 1997, $387,500 was removed from debt and
placed in equity to reflect the termination of the obligation to purchase the
remaining 269,565 shares. The remaining debt of $387,500 will be removed
from debt and placed in equity when the Company pays the amount due to
Olympic Industries for the Repurchased Shares.
<PAGE>
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security-Holders.
None
Item 5. Other Information.
The Company's common stock has traded on the AMEX-ECM since July, 1992.
As a result of significant losses in fiscal year 1996, the Company fell out
of compliance with certain AMEX-ECM eligibility requirements, including
profitability, net asset value and stock price and therefore, the Company is
under review by AMEX. The Company has worked diligently to improve these
areas. As a result, profitability in fiscal year 1997 improved and net asset
value increased. While the Company is pleased with its progress to date,
additional progress is needed to bring the Company into full compliance with
the AMEX-ECM continued eligibility requirements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Contract dated September 12, 1997, by and between China
Steel Corporation and ETS International, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this registrations statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
ETS INTERNATIONAL, INC.
DATE October 14, 1997 BY: s/John D. McKenna
---------------- -----------------------------
John D. McKenna
President and
Principal Executive Officer
DATE October 14, 1997 BY: s/John C. Mycock
---------------- -----------------------------
John C. Mycock
Secretary/Treasurer and
Principal Financial Officer
<PAGE>
CONTRACT
--------
This Contract made and entered into this 12th day of September, 1997 by and
between China Steel Corporation, a corporation duly organized and existing
under the laws of the Republic of China, having its registered office at No.1
Chung Kang Road, Hsiao Kang, Kaohsiung, Taiwan, Republic of China
(hereinafter called "CSC" or "Purchaser"), the party of the first part, and
ETS International, Inc., a corporation duly organized and existing under the
laws of the United States of America, having its registered office at 1401
Municipal Road, NW, Roanoke, Virginia 24012-1309, U. S. A. (hereinafter
called "Contractor"), the party of the second part,
WITNESSETH:
-----------
WHEREAS, CSC desires to acquire and construct 3 Sets of Flue Gas
Desulfurization (FGD) System and Auxiliaries for operation at CSC's Kaohsiung
Steel Works;
WHEREAS, Contractor is able, willing and ready to design, engineer and supply
the aforesaid 3 Sets of Flue Gas Desulfurization (FGD) System and Auxiliaries
and furnish supervising services for erection and commissioning thereof and
also furnish training services to CSC's personnel, all in accordance with the
terms and conditions of this Contract and other documents designated as an
integral part hereof;
NOW, THEREFORE, the parties hereto covenant and agree hereby as follows:
<PAGE>
DEFINITIONS PAGE
- ----------- ----
TERMS OF CONTRACT
- -----------------
1. SCOPE OF SUPPLY AND TRANSFER OF TECHNICAL KNOW-HOW. . . . . . . . . 7
2. PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. DELIVERY TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. PERFORMANCE BOND. . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. COMPLETENESS OF EQUIPMENT AND SERVICES. . . . . . . . . . . . . . . 13
7. SAFETY DEVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. DELAYS IN DELIVERY AND LIQUIDATED DAMAGES . . . . . . . . . . . . . 14
9. CHANGES IN SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . 16
10. INVESTIGATION OF LOCAL CONDITIONS . . . . . . . . . . . . . . . . . 17
11. INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12. TESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
13. GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14. INTELLECTUAL AND INDUSTRIAL PROPERTIES. . . . . . . . . . . . . . . 28
15. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
16. SUB-CONTRACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17. TRANSFER OF CONTRACT. . . . . . . . . . . . . . . . . . . . . . . . 30
18. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
19. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
20. TERMINATION OF CONTRACT BY CSC. . . . . . . . . . . . . . . . . . . 31
21. INFORMATION REGARDING CONTRACT. . . . . . . . . . . . . . . . . . . 32
22. INTERFERENCE WITH CSC'S FACILITIES. . . . . . . . . . . . . . . . . 33
23. WAIVER OF BREACH. . . . . . . . . . . . . . . . . . . . . . . . . . 33
24. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
25. WARRANTY AGAINST CONTINGENT FEES FOR SOLICITING OR SECURING AWARD . 33
26. OFFICIALS AND EMPLOYEES NOT TO BENEFIT. . . . . . . . . . . . . . . 34
27. LANGUAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
28. MESSAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
29. CHARGING OF AMOUNTS DUE CSC AGAINST OUTSTANDINGS DUE CONTRACTOR . . 35
30. PUBLIC AND THIRD PARTY INTEREST . . . . . . . . . . . . . . . . . . 35
<PAGE>
31. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
32. SUCCESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
33. CONSEQUENTIAL DAMAGES . . . . . . . . . . . . . . . . . . . . . . . 35
34. COUNTRY OF ORIGIN . . . . . . . . . . . . . . . . . . . . . . . . . 35
35. EFFECTIVE DATE OF CONTRACT. . . . . . . . . . . . . . . . . . . . . 36
36. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
EXHIBITS
I PRICE BREAKDOWN . . . . . . . . . . . . . . . . . . . . . . . . . . .37
II SPECIMEN OF PERFORMANCE BOND. . . . . . . . . . . . . . . . . . . . .38
II-A SPECIMEN OF CONTRACTOR'S AFFIDAVIT. . . . . . . . . . . . . . . . . .39
III SHIPPING AND INSURANCE. . . . . . . . . . . . . . . . . . . . . . . .40
IV PROJECT COORDINATION AND CONTRACTOR'S SUBMITTAL OF DRAWINGS
AND INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .63
V ERECTION, TRAINING AND COMMISSIONING SERVICES . . . . . . . . . . . .74
<PAGE>
DEFINITIONS
- -----------
For the purpose of this Contract, the following definitions shall apply:
1. "CSC" or "Purchaser" used herein interchangeably means:
China Steel Corporation
No. 1 Chung Kang Road
Hsiao Kang, Kaohsiung 812
Taiwan, Republic of China
Telephone: (07) 8021111
Facsimile: (07) 8022511, 8019427
Telex: 71108, 71283, 71284, 71415
Cable Address: STEELMILL KAOHSIUNG
2. "Contractor" means:
ETS International, Inc.
1401 Municipal Road, NW
Roanoke, Virginia 24012-1309
U.S.A.
Telephone: (540) 265-0004
Telefax: (540) 265-0082
E-Mail: [email protected]
3. "Job Site Superintendent" means the responsible representative of
Contractor on Job Site.
4. "CSC Representative" means CSC's representative or his delegated
representative assigned by CSC to act on CSC's behalf on Job Site.
5. "Contract" means this Contract, which consists of the undermentioned
documents:
1) This Contract with Exhibits I through V;
2) All the minutes of clarification meeting, telefaxes, telexes,
letters etc. related to this Contract and up to August 18, 1997;
3) CSC's Technical Specifications No. FGD-85W5S01 for Flue Gas
Desulfurization (FGD) System and Auxiliaries;
4) CSC Design Standards;
5) Contractor's Technical Specifications dated August, 1997.
All above documents shall be regarded as integral parts of this
Contract. Should there be any conflict among the above-mentioned
documents, the order of priority shall be decided in accordance with
the sequence as hereinabove defined, unless otherwise mutually agreed.
For document 2), the document with later date shall have the priority
over that with earlier date unless otherwise mutually agreed.
Documents 2) through 5) together shall be referred to as "Contract
Specifications".
6. "Work" means any and all labor, supervision, services, materials,
softwares, supplies, machinery, equipment and tools called for by the
Contract.
7. "Approved Equal" products will be considered approved only upon
issuance of written approval by CSC to Contractor.
<PAGE>
8. "Facilities" means the materials, supplies, structures, machineries,
equipment, tools etc. finished by the Contractor under the terms of
this Contract.
9. "CSC's Facilities" means materials, structures, civil work or equipment
on Job Site other than the Work.
10. "Job Site" means the area, where CSC's project of this Contract will be
carried out.
11. "Erection Site" means that part of the Job Site, where the equipment
furnished by the Contractor will be erected and utilized in accordance
with their intended use.
12. "Shop Test" means the test on the equipment furnished as a part of the
Work assembled as fully as practical at Contractor's shops to operate
the equipment to the extent possible in the presence of CSC's
authorized representative.
13. "Functional Unit" means equipment assembled and erected at the Erection
Site, for which the Preliminary Functional Test may be conducted
independent of the remainder of Work. If there is no division of Work
into two or more Functional Units in the Contract Specifications, the
Work shall be the Functional Unit. Any and all process control
computer system in connection with a Functional Unit shall be an
integral part of the Functional Unit.
14. "Preliminary Functional Test" means the test to be carried out on each
Functional Unit under no load conditions on Erection Site upon
completion of the assembly of the Functional Unit.
15. "Performance Test" means the tests to be carried out after commencement
of commissioning of the complete Work under load conditions.
16. "Final Acceptance" means that CSC accepts in writing the Work after the
successful execution of Performance Test within the time period set
forth in Contract.
17. "Heavy Weight Cargo" means cargo which weighs more than thirty five
(35) metric tons.
18. "Lengthy Cargo" means cargo which measures more than fifteen (15)
meters in length.
19. "Last Major Shipment" means that the accumulated amount of delivered
Facilities has reached an amount equal to 98% of the Contract Price,
and furthermore the items remaining consists only of articles that in
the opinion of CSC do not affect the progress of erection. If there
should be any article yet to be delivered that affects the progress of
erection in the opinion of CSC, then the "Last Major Shipment" shall be
the shipment of that article.
20. "Final Shipment" means the last delivery for which the accumulated
amount of delivered Facilities has reached 100% of the Contract Price.
<PAGE>
21. "Month" means the calendar month in its ordinary sense. In case it
starts from a day other than the first day of a month, then the month
shall mean the days between that day of the calendar month and the
advent of the same day in the succeeding calendar month, except that in
the event the same date is not in existence in the succeeding calendar
month, the last day of that month shall be the substitute date.
22. "Week" means the seven days between any day of the week and the advent
of the same week day in the succeeding week.
23. "Day" means any day of the month according to the Gregorian Calendar.
24. "Government" includes all competent agencies, offices, and public
authorities thereof.
25. "CSC-declared holiday" means a holiday declared by CSC for the CSC
personnel worked in day shift i.e. normal office hours.
26. "Taiwan Portion" means part of the Work to be performed by Contractor
through its sub-contractor(s) in Taiwan, the Republic of China. Such
sub-contractor shall be a manufacturer or an engineering firm as the
sub-contract item may be.
27. "Foreign Portion" means all of the Work, exclusive of Taiwan Portion
and supervision service, to be performed by Contractor outside of the
Republic of China.
28. In this Contract wherever the masculine is used, it will be construed
as if the feminine or the neuter, as the case may be, had been used
where the context so requires. The singular shall include the plural
and vice versa, where appropriate.
29. Article and sub-article numbering and heading used in the Contract are
for convenience only and shall not affect the interpretation and
construction of the Contract.
<PAGE>
TERMS OF CONTRACT
- -----------------
1. SCOPE OF SUPPLY AND TRANSFER OF TECHNICAL KNOW-HOW
--------------------------------------------------
Contractor shall provide all engineering, equipment, materials,
training and supervision for erection and commissioning required for
the installation, maintenance and operation by CSC of the Facilities
specified in the Contract Specifications and shall be responsible for
the attainment of stipulated guaranteed performance. Contractor shall
also furnish all necessary technical know-how, software, technical
information and documents for erection, commissioning, testing and
continued production of the Facilities. Such technical know-how etc.
shall be supplied and transferred in due course by Contractor or
through a proper training agent which should be the present user of the
similar equipment arranged by Contractor in coordination with CSC's
project schedule. Contractor further warrants that even after the
Facilities have been finally accepted by CSC and are under normal
operation, Contractor will continue to supply latest related technical
know-how etc. to CSC free of charge respecting the equipment,
maintenance, operation of the Facilities for improving production, for
a period of two (2) years from the date of Final Acceptance. The above
scope of supply and transfer of technical know-how shall be deemed an
essential purpose of this Contract.
2. PRICE
-----
2.1 CSC shall pay to Contractor the following sums as full
compensation for Work to be performed by Contractor pursuant to
this Contract:
2.1.1 Foreign Portion
The total price for the Foreign Portion is US$2,006,000.-
(Say United States Dollars Two Million Six Thousand Only,
hereinafter individually called "Contract Price for Foreign
Portion".)
Contract Price for Foreign Portion shall be understood and
represented as a price of F.O.B. main international
seaport/FCA international airport as per "INCOTERMS" in
force at the date of signing this Contract. Prices for
erection and commissioning services, as specifically
provided in article 1 of EXHIBIT V ERECTION, TRAINING AND
COMMISSIONING SERVICES are not included in Contract Price
for Foreign Portion.
2.1.2 Taiwan Portion
The total price for Taiwan Portion is NT$113,042,500.- (Say
New Taiwan Dollars One Hundred Thirteen Million Forty-Two
Thousand Five Hundred. Only, hereinafter individually
called "Contract Price for Taiwan Portion".) Contract Price
for Taiwan Portion shall be understood and represented as a
price of CSC's Job Site delivery. However, for components
and materials under Foreign Portion used by Contractor for
processing and assembling into the Facilities in the shop
of Contractor's subcontractor(s) in Taiwan (hereinafter
called "Taiwan Subcontractor"), CSC shall be responsible
<PAGE>
for customs clearance and taking delivery to Job Site, and
Contractor shall be responsible for transportation to the
Taiwan Subcontractor's shop with loading the responsibility
of CSC. For all of Work under Taiwan Portion (may or may
not include the above mentioned imported components),
Contractor shall deliver to CSC Job Site and shall be
responsible for unloading.
2.1.3 The "Contract Price for Foreign Portion" plus the "Contract
Price for Taiwan Portion" is hereinafter collectively
called "Contract Price".
Prices stated above are regarded as "Fixed and Firm Lump
Sum Prices" respectively.
Price breakdown of individual items including Foreign
Portion and Taiwan Portion shall be as set forth in EXHIBIT
I attached hereto and made a part hereof.
2.2 In the event that any individual item of Foreign Portion as
listed in the price breakdown will be delivered by two or more
shipments, Contractor shall, prior to the first partial shipment
of that item, allocate the item price into sub-itemized prices
for each component or part by weight ratio or other measure that
can justify the prices of each sub-item so that Contractor can
invoice each sub-item in true value and the aggregated total
shipping value of that item will exactly equal to the price shown
in Contract.
2.3 If Contractor wants to transfer any part of Taiwan Portion to
Foreign Portion, such transfer shall be subject to CSC's approval
and, if approved by CSC, only eighty (80) percent of the price of
transferred portion will be converted into Contract Price for
Foreign Portion and paid to Contractor. Contractor is not
entitled to request any compensation for the deducted twenty (20)
percent of the price in N.T. Dollars. Furthermore, the exchange
rate for conversion shall be at CSC's discretion to adopt either
the exchange rate of US$1.00=NT$27.859 or the exchange rate
prevailing at the time of CSC's granting approval. If Contractor
wants to transfer any part of Foreign Portion to Taiwan Portion,
such transfer shall also be subject to CSC's approval and the
exchange rate shall be decided by CSC in the same way as
mentioned above.
2.4 Contractor shall warrant that: (1) in the event of loss or
damage of all or part of Work covered thereby during transit
before arrival at Erection Sites, Contractor shall re-supply them
at a price not higher than 110% of the invoice value, (2) in the
event of partial loss or damage, and partial value is not clearly
indicated in the invoice, Contractor shall re-supply them at a
price not higher than 110% of the value assessed by a loss
adjuster whose appointment shall be made by CSC.
2.5 CSC's rights of import duty exemption, if any, shall not be
available to imports by Contractor's Taiwan Subcontractor for
fabricating into Facilities under this Contract. Any components
or parts under Foreign Portion that Contractor will furnish its
Taiwan Subcontractors for fabricating into Facilities shall be
shipped to CSC for customs clearance and taking delivery to Job
Site. Contractor or its subcontractor shall pick up such imports
from CSC's Job Site at Contractor's or Taiwan Subcontractor's
expense.
<PAGE>
Contractor shall be responsible that Contractor's Taiwan
Subcontractor shall not divert any materials imported as a part
of Work to any use other than to manufacture the part of Work so
subcontracted. If as a result of any such diverting, the ROC
Government suspends or withdraws CSC's duty exemption rights,
Contractor shall be responsible for reimbursing CSC all such duty
paid by CSC. CSC shall have the right to claim from Contractor
all other losses resulting from such diverting of materials even
after other obligations have been fulfilled by Contractor.
2.6 Prices of Spare Parts
The unit prices of spare parts for the Facilities shall be as per
the Contractor's Proposal dated March 21, 1997 and all subsequent
revisions and supplements with price reduction of 10 percent. If
there are prices discrepancy for same items among the
Contractor's Proposal and revisions and supplements, the unit
price of the lowest one shall apply. Furthermore, for any item's
unit price, if CSC can prove that it is unreasonable, both
parties shall meet to review and to decide a reasonable price
reduction. Although the specification of spare parts may be
changed after the detailed design, the unit prices of spare parts
quoted will not be changed within validity.
The unit prices of spare parts shall represent the price of FOB
main international seaport/FCA main international airport prices
as per INCOTERMS and shall be firm and valid within eighteen (18)
months after the date of signing this Contract or six (6) months
after CSC's receipt of complete spare parts list, whichever comes
later. CSC reserves the right to place separate order(s) for the
spare parts required by CSC at the prices as mentioned above
within the period of validity of spare part prices. 100% of the
ordered amount of spare parts shall be paid by an irrevocable
non-confirmed Letter of Credit against shipping documents and
liquidated damages for delay in delivery shall be 0.1% of the
contract value of the delayed portion for each day's delay
whether delay is within 30 days and 0.2% for each day's delay
beyond 30 days but maximum of liquidated damages shall be 7% of
the contract value of the delayed portion.
2.7 Price of Installation
CSC has the right to decide whether the installation work of
Facilities will be performed by CSC itself or by a local company
(hereinafter called "Erector") designated by the Contractor and
approved by CSC in advance. In the event that CSC decides the
installation work to be performed by the Erector, Contractor
guarantees that the Erector will sign a FGD installation contract
with CSC in a total amount not exceeding NT$35,320,000.- (say New
Taiwan Dollars Thirty-Five Million Three Hundred Twenty Thousand
only) according to the terms and conditions stipulated in the
Attachment K of CSC Specification No. FGD-85W5S01. Contractor
also warrants that if the Erector does not accept the aforesaid
installation price or CSC's terms and conditions of Attachment K,
the Contractor shall compensate CSC the price difference and be
responsible for requesting the Erector to accept CSC's terms and
conditions. CSC shall be entitled to deduct such compensation
from any payment due to Contractor.
<PAGE>
3. PAYMENTS
--------
3.1 Foreign Portion
---------------
Payment for items (a) - (d) shall be made against Contractor's
invoice by telegraphic transfer to Contractor's account at a bank
to be indicated in Contractor's invoice. Payment for item (e)
below shall be made against shipping documents by an irrevocable
non-confirmed Letter of Credit (L/C) in favour of Contractor,
issued by a bank appointed by CSC. Cost for extension of Letter
of Credit if caused by delay on the part of Contractor, shall be
borne by Contractor. CSC shall bear only the banking charges
incurred in Taiwan. All banking charges outside Taiwan shall be
borne by the Contractor.
Schedule of payment shall be:
(a) 5% of the Contract Price for Foreign Portion within 45 days after
the coming into effect of the Contract, and after the arrival in
CSC's office of the performance bond specified in article 5
hereof.
(b) 5% of the Contract Price for Foreign Portion within 30 days after
the completion of delivery to CSC of:
(1) Data and layout and arrangement drawings deemed sufficient
by CSC for CSC to design and construct buildings and
foundations.
(2) Utility requirement data deemed sufficient by CSC for CSC
to design piping and wiring leading to and from the Work.
(c) 15%, 10% and 10% of the Contract Price for Foreign Portion within
30 days after Final Acceptance of the 1st, 2nd and 3rd FGD system
respectively or not later than 8 months after Final Shipment date
of each FGD system if Final Acceptance is delayed for reasons
entirely attributable to CSC.
(d) 5% of the Contract Price for Foreign Portion within 30 days after
expiry of the guarantee period of all three FGD systems, and
after the complete delivery of as-built drawings, complete spare
parts list and drawings as well as the complete delivery of spare
parts for the Facilities covered by this Contract and/or any
separate purchase order placed by CSC within the validity of the
prices of the spare parts, and deliver to CSC of Contractor's
Affidavit, worded as per the EXHIBITS II-A, regarding the lien as
required by article 24 of this Contract.
(e) 50% of the Contract Price for Foreign Portion to be paid pro rata
according to the invoice value of the respective shipment against
the following documents:
- Manually signed commercial invoice bearing the certificate
certifying that the invoice amount represents the true
value of shipment.
- Original Bills of Lading/Air Waybill/House Air Waybill.
- Signed packing lists.
- Other documents as may be necessary and reasonably
specified by CSC.
<PAGE>
Invoicing procedures and allocation of Contract Price to each
partial invoice shall be according to the provisions under
article 2.2 hereinabove and article 11 of EXHIBIT III SHIPPING
AND INSURANCE.
3.2 Taiwan Portion
--------------
CSC shall pay the Contract Price for Taiwan Portion to
Contractor's fixed place of business. The said fixed place of
business is hereinafter referred to as "payee". (Note: The term
"fixed place of business" refers to fixed places for operation of
business with business and tax registration in the Republic of
China including headquarters, administrative offices, branch or
sub-branch offices, business offices, factories, workshops,
warehouses, construction sites or other similar place.) The payee
shall provide CSC the receipt for such funds in the form of
government uniform invoice required by the Government of the
Republic of China, and such receipt shall be the full evidence of
having discharged CSC's payment obligations. The business tax
(value added tax) shall be borne by CSC.
Schedule of payment shall be:
(a) 5% within 45 days after coming into effect of the Contract and
after the arrival of the performance bond as required by the
article 5 against the payee's uniform invoice.
(b) 5% within 30 days after the completion of delivery to CSC of the
documents a and data required in the above article 3.1(b).
(c) 55% pro rata in accordance with progress of delivery to Job Site
against:
(1) The payee's uniform invoice.
(2) Contractor's certificate of inspection and acceptance.
(3) Contractor's delivery notes certified by CSC's
representative. Payment shall be made within 30 days after
CSC's receipt of the goods delivered and the above-
mentioned documents.
(d) 15%, 10% and 10% within 30 days after Final Acceptance of
the 1st, 2nd and 3rd FGD system respectively against the
payee's uniform invoice.
4. DELIVERY TIME
-------------
The Contractor shall complete the FOB/FCA shipment for Foreign Portion
on or before January 10, 1999 and complete CSC Job Site delivery for
Taiwan Portion on or before February 10, 1999. The detailed delivery
schedule is specified in the Contract Specifications.
FOB delivery for Foreign Portion shall be made at USA international
seaport/airport and/or other international seaport/airport may be
notified by Contractor and approved by CSC.
<PAGE>
5. PERFORMANCE BOND
----------------
Notwithstanding anything to the contrary elsewhere herein, this
Contract shall not become effective, nor shall any payment be made
unless Contractor has delivered to CSC an irrevocable stand-by letter
of credit in such form and substance as per the attached EXHIBIT II
issued by such bank satisfactory to CSC, through an advising bank
(including branches of foreign banks) in Taiwan with expiry not less
then six months after expiry of the Equipment Guarantee. Amount of
this letter of credit shall be 10% of the Contract Price. Contractor
may choose to issue the letter of credit in United States Dollar or in
New Taiwan Dollar and apply the exchange rate of US$1.00 = NT$27.859
for the conversion between the two currencies. The amount shall be
reduced to not less than 5% of the Contract Price after Final
Acceptance. Upon issuing Certificate of Final Acceptance to
Contractor, CSC shall advise the issuing bank, through the advising
bank, to reduce the amount of letter of credit.
If Final Acceptance is delayed owing to causes attributable to
Contractor, Contractor shall be responsible for extending the expiry of
the letter of credit to a date satisfactory to CSC. However, if Final
Acceptance is delayed owing to causes solely attributable to CSC and
the extension of the expiry of letter of credit is required by CSC, the
banking charges for extending the expiry to cover such delayed period
will be borne by CSC. In such case, CSC will pay such charges to the
bank concerned provided that the charges are reasonable and applicable.
Delivery of said letter of credit shall not absolve Contractor of any
of his contractual obligations. Nor shall it be construed as CSC's
renunciation of rights to claim for, or barring CSC and Contractor from
agreeing to, higher amounts of damages at any stage before Contractor
has discharged all of his contractual obligations.
6. COMPLETENESS OF EQUIPMENT AND SERVICES
--------------------------------------
Contractor shall be responsible to provide in the scope of the Work the
design and manufacture of all items listed in the Contract
Specifications, as well as those items not listed, to make a complete
operating unit to achieve the performance specified in the Contract
Specifications.
Items which are not listed in the Contract Specifications but which the
Contractor knows should be included for achieving the performance
specified in the Contract Specifications shall be furnished and brought
to the attention of CSC.
In the event of any surplus material and/or part remaining at job Site
at the completion of erection, such material and/or part shall become
property of CSC.
If during execution of the Work, Contractor deems it necessary to
expand the agreed scope in order to achieve the performance specified
in the Contract Specifications and called for in the Contract, such
equipment or services shall be provided by the Contractor at no expense
to CSC.
<PAGE>
Contractor is entitled to make technical alterations proving necessary
during the progress of work which shall not influence quality and
performance of equipment and services. Any alterations of the scope of
work and services require the written permission of CSC, and such
permission shall in no way relieve Contractor from his contractual
obligations.
7. SAFETY DEVICES
--------------
7.1 The Contractor shall equip the Work covered by this Contract with
all proper safety devices for the protection of workmen and shall
provide suitable, removable safety guards for all exposed moving
parts, such as gears, roller chains, belts, brake wheels,
couplings, and the like.
The Contractor warrants that such Work will meet the requirements
of, and be in conformity with, any and all applicable laws,
rules, regulations, and ordinances.
7.2 Contractor should put the proper labels on the conspicuous place
of the hazardous or harmful material, device, equipment or
container, and submit to CSC the relevant detailed Material
Safety Data Sheet.
8. DELAYS IN DELIVERY AND LIQUIDATED DAMAGES
-----------------------------------------
8.1 Contractor shall begin and complete delivery of the Work
including the delivery of engineering drawings for construction
according to the schedule set forth in the Contract
Specifications. Progress of delivery shall be governed by target
dates set forth in the above mentioned schedule.
8.2 In the event progress of actual shipment/delivery of Facilities
and/or actual delivery of engineering drawings for construction
are later than any one of the target dates due for any item set
forth in the agreed schedule, liquidated damages shall become
due. Said liquidated damages shall be computed by multiplying
the longest time of delay for any target date or the time of
delay for the completion of delivery, whichever is the longest,
times 0.2% of the Contract Price per week of delay. Delay of
fractions of one week shall be computed by taking the week as
seven days. Maximum of said liquidated damages is 5% of Contract
Price. Contractor shall pay such liquidated damages, if any, to
CSC before CSC's effecting payment for amount due under article
3.1.(c) or, otherwise, CSC will deduct the said liquidated
damages from the payment. The payment of said liquidated damages
shall not relieve Contractor from his obligations to complete the
Work, to perform his other obligations and settle other claims
resulting from the Contract.
Contractor warrants that the Work covered by this Contract will
be given higher priority than is given to any order entered into
Contractor's production program after the date of signing this
Contract in the allocation of Contractor's equipment personnel
and resources. This applies also to all subcontractor's
equipment, personnel and resources. For the purpose of checking
compliance, Contractor shall make available to CSC or CSC's
<PAGE>
designated party, all records of order entry and production
resources allocations. In the event of violation of this
warranty as proved by CSC or a party designated by CSC, and if
any delay occurs in the delivery of Work from the agreed
schedule, CSC shall be entitled to claim from Contractor damages
even to an extent beyond the limit set forth in the above.
8.3 As soon as it becomes obvious that certain equipment or part is
late to meet the scheduled delivery dates, Contractor shall
inform CSC immediately.
Should CSC deem that such delay will endanger the erection
progress, Contractor shall, upon the request of CSC, air ship the
delayed equipment or parts and bear the cost difference between
air and surface transportation.
8.4 Payment of liquidated damages shall not relieve Contractor from
the obligation of airshipment in case of delay, nor shall
airshipment and bearing of difference of transportation cost
relieve the Contractor from paying liquidated damages due.
8.5 If Contractor takes all possible measures to reduce the delay in
erection progress and, in the opinion of CSC, the erection
progress has not been substantially delayed and, as a result of
CSC's evaluation made after Final Acceptance, Contractor has
performed this Contract in satisfactory manner, CSC may, at its
full discretion, reduce or waive the liquidated damages, as the
case may be.
8.6 Should the material or components delivered by Contractor to CSC
prove to be insufficient to assemble and erect the Work at the
Erection Site, Contractor shall airship the deficient part and/or
materials, and bear all the cost of airshipment. In such event,
for the purpose of assessing liquidated damages provided herein,
the completion of shipment shall be deemed to be the arrival at
Erection Site of all such deficient parts and/or materials.
8.7 The lump sum Contract Price shall be on the basis that Contractor
shall use as much manpower and work as many hours as necessary to
meet the contractual delivery schedule. Contractor shall not be
entitled to claim any additional compensation for overtime work.
9. CHANGES IN SPECIFICATIONS
-------------------------
CSC reserves the right to make such changes in the specification and
design as may be necessary or desirable. Change in price shall be
determined by referring to a unit price of the already agreed Contract
Price. Any difference in the Contract Price resulting from any such
change shall be agreed upon in writing by CSC before the work is begun.
Before proceeding with any work involving possible claims by the
Contractor for extra compensation above the Contract Price, the
Contractor shall submit in writing to CSC a detailed estimate of the
price for such work. Where CSC desires to have the work done and where
the price is agreed upon, the matter will be covered by a written order
issued to the Contractor by CSC. The Contractor shall not proceed with
any such work before receiving such a written order.
<PAGE>
All additional work that CSC deems necessary to meet Contract
Specifications or guaranteed performance shall be furnished by
Contractor at no extra cost to CSC.
10. INVESTIGATION OF LOCAL CONDITIONS
---------------------------------
The signing of Contract by Contractor shall be deemed conclusive
evidence that Contractor has carefully investigated and clearly
understood all the local conditions which may influence the performance
of this Contract. No claims for additional compensation will be
entertained on the basis of Contractor not having made sufficiently
thorough investigation of such conditions. All expenses for such
investigation shall be borne by Contractor.
11. INSPECTION
----------
11.1 All Work shall be subject to CSC's inspection and approval at all
times, but such approval shall not relieve the Contractor of his
contractual responsibilities.
The Contractor shall provide sufficient, safe and proper
facilities at all times for such inspection of the Work, furnish
full information concerning all material entering into the Work,
and grant CSC and CSC's duly authorized representative free
access at all reasonable times to the shops where the Work for
this Contract are manufactured, stored or assembled.
11.2 At least six (6) weeks before Contractor starts manufacturing the
Work or parts thereof in Contractor's shops or in those of his
sub-contractors, Contractor shall inform CSC in writing
accordingly, indicating the item concerned, the location of the
shop and the schedule of manufacture.
11.3 CSC shall, at any time, be entitled to ascertain the state and
progress of manufacture. Visits to Contractor's engineering and
manufacturing locations shall be during working hours.
11.4 Contractor shall, during the visit of CSC's representative have
available all documents and data as are necessary to judge the
state of the Work and the progress thereof. During the
inspection of items under manufacture, the visitor(s) shall be
attended by the shop superintendent in charge or his deputy, who
shall give the visitor(s) all requested information related to
the manufacture of the Work.
11.5 CSC is entitled to visit, in addition to the shops, the offices
which are in charge of the work to be performed in connection
with the Contract.
11.6 Contractor shall assist to obtain the permission and entry visas
for all such visits for CSC to the shops of Contractor and his
sub-contractors.
11.7 Contractor shall be informed of a visit to the respective shops
and/or subcontractors at least five (5) days in advance.
<PAGE>
11.8 It shall be the responsibility of Contractor to inspect all
equipment and materials prior to delivery. Two (2) copies of all
inspection reports, test reports, analyses, etc. (in English)
signed by Contractor's authorized personnel shall be forwarded
promptly via airmail to CSC. Except for the reports for those
tests which CSC has waived witnessing in writing, all inspection
reports shall bear the signature of approval of CSC or its
representative.
12. TESTING
-------
12.1 SHOP TESTS
----------
12.1.1 Contractor shall notify CSC at least six (6) weeks in
advance of the tests so that CSC may be represented
at all tests. Contractor shall assemble equipment as
fully as practicable at the factory and test in CSC's
representative's presence. Contractor shall run all
drives and motions at full speed and full load or
simulated full load when practicable.
Refinement for timing, scope and methods of such test
shall be agreed prior to the performance of these
tests.
12.1.2 In addition to the normal tests, Contractor shall
permit CSC to inspect and make nondestructive tests
as may be necessary to ensure good quality and
compliance with the Contract Specifications at no
additional cost to CSC. Contractor shall give CSC
sufficient advance notice of availability of
components before assembling prior subassemblies to
permit inspection and nondestructive testing.
Performance of tests shall in no event be ground for
requesting extensions of delivery dates, and shall
not relieve Contractor from his contractual
obligations. Contractor shall airmail to CSC all
shop test reports. Unless CSC has waived witnessing
the test in writing, all reports must bear the
signature of approval by CSC or his representative.
12.1.3 The same obligations of Contractor to facilitate
visits by CSC and/or his representative stipulated in
article 11 also apply to this article 12.1.
12.2 PRELIMINARY FUNCTIONAL TEST
---------------------------
12.2.1 Each Functional Unit shall be subject to Preliminary
Functional Test upon completion of erection at Job
Site. By Preliminary Functional Test evidence shall
be given for:
(1) completeness of Work,
(2) proper assembly of Work,
(3) compliance with the contractual specifications,
(4) mechanical operability under no load
conditions,
<PAGE>
(5) availability on Job Site by that date of
pertinent operating and maintenance
instructions and other pertinent documentation
to be a supplied by Contractor,
(6) readiness of the Functional Unit to be
commissioned.
Any refinement for the above scope for Preliminary
Functional Test shall be determined in due course
prior to performance of such tests.
12.2.2 Contractor shall attach all inscriptions and plates
on machinery and equipment prior to Preliminary
Functional Test. Inscriptions will be in English.
12.2.3 At least seven (7) days ahead of the desired date,
Contractor shall inform CSC in writing that a
Functional Unit is ready for Preliminary Functional
Test. CSC and Contractor shall mutually agree on the
date of execution of the test.
12.2.4 CSC shall carry out the Preliminary Functional Test
in compliance with the instructions given by
Contractor's supervision personnel. A memorandum of
completion of Functional Test shall be signed by CSC
and Contractor's field representatives if all
Functional Units furnished under the Contract meet
the requirements as stipulated.
12.2.5 If any Functional Unit falls the Preliminary
Functional Test, CSC shall inform Contractor in
writing. Contractor shall immediately take all
corrective measures at his expense and complete such
correction within the time limit set by CSC. After
elimination of the defects Contractor shall again
inform CSC that the Functional Unit is ready for
Preliminary Functional Test.
In the event that Contractor does not commence to
correct the defects within seven (7) days following
the receipt of CSC's notice, CSC may at Contractor's
expense correct said defects. Such action on CSC's
part shall not relieve Contractor from his
contractual obligations.
12.2.6 CSC and Contractor may agree on commencement of
commissioning even if Preliminary Functional Test has
not been completed, if both parties agree on the
insignificance of the incomplete part. However, such
agreement shall not relieve Contractor from his
obligations under the Contract.
12.2.7 A memorandum of completion of Preliminary Functional
Test shall not be withheld by CSC unreasonably or for
minor or insubstantial deviations from the Contract
Specifications unless the principal function of the
Functional Unit is affected or contractually agreed
documentation has not been delivered by Contractor.
<PAGE>
12.2.8 Should a Functional Unit, for which the Preliminary
Functional Test has already been completed, develop
defects during the period between the completion of
that test and Final Acceptance, Contractor shall be
responsible for these defects and deliver the
replacement parts free of charges to CSC on CIF
Kaohsiung basis, unless Contractor proves that the
defects have not been caused by faulty planning,
design, workmanship or by faulty instructions given
by Contractor.
12.3 PERFORMANCE TEST
----------------
12.3.1 Time limit for holding Performance Test shall be
according to the stipulations of Contract
Specifications.
12.3.2 CSC shall furnish all raw materials, consumables,
other materials, utilities, laboratory' equipment,
skilled operators, testing instruments with the
exception of those special testing equipment
Contractor deems necessary and has listed to furnish
in the Contract. Parts damaged during Performance
Test shall be replaced by Contractor free of charge.
Contractor shall also bear all the transportation
cost to and from Job Site and insurance premium and
import duties, if any, of such replacement. Such
parts shall carry the 12 month guarantee as per
article 13 hereof.
Contractor and CSC shall agree fourteen (14) days in
advance on the date of the Performance Test.
13. GUARANTEE
---------
13.1 EQUIPMENT GUARANTEE
-------------------
13.1.1 Contractor warrants to CSC that the design of all
equipment shall be modern, approved and of the latest
type as developed by recent experience and
technology, and shall comply with the Contract
Specifications, drawings and other description
furnished herein by CSC or Contractor, as the case
may be.
Equipment shall be new and shall under the intended
operation conditions show no defects
13.1.2 The material, workmanship, manufacture, fabrication
and construction of the equipment shall be first
class in all details.
13.1.3 The equipment when erected and assembled at CSC's Job
Site will constitute a complete efficient unit,
capable of continuous operation at the rate, capacity
and efficiency set forth in the Contract
Specifications.
<PAGE>
Contractor shall, at his own expense, upon written
demand by CSC, promptly fabricate, deliver to Job
Site, remove replace, test and certify free of charge
any part of the equipment:
a. Which does not comply with the Contract
Specifications.
b. Which is of defective or incorrect design.
c. Which under normal use and maintenance proves
defective in workmanship or material within a
guarantee period of twelve (12) from the date
of Final Acceptance, however, not later than
eighteen (18) months after the end of the time
period of Performance Test set forth in the
Contract Specifications in case that
Performance Test is delayed owing to causes
solely attributable to CSC.
Contractor shall bear all expenses of returning the
defective and replaced part to Contractor, and such
return shall not be effected before the arrival of
the replacement at Job Site.
13.1.4 If after receipt of written request from CSC and ten
(10) days later the Contractor has not acted upon
CSC's request, CSC may engage third parties. The
cost incurred by CSC from third party repair,
modification or replacement will be charged to
Contractor. However, Contractor will not be relieved
from Contractor's contractual obligations.
13.1.5 In all the above cases the guarantee period for the
replaced part shall be extended twelve (12) months
from the date the replaced part functions properly.
If such part affects any other part of the Work, the
guarantee period of such affected parts shall be
extended by a period equal to the time period they
are idled.
13.1.6 Contractor shall be free from liabilities and/or
responsibilities as provided hereunder in case
Contractor can prove to CSC's satisfaction that the
failure is due to disregard by CSC's personnel of
Contractor's erection or commissioning instructions
entered in the site diary and duly acknowledged by
CSC Representative.
13.1.7 The Contractor's responsibility for loss or damage to
the Work shall cease at the end of the guarantee
period except where such loss or damage is
attributable to the Gross Misconduct, of the
Contractor. "Gross Misconduct" means any act or
omission of the Contractor in violation of the most
elementary rules of diligence which a conscientious
contractor in the same position and under the same
circumstances would have followed. In the event of
Gross Misconduct the Contractor's responsibility for
loss or damage to, the Work, including but not
limited to repair or replacement of the defective
<PAGE>
Work, shall cease: 1) at the end of the required
service life of the Work or a part thereof, if the
service life has been specified in the Contract; or
2) at the end of the service life which an ordinary
equipment or a part thereof should have, if the
service life has not been specified in the Contract.
13.2 PERFORMANCE GUARANTEE
---------------------
13.2.1 Contractor guarantees that the Work shall be capable
of the performances set forth in Contract
Specifications. The Work shall be subject to tests
as stipulated therein.
13.2.2 Guaranteed performance, such as capacity, quality,
consumption values, duration of test, testing
conditions, and detailed test procedures are set
forth in Contract Specifications.
13.2.3 CSC will deem the Performance Test completed, and
guarantee considered met, when all described
conditions agreed upon by the Contractor and CSC are
fulfilled.
13.2.4 If Performance Test is not finally successful and
Contractor deems such failure is due to the lack in
skill of CSC's operators, CSC shall have the right to
request Contractor, or Contractor may at his option
to bring his own operators to operate the equipment
during the Performance Test. All such activities
shall be at no cost to CSC.
13.2.5 If, in the course of the Performance Test, guaranteed
performance of the Work is achieved in accordance
with the provisions of the Contract, a memorandum
shall be drawn up and signed by CSC and Contractor
confirming success of the Performance Test. The
calculations required for the Performance Test shall
be completed by Contractor promptly after running of
a Performance Test, and handed to CSC. A formal
certificate bearing the date of successful
performance as well as the signatures of the
officials in charge shall be handed to Contractor
within seven (7) days after receipt and acceptance by
CSC of Contractor's performance calculations.
13.2.6 Failure to Meet Performance Guarantees:
If owing to reasons within Contractor's
responsibility Performance Test have not been
successfully executed within the time period set
forth in the Contract Specifications, Contractor
shall be deemed to have failed to meet the guarantee
specified in the Contract, in which case Contractor
shall:
(1) continue to take all possible measures at Contractors
expense to remedy and improve the Facilities,
including but not be limited to redesign and
replacement of the critical part of the Facilities to
reach the performances guaranteed.
<PAGE>
(2) pay liquidated damages to CSC according to the following
schedule:
<TABLE>
<CAPTION>
If the guaranteed performances
have not been reached within
the below listed number of
months after the end of the
time period of Performance The liquidated damages
Test set forth in will be ( % of
Contract Specifications: Contract Price:
-------------------------- ----------------------
<S> <C>
3 0
4 1
5 2
6 3
7 4
8 and more 5
</TABLE>
CSC may waive or reduce the amount of liquidated
damages set forth above if, in CSC's opinion,
Contractor performs this Contract in a very good
manner in engineering, design, manufacturing, quality
control, delivery arrangement, supervision services
of erection and commissioning, technical transfer and
other after services which are materially beneficial
to CSC.
(3) Pay additional liquidated damages if so claimed by
CSC in case of failure to reach the guaranteed
performances within one year after the original time
limit and CSC chooses to accept the Facilities with
defect. Such liquidated damages shall be calculated
basing on percentage of deficient production rate
and/or deficient performance rate as follows:
(a) Each FGD system shall be designed to reduce SOx
from 500 ppm volume dry corrected (VDC) or
lower (at 6% 02), to 50 ppm (VDC) or lower (at
6% O2), or SOx reduction equivalent to 90% at
any operation condition.
If SOx reduction of each FGD system can not
meet the performance guarantee, and CSC decides
to accept with defect, the Contractor should
pay a minimum liquidated damages (abbreviated
as LD hereinafter) of 5% of one-third of the
total Contract Price. In addition, as the SOx
reduction efficiency deviates every 1% (lower
in absolute efficiency value) from the
guaranteed 90%, there will be a 1%
corresponding LD added to the 5%, but the total
shall not exceed 10% of one-third of the total
Contract Price. For example, if a SOx
reduction of 85% is achieved, the Contractor
shall pay 10% LD to CSC.
<PAGE>
(b) Each FGD system shall be designed to meet
guaranteed Normalized Stoichiometric Ratio
(NSR) 1.313.
If NSR of each FGD system can not meet the
performance guarantee, the Contractor should
pay a minimum LD of 3% of one-third of Contract
Price. If the NSR deviates every 0.1 (higher)
from the guaranteed data, there will be a 1%
corresponding LD added to the 3%, but the total
shall not exceed 5% of one-third of the total
Contract Price.
(c) Each FGD system shall be designed to meet the
guaranteed particulate emission rate (<50
mg/Nm3) at 6% 02 condition.
If the particulate emission rate of each FGD
system can not meet the performance guarantee,
the Contractor should pay a minimum LD of 5% of
one-third of Contract Price. If the
particulate emission rate deviates every
5mg/Nm3 (higher) from the guaranteed data,
there will be a 1% corresponding LD added to
the 5%, but the total shall not exceed 10% of
one-third of the total Contract Price.
(d) Raw Water Consumption
The makeup raw water flow (total) shall be
guaranteed not to exceed 12,100 Kg/Hr for each
boiler's FGD at 100 percent MCR.
LD: US$17,300 for each 500 liter per hour
increase in raw water requirements of
guaranteed data.
(e) Electric Power Consumption
The consumption rate of electric power shall be
guaranteed not to exceed 270 KWH for each
boiler's FGD at 100 percent MCR.
LD: US$4,590 per kW for electrical power
consumption exceeding the guaranteed data of
power consumption, including power consumption
for the waste water treatment system and
equipment furnished by others.
(f) Effluent Quality
The effluent quality shall be guaranteed not to
exceed the values specified in Section 3.3 of
CSC's Specification No. FGD-35W5S01.
LD: US$100,000 will be added if any one or
more of the species in the treated effluent
exceeds the respectively guarantee values
stated above.
<PAGE>
(g) Steam Consumption
No steam consumption is required for each
boiler's FGD at 100 percent MCR.
LD: US$52,700 each 100 kg per hour for steam
consumption exceeding the guaranteed data of
steam consumption (including steam consumption
for the re-heating system of treated flue gas).
(h) Land Space Requirement
Total land space requirement for three FGD
systems shall be guaranteed not to exceed 665
square meter (M2).
LD: US$640 for each extra square meter (M2)
exceeding the above guaranteed figure.
<PAGE>
The liquidated damages for each individual FGD system described above is
summarized and listed in the following Table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Item Liquidated Damages
- ----------------------------------------------------------------------------------------
<S> <C>
SOx reduction efficiency
89~<90% 5% of one-third of the total Contract Price
88~<89% 6% of one-third of the total Contract Price
87~<88% 7% of one-third of the total Contract Price
86~<87% 8% of one-third of the total Contract Price
85~<86% 9% of one-third of the total Contract Price
84~<85 10% of one-third of the total Contract Price
- ----------------------------------------------------------------------------------------
Normalized Stoichiometric Ratio (NSR)
The guaranteed data (NSRG) 1.313.
> NSRG ~<NSRG+0.1 3% of one-third of the total Contract Price
> NSRG+0.1~NSRG+0.2 4% of one-third of the total Contract Price
=
> NSRG+0.2 5% of one-third of the total Contract Price
=
- -----------------------------------------------------------------------------------------
Particulate emission rate (<50mg/Nm3)
50~<55 mg/Nm3 5% of one-third of the total Contract Price
55~<60 mg/Nm3 6% of one-third of the total Contract Price
60~<65 mg/Nm3 7% of one-third of the total Contract Price
65~<70 mg/Nm3 8% of one-third of the total Contract Price
70~<75 mg/Nm3 9% of one-third of the total Contract Price
75~<80 mg/Nm3 10% of one-third of the total Contract Price
- -----------------------------------------------------------------------------------------
The makeup raw water US$17,300 for each 500 liter per hour increase
in raw water requirements of guaranteed 12,100
Kg/Hr for each boiler's FGD at 100% MCR.
- -----------------------------------------------------------------------------------------
Electric power consumption US$4,590 per kW for electrical power
consumption exceeding the guaranteed 270 KWH
for each boiler's FGD at 100% MCR.
- -----------------------------------------------------------------------------------------
Effluent quality US$100,000 will be added if any one or more of
the species in the treated effluent exceeds the
respectively guarantee values specified in
CSC's Specification No. FGD-85W5S01.
- -----------------------------------------------------------------------------------------
Steam consumption US$52,700 each 100 kg per hour for any steam
consumption for each boiler FGD at 100% MCR.
- -----------------------------------------------------------------------------------------
Land space requirement US$640 for each extra square meter (M2)
exceeding 665 square meter (M2).
- -----------------------------------------------------------------------------------------
</TABLE>
(4) Compensate to CSC in a sufficient amount deemed
necessary for CSC to remedy the Facilities, by
engaging a third party, to reach the guaranteed
performances in case one year after the original time
limit the Facilities have not been accepted by CSC.
<PAGE>
Payment of liquidated damages or compensation specified in
item (2) and/or (3) or (4) above shall in no way relieve
Contractor from his other contractual obligations and
responsibilities.
14. INTELLECTUAL AND INDUSTRIAL PROPERTIES
--------------------------------------
Contractor shall indemnify, safeguard and defend CSC, CSC's officers
and mandataries from and against any and all suits or action either at
law or in equity and from all loss, expense, damage, attorney's fees,
claims or demand for, or incidental to any actual or alleged
infringement of any patent, invention, design, know-how, technical
information, trade mark or name, or copyright arising from the
purchase, design, manufacture, use or sale of any of the articles,
materials, processes covered by the Contract.
Should any claim against above mentioned infringements result in a
delay in the execution of the Work, Contractor shall be held
responsible for such delays according to the stipulations of the
Contract.
In the event that any claim is made or action is brought against CSC,
CSC's officers, and mandataries relating to an Infringement, CSC shall
promptly notify Contractor thereof, and Contractor, at Contractor's
expense, shall conduct for CSC all negotiations for and settlement of
disputes or litigations that may arise therefrom.
Contractor shall pay all royalties and license fees and shall defend
all suits or claims for infringement of any patented, trade marked
and/or copyrighted article, machine or process (specified and/or
furnished by him) incorporated in the Work and shall save CSC harmless
from any loss on account thereof.
Should any such infringement be established and Contractor must replace
the infringing equipment with non-infringing equipment, such
replacement shall be made only when CSC's erection and commissioning
schedule or production schedule so permit. If replacement of such
equipment affect CSC's erection, commissioning or production,
Contractor shall be responsible for all losses thereby incurred by CSC.
15. TAXES
-----
CSC shall be responsible for the payment of only those taxes, duties,
tariffs, fees and other charges imposed by the Government of the
Republic of China on the transaction covered in this Contract for which
the applicable laws and regulation name CSC as the payer.
Notwithstanding the above, CSC shall provide the bond for the import
duty for equipment or tools, sheds, scaffolding instruments which are
brought to Job Site by Contractor for the performance of his services
specified herein and which remain his property and will be reexported
after use. If owing to negligence on the part of Contractor any such
bond is confiscated, Contractor should bear the losses incurred by CSC
as a result of such confiscation.
<PAGE>
Contractor shall assume the payment of all taxes, duties, tariffs,
import, and excise levied by all governments other than the Republic of
China and those taxes, duties, tariffs, etc. imposed by the government
of the Republic of China for which the applicable laws and regulations
name Contractor or any party other than CSC as the payer (including but
not limited to any taxes levied by the Government of the Republic of
China on any branch of Contractor in the Republic of China).
Contractor shall be responsible for and bear the cost of obtaining the
export license.
16. SUB-CONTRACTORS
---------------
Contractor is permitted to order equipment and services from
subcontractors whose names are listed in Contract Specifications.
In the event that Contractor intends to subcontract to any other
subcontractors than those listed in Contract Specifications, Contractor
shall obtain a prior written approval by CSC before signing such
subcontracts.
Regardless whether Contractor subcontracts or not, Contractor shall
have sole and full responsibility for fulfilling all contractual
obligations.
Orders made by Contractor to subcontractors shall in no way relieve the
Contractor from his contractual obligations and responsibilities. CSC
shall make payments only to Contractor for Foreign Portion and to
Contractor's Taiwan local fixed place of business for Taiwan Portion.
CSC assumes no further responsibility for any payment due the
subcontractor or any other responsibilities as a result of a
subcontract from Contractor to his subcontractor. This paragraph shall
form a part of every subcontract concluded by Contractor.
17. TRANSFER OF CONTRACT
--------------------
Contractor is not entitled, without prior written consent of CSC, to
transfer the Contract nor present a claim resulting from a Contract
transfer.
18. FORCE MAJEURE
-------------
Events of force majeure making it impossible or impractical to CSC or
Contractor to fulfill the obligations arising from this Contract, such
as, but not limited to, fire, elemental catastrophes, war, blockade,
strikes and events beyond the control of CSC or Contractor shall
postpone, if the circumstance permits, the time of fulfillment of the
respective obligations for the period the above events are lasting.
Events the parties herewith specifically agreed to be excluded from and
shall not be considered as force majeure are subcontractor's delay, re-
manufacture of defective part, shortage of materials, fuel and
breakdown of Contractor's equipment, or allocation of Contractor's
equipment or labor to manufacture other orders on hand, regardless
whether such other orders have been placed by government or civilian
organizations.
That party of the Contract, for which the fulfillment of contractual
obligations become hindered or impossible subsequent to the occurrence
of the above events, is obligated to inform the other party within 15
days of the occurrence of these events and of their consequences.
<PAGE>
The corresponding proof for the occurrence of these events and their
duration are to be certified by the Chamber of Commerce of Contractor's
country or the equivalent authority in the Republic of China as far as
CSC is concerned.
Both parties shall make every reasonable effort to minimize the effect
of force majeure upon the performance of the Contract. The affected
party shall notify the other party within 15 days after the cessation
of the force majeure event.
Within a period of two months after the occurrence of force majeure and
if the force majeure event has not ceased, the parties to the Contract
shall meet, if possible, to agree upon the action to be taken to avoid
further delay in the performance of the Contract. If no agreement is
reached within a period of seven months, and the event of force majeure
has not ceased in the meantime, or if prior to the expiration of the
nine month period the parties agree that the force majeure event has
rendered further performance impossible or impractical either party is
entitled to terminate this Contract provided that all equipment
delivered by Contractor to CSC up to this moment is paid for by CSC and
surplus payment by CSC to Contractor is refunded by Contractor. Such
termination shall not absolve the parties of their responsibilities
accrued under the Contract as far as legally permissible. If at any
time the parties cannot agree whether performance is or is not possible
or practical, the dispute may be submitted to arbitration upon the
written request.
19. ARBITRATION
-----------
Any and all dispute which may arise as a result of, or in connection
with this Contract, shall be finally settled by arbitration. The party
initiating arbitration shall first advise the other party in writing of
the name of his arbitrator and demand that the other party supply in
writing the name of his arbitrator within one month. These two
arbitrators shall, within two weeks, together appoint a third
arbitrator. If the other party fails to name his arbitrator within the
designated time, or if the two arbitrators are unable within two weeks
to agree on a third arbitrator, the arbitrator or arbitrators in
question shall be appointed in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of Commerce.
The place where the arbitration shall be conducted shall be determined
by the arbitrators within two weeks of the date in which the
arbitration board is constituted, and shall be accessible by all
parties to the arbitration in time to attend the arbitration.
Contractor shall not suspend the performance of the Contract by reason
of the reference of the dispute to arbitration.
The arbitrators shall be bound by the provisions of the controlling
rules in the course of trial and in arriving at its award. The
controlling rules shall be those of the International Chamber of
Commerce.
The arbitration award shall be final and enforceable by the Courts of
the country of Contractor's domicile or place of registered business
office and the Republic of China. The award shall also indicate how to
distribute arbitrator's fee and arbitration expenses between the
parties.
<PAGE>
20. TERMINATION OF CONTRACT BY CSC
------------------------------
20.1 CSC is entitled to terminate the Contract by means of an
unilateral decision in the event of any or all the following:
(a) Contractor materially breaches the Contract;
(b) Contractor has not commenced action to provide the Work two
(2) months after the effectiveness of the Contract;
(c) Contractor, after having been notified by CSC in writing of
the consequences thereof does not fulfill all or part of
the Contract thus impairing the fundamental basis/purpose
of the Contract.
20.2 If (a) or (b) occurs, Contractor shall complete corrective action
within a reasonable period stipulated by CSC. If after this
period, Contractor has not completed corrective action, CSC is
entitled to regard the Contract as terminated.
20.3 In case that the Contract is terminated by a unilateral decision
of CSC, CSC either directly or through another contractor,
undertake and complete the Work agreed upon in the best way
possible. In such case, CSC shall withhold any payment pending
final account at the completion of the Work. If the withheld
payment is not sufficient to meet the difference in prices and
losses incurred by as a result of such termination, CSC shall
have the right to claim from Contractor and obtain compensation
therefrom.
20.4 CSC has the rights and powers stipulated under this article in
case that Contractor becomes bankrupt or insolvent or concluded a
receivership or, if according to CSC's judgement, the provision
of the Work in accordance with the Contract is jeopardized as a
result of a delay for payment agreed upon between Contractor and
Contractor's creditors, or of the fact that parts of Contractor's
property are burdened with liens or mortgages, or in case that
Contractor being an association is being devolved.
20.5 The fact that the Contract is terminated by CSC may not and shall
not be regarded as a renunciation of CSC's right to render
Contractor or its successor liable for the damages accrued by the
date of termination.
21. INFORMATION REGARDING CONTRACTS
-------------------------------
No information relative to the Contract shall be published or given out
in any form or manner by Contractor without first obtaining the written
consent of CSC except necessary information to Government agencies upon
request, or to financial institutions for the obtaining of financing.
22. INTERFERENCE WITH CSC'S FACILITIES
----------------------------------
Should the lack of adequate and correct information on the Contractor's
drawings or error on the Contractor's part in performing the Work
result in any interference with the CSC's Facilities so as to require
changes therein or in the Work furnished by the Contractor, the
Contractor shall at its own expense make such changes as are necessary
to correct such interference or CSC may make them and charge the cost
thereof to the Contractor.
<PAGE>
23. WAIVER OF BREACH
----------------
Any failure by CSC at any time, or from time to time, to enforce or
require the strict keeping and performance by the Contractor of any of
the terms or conditions of this Contract shall not constitute a waiver
by CSC of a breach of any such terms or conditions and shall not affect
or impair such terms or conditions in any way, or the right of the CSC
at any time to avail itself of such remedies as it may have for any
such breach or breaches of such terms or conditions.
24. LIENS
-----
Release of final payment shall not take place until Contractor shall
deliver to CSC a complete release of all liens arising out of this
Contract or receipts in full in lieu thereof, and an affidavit that
Contractor has no knowledge or information of any other claim for labor
or material for which a lien could be filed. If any lien is placed
against the property or remains unsatisfied, Contractor shall pay to
CSC all monies that CSC may be compelled to pay in discharging such
lien, including all costs connected therewith and all attorney's fee
and all loss and damages incurred therefrom, if any.
25. WARRANTY AGAINST CONTINGENT FEES FOR SOLICITING OR SECURING AWARD
-----------------------------------------------------------------
Contractor warrants that no person has been employed or retained to
solicit or secure or to render any service or assistance toward the
obtaining of the award of Contract upon an agreement or understanding
for a commission, percentage, brokerage, or contingent fee, except bona
fide staff employed by Contractor for the purpose of securing business
and that such staff employed by Contractor shall not share with any
person or party the benefits arising from securing business for
Contractor in this transaction. For any breach or violation of this
warranty CSC shall have the right to annul the Contract and/or at CSC's
discretion to deduct from the Contract price or consideration, or
otherwise recover, the full amount of such commission, percentage,
brokerage, or contingent fee.
26. OFFICIALS AND EMPLOYEES NOT TO BENEFIT
--------------------------------------
Contractor warrants that: (1) no officials or employees of the
Government of the Republic of China, including any subdivision thereof,
no employees of CSC, nor employees of consultant, whose service is in
any way related to CSC's selection of equipments and materials, has
been or will be admitted to any share or part of this Contract or to
any benefit that may arise therefrom, (2) violation of this warranty
will subject Contractor to penalties according to Law of the Republic
of China as well as give CSC the fight to annul this Contract or at
CSC's discretion to take legal action to recover damages.
27. LANGUAGE
--------
English shall be used in all drawings, documentation, and
correspondence, and English language shall be used in all meetings,
discussions and dialogue related to this Contract.
<PAGE>
28. MESSAGES
--------
All messages sent by CSC to Contractor in accordance with the
stipulations of the Contract or in connection therewith, shall be
regarded as received by Contractor on the 7th day after the date of the
postmark, if they have been sent by airmail to the principal or
registered seat of Contractor or to an address officially designated by
Contractor, or on the day upon receipt of answerback
conformation/acknowledgement of receipt if sent by telex/facsimile. In
case that the message is personally handed over to the Contractor at
Contractor's principal or registered seat, or designated address, it is
regarded as being received by Contractor on the day of delivery.
Signatures on letters shall be followed by typed name of person
signing. Cables and telexes shall bear the name of sender.
All messages sent by Contractor to CSC in accordance with the
stipulations of the Contract or in connection therewith shall be
regarded as received by the addressee on the 7th day after the date of
postmark if they are sent by airmail to CSC under the address indicated
in this Contract, or upon receipt of answerback
confirmation/acknowledgement of receipt if sent by telex/facsimile. In
case that the message is personally delivered to this address, it is
regarded as being received on the day of delivery.
All messages given by CSC to Contractor or by Contractor to CSC on Job
Site in accordance with the stipulations of the Contract, shall be
regarded as received by the addressee, when they have been delivered to
the person authorized to accept such messages.
29. CHARGING OF AMOUNTS DUE CSC AGAINST OUTSTANDINGS DUE CONTRACTOR
---------------------------------------------------------------
All amounts due CSC shall be charged against outstanding amounts due
Contractor under this Contract or any contract affiliated therewith,
such as furnishing of technical personnel or furnishing of spare parts.
However this provision shall in no way imply limitation of Contractor's
liability to amounts outstanding under this Contract and affiliated
contracts.
30. PUBLIC AND THIRD PARTY INTEREST
-------------------------------
Contractor shall strictly avoid any activities on Job Site which might
impair the interest of the public or third parties including, but not
limited to, other contractors. Contractor shall indemnify and hold CSC
harmless from any claims brought up against CSC in consequence of such
activities which are not covered by the insurance specified under
article 12.2 of EXHIBIT III SHIPPING AND INSURANCE attached herewith.
31. GOVERNING LAW
-------------
This Contract shall be governed by, and construed in accordance with
the substantive laws of the Republic of China.
32. SUCCESSION
----------
This Contract shall be binding on and, except as otherwise herein
provided, shall inure to he benefit of the heirs, legal successors and
assigns of the Contractor/CSC.
<PAGE>
33. CONSEQUENTIAL DAMAGES
---------------------
Contractor realizes that a fill completion of the Work in due course is
important to and constitutes an important basis upon which Contractor
and CSC enter into this contract. However, both parties shall not be
liable for any kind of incidental, indirect or consequential damages
such as but not limited to loss of profit loss of use, cost for idle
personnel and equipment or otherwise.
34. COUNTRY OF ORIGIN
-----------------
Contractor fully understands the current regulations of the Republic of
China that import of commodity originated from Mainland China, Cuba,
Iraq is prohibited unless specifically approved. Contractor shall only
supply/deliver equipment, parts, materials, services originated from
countries or areas other than Mainland China, Cuba, Iraq. Contractor
shall also cause his subcontractor to strictly comply with these
conditions. IT IS VERY IMPORTANT THAT CONTRACTOR SHALL BE RESPONSIBLE
FOR ALL LOSSES, CONFISCATION, FINES OR EXPENSES AS WELL AS ANY DELAY IN
CONSTRUCTION SCHEDULE MAY BE SUFFERED BY CSC OWING TO VIOLATION OF
THESE CONDITIONS BY CONTRACTOR AND/OR HIS SUBCONTRACTOR.
35. EFFECTIVE DATE OF CONTRACT
--------------------------
This Contract shall become effective after signing the Contract by both
parties.
36. EXECUTION
---------
This Contract is executed in two originals and two duplicates in
English. CSC and Contractor shall retain one original and one
duplicate respectively.
CHINA STEEL CORPORATION ETS INTERNATIONAL, INC.
s/Jo-Chi Tsou s/John D. McKenna
- ---------------------------------- ----------------------------------
Name: Jo-Chi Tsou Name: John D. McKenna
Title: Vice President - Commercial Title: Chairman & President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE MONTH PERIOD ENDED AUGUST 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> AUG-31-1997
<CASH> 471
<SECURITIES> 0
<RECEIVABLES> 4,326
<ALLOWANCES> 119
<INVENTORY> 929
<CURRENT-ASSETS> 7,723
<PP&E> 9,678
<DEPRECIATION> (6,691)
<TOTAL-ASSETS> 11,900
<CURRENT-LIABILITIES> 6,448
<BONDS> 844
0
0
<COMMON> 5,657
<OTHER-SE> (1,770)
<TOTAL-LIABILITY-AND-EQUITY> 11,900
<SALES> 0
<TOTAL-REVENUES> 6,154
<CGS> 0
<TOTAL-COSTS> 5,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359
<INCOME-PRETAX> 70
<INCOME-TAX> 0
<INCOME-CONTINUING> 70
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
