SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-8002
THERMO ELECTRON CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2209186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1.00 par value New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
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 at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference into Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 27, 1995, was approximately $2,200,490,000.
As of January 27, 1995, the Registrant had 51,000,776 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1994, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 23, 1995, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
Thermo Electron Corporation and its subsidiaries (the Company or the
Registrant) develop, manufacture, and market environmental monitoring and
analysis instruments, biomedical products including heart-assist systems
and mammography systems, paper-recycling and papermaking equipment,
alternative-energy systems, industrial process equipment, and other
specialized products. The Company also provides environmental and
metallurgical services and conducts advanced technology research and
development. The Company performs its business through its divisions and
wholly owned subsidiaries, as well as majority-owned subsidiaries that are
partially owned by the public or by private investors.
The Company has developed leading market positions in many lines of
business, including environmental monitoring and analysis instruments,
mammography systems, biomass power plants, and paper-recycling equipment.
The Company is currently seeking to establish leading market positions in
the fields of left ventricular-assist systems, explosives-detection
systems, soil-remediation services, and dedicated natural gas engines. The
Company is developing new products in its Advanced Technologies segment, as
well as in other segments.
A key element in the Company's growth has been its ability to commercialize
innovative products and services emanating from research and development
activities conducted at the Company's various subsidiaries and divisions.
The Company's strategy has been to identify business opportunities arising
from social, economic, and regulatory issues and to seek a leading market
share through the application of proprietary technology. As part of this
strategy, the Company continues to focus on the acquisition of
complementary businesses that can be integrated into its existing core
businesses to leverage the Company's access to new markets.
The Company believes that maintaining an entrepreneurial atmosphere is
essential to its continued growth and development. In order to preserve
this environment, the Company adopted the strategy of spinning out certain
of its subsidiaries and having these subsidiaries sell a minority interest
to outside investors. The Company believes that this strategy provides
additional motivation and incentives for the management of the subsidiaries
through the establishment of subsidiary-level stock options, as well as
capital to support the subsidiaries' growth. The Company's wholly owned and
majority-owned subsidiaries are provided with centralized strategic
planning, corporate development, administrative, financial, and other
services that would not be available to many independent companies of
similar size. As of March 3, 1995, the Company had 13 subsidiaries that
have sold minority equity interests, 11 of which are publicly traded.
On February 8, 1995, the Company entered into a definitive agreement to
acquire Coleman Research Corporation (CRC) in exchange for up to 2,669,158
shares of Company common stock, including approximately 146,900 shares
reserved for issuance upon exercise of stock options. CRC provides systems
integration, systems engineering, and analytical services to government
customers in the fields of information technology, energy and the
environment, software engineering, launch systems, advance radar and
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imaging, and health systems. The acquisition is subject to certain
conditions, including the approval of CRC's shareholders, and is expected
to be consummated on or about March 15, 1995. If completed, the acquisition
of CRC will be accounted for using the pooling-of-interests method.
The Company is a Delaware corporation and was incorporated in 1956. The
Company completed its initial public offering in 1967 and was listed on the
New York Stock Exchange in 1980. The principal executive office of the
Company is 81 Wyman Street, Waltham, Massachusetts 02254-9046 (telephone:
617-622-1000).
(b) Financial Information About Industry Segments
The Company's products and services are divided into six segments:
Instruments, Alternative-energy Systems, Process Equipment, Biomedical
Products, Environmental Services, and Advanced Technologies. Products or
services within a particular segment are provided by more than one
subsidiary, and certain subsidiaries' products or services are included in
more than one segment. The principal products and services offered by the
Company in the six industry segments are described in detail below (see
"Principal Products and Services"). Financial information concerning the
Company's industry segments is summarized in Note 14 to Consolidated
Financial Statements in the Registrant's 1994* Annual Report to
Shareholders and is incorporated herein by reference.
(c) Description of Business
(i) Principal Products and Services
Instruments
The Company, through its Thermo Instrument Systems Inc. subsidiary, is a
worldwide leader in the development, manufacture, and marketing of
analytical instruments used to detect and measure air pollution, nuclear
radioactivity, complex chemical compounds, toxic metals, and other elements
in a wide variety of materials. Thermo Instrument also markets process
monitoring and control instruments for the oil, gas, and petrochemical
industries. Through Thermo Instrument's 86%-owned subsidiary, ThermoSpectra
Corporation, the Company develops, manufactures, and markets precision
imaging, inspection, and measurement instrumentation that employ a variety
of energy sources, or signals, as well as high-speed data acquisition and
digital processing technologies.
In recent years, Thermo Instrument has completed a number of key
acquisitions to expand and complement its existing lines of instruments,
including: Finnigan Corporation, a leading manufacturer of mass
spectrometers, in May 1990; Nicolet Instrument Corporation, a leading
manufacturer of instruments for numerous analytical, chemistry,
engineering, and other applications, in August 1992; Spectra-Physics
Analytical, a manufacturer of high performance liquid chromatography and
capillary electrophoresis analytical instruments, in February 1993; and
several of the businesses within the EnviroTech Measurements & Controls
group of Baker Hughes Incorporated, manufacturers of products used for
process control, process measurement, and laboratory analysis, in March
1994. In addition, on March 1, 1995, Thermo Instrument entered into an
Asset and Stock Purchase Agreement with Fisons plc (Fisons) relating to the
* References to 1994, 1993, and 1992 herein are for the fiscal years ended
December 31, 1994, January 1, 1994, and January 2, 1993, respectively.
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acquisition by Thermo Instrument of Fisons' Scientific Instruments Division
(the Division) for a purchase price of 202 million British pounds sterling,
subject to a post-closing adjustment. The Division is principally composed
of Fisons operations that are involved in the research, development,
manufacture, and sale of analytical instruments to industrial and research
laboratories worldwide. Consummation of the acquisition is subject to
several conditions, including approval by Fisons shareholders, regulatory
approvals, consent of certain third parties and customary conditions to
closing.
Instruments manufactured and marketed by the Company employ a variety of
advanced technologies and spectral, electroanalytical, and separation
techniques to determine the composition, or structure, and physical
properties of natural and synthetic substances. The Company's instruments
can be broadly categorized by their use as analytical, monitoring, or
process control instruments.
Analytical Instruments
The Company's principal analytical instrument products are atomic emission
and absorption spectrometers, Fourier transform infrared (FT-IR) and
FT-Raman spectrometers, mass spectrometers, high performance liquid
chromatographs, gas chromatographs, and X-ray fluorescence instrumentation.
Atomic emission (AE) and atomic absorption (AA) spectrometers identify and
measure trace quantities of metals, and other elements, in a wide variety
of materials, including environmental samples (such as soil, water, and
wastes), foods, drugs, cosmetics, and alloys. The Company sells its
products to a wide range of customers in manufacturing industries such as
producers of aircraft, automobiles and trucks, computers, chemicals, food,
pharmaceuticals, and primary metals; service industries such as waste
management companies and commercial testing laboratories; and government
and university laboratories.
The Company is a leading manufacturer of sequential AE spectrometers, in
which elements are analyzed one at a time, and simultaneous AE
spectrometers, in which many elements can be measured at the same time. The
Company produces AA spectrometers in single-, double-, and four-channel
models. The Company is the only major producer of multichannel AA
spectrometers, which provide several operational advantages over
single-channel instruments, including speed of analysis, increased
accuracy, reduced sample consumption, and analysis over an extended range
of concentrations.
The Company's FT-IR and FT-Raman spectrometers are designed to
nondestructively determine the chemical composition and physical properties
of materials. These instruments are used in many areas of chemical
research, industrial quality control and process monitoring, and for
solving a wide variety of materials analysis problems. The Company offers a
variety of models ranging from recently introduced models designed for
routine applications to highly advanced research-grade FT-IR spectrometers.
The Company is a leading manufacturer of commercial mass spectrometers and
has pioneered many of the significant developments and applications of mass
spectrometry. The Company's mass spectrometry products identify and measure
the components of a sample for organic chemical compounds or for inorganic
elements. These instruments are used by customers in environmental analysis
and pollution control; in research and the production of pharmaceuticals;
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in biochemistry; in analysis of foods, chemicals, and petrochemicals; and
in health and forensic science. The Company provides both stand-alone mass
spectrometers and combined systems that use its own chromatographs or those
purchased from other companies. These products span a range of sensitivity,
specificity, separation technologies, data-handling capabilities, sizes,
and prices.
The Company sells high performance liquid chromatography, capillary
electrophoresis, and related instruments and equipment used principally in
the research and development and production monitoring of pharmaceuticals,
chemicals, and personal-care products, and for environmental monitoring.
These instruments separate the chemical components of substances for
purposes of identification and measurement. Capillary electrophoresis is a
relatively new separation technique that is based on a combination of
chromatographic and electroanalytical technologies and is particularly
useful in biochemical and pharmaceutical research.
In 1994, with Thermo Instrument's acquisition of the Tremetrics and TN
Technologies businesses from Baker Hughes, the Company added two analytical
testing technologies: gas chromatography and X-ray fluorescence. Gas
chromatographs are widely used in environmental and industrial laboratories
as stand-alone instruments or in conjunction with mass spectrometers, where
the gas chromatograph separates a sample into individual chemical
components for the mass spectrometer to identify. Applications include the
identification of organic compounds, from pesticide residues on vegetables
to chlorinated organics in drinking water. The Company sells a wide variety
of gas chromatography detectors that measure trace levels of pollutants in
water, soil, and air. X-ray fluorescence instruments allow for the
nondestructive analysis of inorganic elements. Applications include alloy
identification, on-line process monitoring and quality control,
characterization of toxic metals in soil, and thickness and/or composition
of semiconductor thin films. In addition, the Company manufactures and
markets digital oscilloscopes, multichannel transient recorders,
high-resolution waveform analyzers, laser scanning confocal microscopes,
and X-ray microanalysis equipment, as well as X-ray imaging systems used
for quality assurance and failure analysis applications primarily in the
electronics industry.
Monitoring Instruments
The Company also manufactures monitoring instruments for two principal
markets: the detection and measurement of nuclear radiation, and the
monitoring of air pollutants including toxic and combustible gases.
The Company's nuclear radiation monitoring instruments detect and measure
alpha, beta, gamma, neutron, and X-ray radiation emitted by natural sources
and by radioactive materials used in nuclear power plants and certain
governmental, industrial, and medical facilities. The Company is a leading
manufacturer of a broad range of stand-alone and portable instruments and
computer-integrated instrument systems used to ensure the safety of
personnel from exposure to nuclear radiation. Nuclear power plants and U.S.
Department of Energy facilities purchase approximately 70% of the radiation
monitoring instruments sold by the Company.
The Company's air-monitoring instruments measure pollutants in ambient air
and from stationary sources such as industrial smokestacks. The principal
pollutants measured are oxides of nitrogen, sulfur dioxide, carbon
monoxide, ozone, and volatile organic compounds. These instruments are used
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by utility and industrial customers to ensure compliance with environmental
regulations, by government agencies to monitor air quality, and by research
facilities. The Occupational Safety and Health Administration's safety
requirements for protecting workers from toxic or explosive atmospheres in
confined spaces are addressed with the Company's detectors, instruments,
and systems for sensing, monitoring, and warning of such dangers. These
worker-safety products are used in a wide range of applications, from large
petrochemical plants, utilities, and industrial manufacturing facilities to
commercial buildings.
In addition, the Company manufactures equipment that provides on-line,
real-time analysis of elements in bulk raw materials, such as coal and
cement. These analyzers are used by utilities to determine the sulfur
content of coal to ensure compliance with air quality standards and by the
cement industry to test raw materials to assure product quality and
uniformity.
Process Control Instruments
With the 1994 acquisition of the EnviroTech Controls business from Baker
Hughes, the Company now addresses the process monitoring, analysis,
gauging, and control instruments market, primarily for the oil, gas, and
petrochemical industries.
The Company manufactures and markets a number of process monitoring,
analysis, and control systems including: analog and digital recorders for
continuous process industries; process and laboratory analytical
instruments and monitors to detect lethal gases in the oil, gas, and
petrochemical industries; supervisory control and data acquisition software
for process monitoring and operator interface in a variety of industrial
processes; and turnkey, integrated systems to control networks of distant
oil and gas wells.
The Company also manufactures and markets process gauges and noncontacting
and nonintrusive process control instrumentation to measure liquid levels,
density, weight, and flows for a variety of industries. Application
examples include measuring levels in a pharmaceutical reactor, determining
the percentage by weight of solids contained in a mining slurry, or
monitoring the flow of fluid into a wastewater treatment facility.
Revenues from instrument products were $650,114,000, $516,712,000, and
$349,261,000 in 1994, 1993, and 1992, respectively.
Alternative-energy Systems
The Company's Alternative-energy Systems segment includes the operation
and, prior to 1994, the construction and sale, of independent (nonutility)
power plants. Beginning in early 1994, the Company began operation of a
waste-recycling facility. This segment also includes the manufacture, sale,
and servicing of industrial refrigeration systems; natural gas and marine
engines; packaged cooling and cogeneration systems; and steam turbines and
compressors.
Alternative-energy Power Plants
Through its Thermo Ecotek Corporation (formerly Thermo Energy Systems
Corporation) subsidiary, the Company designs, develops, owns, and operates
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independent (nonutility) electric power generation facilities that utilize
a range of environmentally responsible combustion technologies. The
facilities are either owned by the Company or sold to third parties upon
completion and operated by the Company. The Company has completed and
operates three wood-waste power plants and four agricultural-waste power
plants, representing a net electric generating capacity of approximately
140 megawatts.
The Company also has substantial capabilities in developing and operating
fossil-fuel cogeneration systems, which generate electricity and thermal
energy in the form of steam or hot or chilled water. The Company has built,
on a turnkey basis, three fossil-fuel cogeneration systems that are owned
and operated by others, and one system in Dade County, Florida, that is
owned by a third party and operated by a joint venture of which the Company
is a partner.
The facilities that are leased by the Company are owned by institutional
investors and leased on a long-term basis to the Company or to joint
ventures or partnerships in which the Company has ownership interests. The
Company uses internal funds for preconstruction development expenses and
generally obtains external financing for construction. The Company has
equity ownership interests in three operating plants. The Company may make
additional significant equity investments in future projects. The process
of locating, developing, financing and constructing power plants is highly
complex, lengthy and expensive and only a small percentage of the power
projects that the Company evaluates or pursues results in operating
projects.
The Company participates in the operation of the Dade County Downtown
Government Center cogeneration plant in Miami, Florida, through a joint
venture of the Company and Rolls-Royce, Inc. Because the demand for power
and chilled water at the Downtown Government Center complex has been
substantially less than anticipated since the plant's startup in 1987, the
joint venture has experienced continuing losses. The Company is involved in
litigation and regulatory proceedings with respect to this project (see
Item 3, "Legal Proceedings" below). In September 1994, the joint venture
temporarily suspended operations at the facility for an indefinite period
of time although it will continue to be responsible for lease and other
fixed costs.
Revenues from the operation and construction of alternative-energy power
plants were $134,261,000, $128,558,000, and $140,561,000 in 1994, 1993, and
1992, respectively.
Waste-recycling Facility
In early 1994, the Company completed construction and commenced operation
of a 2,100-ton-per-day municipal solid waste-recycling facility (the
Recycling Facility) in San Diego County, California (the County). The
Recycling Facility is the first such facility that the Company has built or
operated. The construction of the Recycling Facility was financed by the
issuance by the California Pollution Control Financing Authority of $133.7
million principal amount of bonds (the CPCFA Bonds). The Company has
entered into a 24-year agreement with the County under which the Company
will recycle materials recovered from the County's waste stream for a
service fee to reduce the volume of remaining waste. The service fee is
calculated pursuant to a formula that includes a provision for debt service
for the CPCFA Bonds, a pass-through of certain costs of operating the
Recycling Facility, an operation and maintenance allowance, and an
allocation of a portion of the proceeds from the resale of recovered
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materials generated by the Recycling Facility. The Company has contracted
the operations and maintenance of the Recycling Facility to a joint venture
that is owned 50% by the Company. The County has guaranteed that certain
minimum amounts of waste will be brought to the Recycling Facility and the
Company has guaranteed that the Recycling Facility is capable of processing
a minimum amount of waste and of yielding certain percentages of recovered
materials from recoverable waste. Except for risks associated with the
nonperformance by the County of its obligations, the Company bears most
business and legal risks associated with operating the Recycling Facility.
(See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference into Item 7 hereof.)
Other
The Company, through its Thermo Power Corporation subsidiary, develops,
manufactures, markets, and services environmentally sound and economically
efficient industrial refrigeration equipment, natural gas-fueled and
low-emission natural gas engines for vehicular and stationary applications
and commercial cooling and cogeneration units.
Through its industrial refrigeration business, the Company provides
environmentally sound solutions to the refrigeration needs of the
food-processing, petrochemical, and pharmaceutical industries. More than
80% of the Company's FES division's refrigeration products operate on
ammonia, a non-ozone depleting alternative to the chlorofluorocarbon
refrigerants gradually being phased out by government regulations. The 1994
acquisition of NuTemp, Inc., which rents and sells new and remanufactured
commercial cooling and industrial refrigeration equipment, provides the
Company with the opportunity to broaden the product lines and services it
offers.
Many of Thermo Power's products are powered by its low-emission dedicated
natural gas-fueled TecoDrive(R) engines. Thermo Power has supplied major
fleet operators such as United Parcel Service and the U.S. Postal Service,
as well as Blue Bird Corporation, a major school bus manufacturer, with
TecoDrive engines to power their vehicles. Thermo Power's Crusader Engines
division also manufactures natural gas engines for stationary applications,
including irrigation equipment. Other products that operate with TecoDrive
engines include cooling and cogeneration systems sold by Thermo Power's
Tecogen division, and its newly introduced gas engine-driven refrigeration
systems.
Through its Tecogen division, the Company also conducts sponsored research
and development on advanced systems for clean-coal combustion. The newest
application of Thermo Power's combustion technology under development is a
line of propane-powered lighting products, including flashlights, area
lights or lanterns, and hazard lights.
The Tecogen division is also developing a low-cost system for converting a
diesel-fueled engine to operate solely on natural gas, without major
modifications to the engine. This conversion kit will be designed to
provide fleet managers a system for converting their diesel-powered
vehicles to operate on natural gas, a much cleaner fuel.
The Company's Alternative-energy Systems segment also includes its Peter
Brotherhood Ltd. subsidiary, a U.K.-based manufacturer of steam turbines
and compressors.
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Process Equipment
The Company designs, manufactures, and sells advanced, custom-engineered
processing machinery, including paper-recycling and papermaking equipment,
metallurgical thermal-processing systems, and electroplating systems.
Paper-recycling and Papermaking Equipment
Through its Thermo Fibertek Inc. subsidiary, the Company designs and
manufactures processing machinery and accessories for the paper-recycling
and papermaking industries. The Company's principal products in this
business include custom-engineered systems and equipment for the
preparation of wastepaper for conversion into recycled paper, and accessory
equipment and related consumables important to the efficient operation of
papermaking machines. The Company has developed technologically advanced
equipment for the preparation of white recycled fiber (e.g. printing and
office paper, newsprint, and tissue). The Company sells in countries
outside the Pacific Rim technologically advanced equipment for the
preparation of brown recycled fiber (e.g. corrugated boxes and paper bags)
pursuant to a license from Aikawa Iron Works Co., Ltd., a leading Japanese
manufacturer of this equipment.
Thermo Fibertek also designs and manufactures accessories used in the
papermaking industry, including doctor blades and showers that perform
on-line continuous cleaning of the fabrics and rolls used in the
papermaking process. This cleaning process is important to papermakers
because it reduces machine breakdowns, extends the life of consumable paper
machine fabrics, and improves paper quality. Through Thermo Fibertek's AES
division, which was acquired in 1993, the Company also manufactures water-
management systems used in papermaking.
During December 1994, a wholly owned subsidiary of the Company entered into
a $145 million contract for engineering, procurement, and construction
services for an office wastepaper de-inking facility to be located in
Menominee, Michigan. Construction is expected to take place over
approximately two years. Thermo Fibertek will supply approximately $15
million of equipment and services under the contract over a two year
period.
Revenues from paper-recycling and papermaking equipment were $162,625,000,
$137,088,000, and $125,577,000 in 1994, 1993, and 1992, respectively.
Metallurgical Thermal-processing Systems
The Company, through the Holcroft division of its Thermo Process Systems
Inc. subsidiary, designs, manufactures, and sells computer-controlled,
custom-engineered thermal-processing systems used to treat primary metals
and metal parts. Holcroft's products include controlled-atmosphere systems
used to impart desirable metallurgical properties, such as added tensile
strength and wear resistance, and vacuum heat-treating systems used in
forming metals into desired shapes.
The Company also manufactures electroplating systems, heavy metal and
waste-treatment systems, and aqueous cleaning systems that offer an
alternative to the use of ozone-damaging solvents in a variety of
production processes.
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Biomedical Products
The Company's Biomedical Products segment comprises a number of different
businesses, several of which have developed out of the Company's research
related to left ventricular-assist systems, which began in 1966. In
addition, the Company has made several acquisitions, including
International Technidyne Corporation (ITC) in 1991, the biomedical division
of Nicolet Instrument Corporation (Nicolet Biomedical) and Lorad
Corporation in 1992, and CBI Laboratories, Inc. in 1993.
The Company, through its Thermo Cardiosystems Inc. subsidiary, has
developed two versions of an implantable left ventricular-assist system
(LVAS): an pneumatic system that can be controlled by either a bedside
console or portable unit, and an electric system that features an internal
electric monitor powered by an external battery-pack worn by the patient.
These devices are designed to perform substantially all or part of the
pumping function of the left ventricle of the natural heart for patients
suffering from cardiovascular disease. Unlike a total artificial heart
system, which requires removal of the natural heart, an LVAS allows the
natural heart to remain in place and assists the heart when it is unable to
provide sufficient cardiac function to maintain life. In October 1994, the
U.S. Food and Drug Administration (FDA) granted approval for commercial
sales of the pneumatic LVAS. With this approval, the pneumatic system is
available for sale to cardiac centers throughout the United States. In
April 1994, the Company received the European Conformity Mark (CE Mark) for
the commercial sale of the pneumatic LVAS in all European Community
Nations. The electric version of the LVAS is currently being used in
clinical trials for patients awaiting heart transplants and may not be sold
commercially in the U.S. until it has received approval from the FDA.
The Company's Thermedics Inc. subsidiary develops, manufactures, and
markets enteral nutrition-delivery systems and proprietary medical-grade
plastics marketed under the names Tecoflex(R) and Tecothane(R), which are
thermoplastic polyurethanes used in medical disposables and industrial
products.
ITC is a leading manufacturer of hemostasis management products, including
blood coagulation-monitoring instruments. ITC also manufactures and markets
skin-incision devices that can draw minute but medically significant blood
samples through precisely controlled, pain-free incisions.
Nicolet Biomedical is a leading manufacturer of biomedical instruments for
assessing muscle, nerve, sleep, hearing, and brain blood-flow disorders and
for related work in clinical neurophysiology. These instruments are used in
hospitals, clinics, universities, private practice medical offices, and
medical research facilities by physicians and technologists for routine
clinical testing and intra-operative monitoring. Nicolet Biomedical also
manufactures systems that record and display spontaneous brain waves in the
form of a topographic colored "map." Such maps of brain activity are used
in conjunction with other measurements to assist in the diagnosis of
various neurologic disorders.
Lorad is a leading manufacturer of low-dose X-ray mammography equipment and
minimally invasive needle-biopsy systems. In 1992, Lorad introduced a
digital imaging mammography system designed to target only a specific area
of the breast where a suspicious lesion has been detected, creating a
digital image of the lesion on a video monitor within seconds of taking an
X-ray. Digital imaging has advantages over traditional X-ray mammography
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because once the X-ray has been digitally acquired, the radiologist can
manipulate and enhance the image quality to scrutinize subtle differences
that may go undetected on a film-based X-ray. Lorad is expanding the
capabilities of its digital imaging system into a digital screening system
capable of imaging the whole breast rather than just a specific area. The
FDA is currently evaluating whether parties seeking clearance to market a
full-breast digital imaging system will be required to submit a premarket
approval application or a 510(k) application. The Company does not expect
to submit data to the FDA seeking market clearance for its full-breast
digital imaging system before the end of 1995.
Lorad's needle-biopsy systems provide a less-invasive alternative to
conventional surgical biopsies. Compared with open surgery, these needle
techniques are less traumatic to the patient, result in less scarring,
which can affect the accuracy of future mammograms, and are performed on an
outpatient basis at a significantly lower cost.
In December 1993, the Company's ThermoTrex Corporation subsidiary acquired
CBI Laboratories, Inc., a manufacturer of skin-care, bath, and body
products sold through salons, spas, and stores. It is anticipated that CBI
will manufacture the proprietary lotion that is an integral part of the
laser-based system being developed by ThermoLase Corporation for the
long-term removal of unwanted hair. ThermoLase is a majority-owned
subsidiary of ThermoTrex (see "Advanced Technologies").
Thermedics also manufactures Scent Seal* fragrance samplers, which were
developed from the Company's polymer technology. Scent Seal fragrance
samplers are used to seal renditions of scents in perfume and food
advertisements for magazines, and offer an alternative to commonly used
fragrance strips.
Environmental Services
Through a network of facilities owned and operated by a joint venture
between Thermo Instrument and Thermo Process, called Thermo Terra Tech, the
Company provides comprehensive laboratory-based environmental testing,
analysis, and related services for the detection, measurement, and
monitoring of hazardous wastes and radioactive materials. The Company's
services also include design and construction inspection of water supply
and wastewater treatment facilities, surveying and site planning,
transportation engineering services, solid waste management services, and
building services.
Thermo Remediation Inc., a majority-owned subsidiary of Thermo Process,
provides soil-remediation services at a network of regional centers that
serve customers mainly on the East and West coasts. These soil-remediation
centers thermally treat soils to remove and destroy petroleum contamination
caused by leaking storage tanks, spills, and other sources. Thermo
Remediation also operates a waste fluids-recycling facility through a
fluids-recovery company based in Arizona. A majority-owned subsidiary of
Thermo Process, J. Amerika N.V., provides underground tank removal and
other environmental services from its Netherlands-based operation.
In addition, metallurgical heat-treating services are provided for
customers in the automotive, aerospace, defense, and other industries. The
Company also provides metallurgical fabrication services, principally on
* Scent Seal is a trademark of Scent Seal Inc.
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high-temperature materials, for customers in the aerospace, medical,
electronics, and nuclear industries.
Advanced Technologies
The Company's ThermoTrex Corporation subsidiary conducts sponsored research
and development and is also attempting to commercialize new products based
on advanced technologies it has developed in its laboratories. Sponsored
research and development conducted by this subsidiary, principally for the
U.S. government, includes basic and applied research in electro-optic and
electro-acoustic systems, signal processing, materials technology, lasers,
and direct-energy conversion.
Research and development currently in progress by ThermoTrex includes the
development of a passive microwave camera that is intended to "see" through
clouds and fog to enhance safety in aerial navigation, the Sonic CT(TM)
(computed tomography) system for the early detection of breast cancer, a
blood-flow measurement system, called the Doppler CT, for the diagnosis and
monitoring of peripheral vascular disease, and a laser-based, long-term
hair removal system (the ThermoLase system). In December 1994, based on
data collected from clinical trials, the Company submitted a 510(k)
application to the FDA seeking clearance to commercially market and sell
services using the ThermoLase system. ThermoTrex's products are at
different stages of development and are subject to different levels of
regulatory approval. Because these projects are still under development, no
assurance can be given that the necessary approvals for any of the projects
will be obtained on a timely basis, or at all, or that any of them will
eventually result in commercially viable products.
Through Thermedics' Ramsey Technology subsidiary, which was acquired in
March 1994, the Company manufactures instruments that weigh and inspect
bulk materials for the mining and mineral processing industry, coal-fired
electric utilities, and construction-material suppliers. Ramsey also
manufactures weighing and metal-detection instruments for the food
processing and other packaged goods markets, including the pharmaceutical
industry.
Based on technology that has been used to develop instruments sold by the
Company for the detection of nitrogen-based compounds, the Company, through
a subsidiary of Thermedics, developed the EGIS(R) system and the Sentor(R)
system. The EGIS system is a highly sensitive chemical-detection instrument
for screening people, baggage, packages, freight, and electronic equipment,
such as personal computers, for the presence of a wide range of explosives,
including the plastic explosives that have proven difficult to detect using
conventional methods. The Sentor system is used by law enforcement
officials to detect the presence of cocaine and heroin. In 1992, Thermedics
introduced a high-speed product quality assurance system based on its
detection technology for use in bottling lines in the carbonated beverage
industry (the Alexus system). The Company believes that the technology
developed from this project may have applications in a range of
environments, particularly in the food and beverage industry, where the
ability to screen products during high-speed production, without
interruption, will enhance product quality and increase efficiency. In
1994, the Company introduced a new system to the bottled water industry.
The Company's Thermo Voltek Corp. subsidiary designs, develops, and
manufactures electronic test instruments that test electronic and
electrical systems and components for electromagnetic compatibility (EMC),
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offers EMC-consulting and systems-integration services, acts as a
distributor of a broad range of EMC-testing products, and manufactures
power-conversion systems for use in telecommunications equipment. Thermo
Voltek also designs, manufactures, and markets high-voltage power
conversion systems, modulators, fast-response protection systems, and
related high-voltage equipment for industrial, medical, and environmental
processes, and defense and scientific research applications.
Publicly and Privately Held Subsidiaries
In 1983, the Company adopted a strategy of having certain subsidiaries sell
a minority interest in a public or private offering to outside investors.
An important goal of this strategy is to provide the entrepreneurial
atmosphere and focused performance incentives of a separate business. As of
March 3, 1995, the Company had 13 subsidiaries that have sold minority
equity interests, 11 of which are publicly traded and two of which are
privately held.
Thermedics Inc. develops, manufactures, and markets product quality
assurance systems, explosives- and drug-detection devices, and precision
weighing and inspection equipment, as well as biomaterials and other
biomedical products. Thermedics' products are included in the Company's
Biomedical Products and Advanced Technologies segments.
Thermo Cardiosystems Inc., a majority-owned subsidiary of Thermedics,
develops, manufactures, markets, and sells implantable pneumatic left
ventricular-assist systems designed to perform substantially all or
part of the pumping function of the left ventricle of the natural
heart for patients suffering from cardiovascular disease. Thermo
Cardiosystems also performs research and development on other versions
of its pneumatic system, as well as an electric version. Thermo
Cardiosystems' products are included in the Company's Biomedical
Products segment.
Thermo Voltek Corp., a majority-owned subsidiary of Thermedics,
designs, manufactures, and markets instruments that test electronic
systems and components for electromagnetic compatibility, and provides
related distribution and consulting services. Thermo Voltek also
designs and manufactures high-voltage power conversion systems for
research and commercial applications, and specialized power supplies
for telecommunications equipment. Thermo Voltek's products are
included in the Company's Advanced Technologies segment.
Thermo Instrument Systems Inc. develops, manufactures, and markets
analytical, monitoring, and process control instruments used to detect and
measure air pollution, radioactivity, complex chemical compounds, toxic
metals, and other elements in a broad range of liquids and solids as well
as control and monitor various industrial processes. Thermo Instrument's
products are included in the Company's Instruments segment.
ThermoSpectra Corporation, a majority-owned, privately held subsidiary
of Thermo Instrument, develops, manufactures, and markets precision
imaging, inspection, and measurement instrumentation that employ a
variety of energy sources or signals as well as high-speed data
acquisition and digital processing technologies. ThermoSpectra's
products are included in the Company's Instruments segment.
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Thermo Process Systems Inc. provides a range of specialized environmental
services, including the engineering design and construction management of
water supply and wastewater treatment systems for both industry and
municipalities. Through its Thermo Terra Tech joint venture with Thermo
Instrument, Thermo Process provides environmental science and engineering
services, laboratory-based testing, and nuclear health and safety services.
Thermo Process also provides equipment and services for the automated
heat-treating of metal parts. Thermo Process' products and services are
included in the Company's Environmental Services and Process Equipment
segments.
Thermo Remediation Inc., a majority-owned subsidiary of Thermo
Process, operates a network of soil-remediation centers and provides
waste fluids-recycling and other specialized remediation services.
Thermo Remediation's services are included in the Company's
Environmental Services segment.
J. Amerika N.V., a majority-owned, privately held subsidiary of Thermo
Process, provides environmental services in the Netherlands, including
testing, removal, and installation of underground storage tanks, and
groundwater cleanup. J. Amerika's services are included in the
Company's Environmental Services segment.
Thermo Power Corporation manufactures, markets, and services industrial
refrigeration equipment; natural gas engines for vehicular and stationary
applications; natural gas-fueled cooling and cogeneration systems; and
marine engines. Thermo Power also conducts sponsored research and
development on advanced systems for clean-coal combustion and other
high-efficiency gas-fueled devices. Thermo Power's products are included in
the Company's Alternative-energy Systems segment.
ThermoTrex Corporation manufactures and markets mammography and needle-
biopsy systems for the early detection of breast cancer, and develops
advanced technologies that it is incorporating into commercial products for
the medical imaging, personal-care, and avionics industries. ThermoTrex's
products are included in the Company's Advanced Technologies and Biomedical
Products segments.
ThermoLase Corporation, a majority-owned subsidiary of ThermoTrex, is
developing a laser-based system for the long-term removal of unwanted
hair, and manufactures skin-care and other personal-care products sold
through salons, spas, and stores. ThermoLase's hair-removal system is
included in the Company's Advanced Technologies segment, and its
skin-care products are included in the Company's Biomedical Products
segment.
Thermo Fibertek Inc. develops, manufactures, and markets a range of
equipment and accessory products for the domestic and international paper
industry, including de-inking and stock-preparation equipment, and
water-management systems for paper recycling. Thermo Fibertek's products
are included in the Company's Process Equipment segment.
Thermo Ecotek Corporation develops and operates independent (nonutility)
power plants. Plants currently operated by the Company are owned by third
parties and leased on a long-term basis to the Company, or are owned by
subsidiaries or partnerships in which the Company has ownership interests.
Thermo Ecotek's operations are included in the Company's Alternative-energy
Systems segment.
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The Company also has a number of wholly owned subsidiaries and divisions
that develop, manufacture, and market neurophysiology monitoring
instruments, blood-coagulation monitoring products and skin-incision
devices, electroplating and wastewater treatment lines, and steam turbines
and gas compressors, and provide services in metallurgical heat-treating
and specialty metals fabrication. In addition, a division of the Company
constructed and now operates a waste-recycling facility in San Diego
County, California.
(ii) New Products
The Company's business includes the development and introduction of new
products and may include entry into new business segments. The Company has
made no commitments to new products that require the investment of a
material amount of the Company's assets, nor does it have any definitive
plans to enter new business segments that would require such an investment
(see Section (xi) "Research and Development").
(iii) Raw Materials
Thermo Cardiosystems relies upon several custom-designed components and
materials supplied by other companies to manufacture its LVAS. In 1992,
several suppliers of such components and materials notified Thermo
Cardiosystems that they intended to exit the biomedical market. While the
Company believes that it will be able to develop new sources of, or
alternatives to, these materials and components, no assurance can be given
that the Company will develop such sources or alternatives in a timely
manner, or that the FDA will approve the use of any such alternative
materials or components.
Except as described above, in the opinion of management, the Company has a
readily available supply of raw materials for all of its significant
products from various sources and does not anticipate any difficulties in
obtaining the raw materials essential to its business.
(iv) Patents, Licenses, and Trademarks
The Company considers patents to be important in the present operation of
its business. However, the Company does not consider any patent, or related
group of patents, to be of such importance that its expiration or
termination would materially affect the Company's business taken as a
whole. The Company seeks patent protection for inventions and developments
made by its personnel and incorporated into its products or otherwise
falling within its fields of interest. Patent rights resulting from work
sponsored by outside parties do not always accrue exclusively to the
Company and may be limited by agreements or contracts.
The Company protects some of its technology as trade secrets and, where
appropriate, uses trademarks or registers its products. It also enters into
license agreements with others to grant and/or receive rights to patents
and know-how.
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(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales of
products and services.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on the Company's
working capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years. The Advanced Technologies segment
derived approximately 13% of its revenues in 1994 from contracts with
various agencies of the U.S. government and approximately 23% of its
revenues in 1994 from one customer for a process detection instrument. In
connection with the development of power plants, the Company typically
enters into long-term power supply contracts with a single customer for the
sale of power generated by each plant. Although the Alternative-energy
Systems segment is, therefore, dependent upon a small number of customers,
the Company believes that the nature of its customers (typically utilities)
and the long-term nature of these contracts significantly reduce the risk
associated with a small customer base.
(viii) Backlog
The Company's backlog of firm orders at year-end 1994 and 1993 was as
follows:
(In thousands) 1994 1993
-------------------------------------------------------------------------
Instruments $139,600 $115,600
Alternative-energy Systems 404,100 395,900
Process Equipment 199,000 36,200
Biomedical Products 37,300 26,800
Environmental Services 46,700 39,700
Advanced Technologies 44,400 29,100
-------- --------
$871,100 $643,300
======== ========
Alternative-energy Systems segment backlog includes $295 million at
year-end 1994 for revenues to be earned through 2017 from the operation of
the Recycling Facility, construction of which was completed in early 1994
(see "Alternative-energy Systems" under section (c), "Description of
Business").
Backlog includes the uncompleted portion of research and development
contracts and the uncompleted portion of certain equipment contracts that
are accounted for using the percentage-of-completion method. The Company
believes approximately 93% of the 1994 backlog, excluding backlog relating
to the Recycling Facility, will be filled during fiscal 1995. The Company
believes that approximately $13 million of the backlog relating to the
Recycling Facility will be filled in fiscal 1995.
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(ix) Government Contracts
Approximately 2% of the Company's total revenues in fiscal 1994 were
derived from contracts or subcontracts with the federal government, which
are subject to renegotiation of profits or termination. The Company does
not have any knowledge of threatened or pending renegotiation or
termination of any material contract or subcontract.
(x) Competition
The Company is engaged in many highly competitive industries. The nature of
the competition in each of the Company's markets is described below:
Instruments
The Company's instruments business generally competes on the basis of
technical advances that result in new products and improved price-
performance ratios, reputation among customers as a quality leader for
products and services, and active research and application-development
programs. To a lesser extent, the Company competes on the basis of price.
The Company believes it is among the principal manufacturers specializing
in analytical instrumentation, although it faces significant competition
from other companies, certain of which are larger than the Company, and
technologies in most of its product lines. The Company believes it is a
leading supplier of mass spectrometers, FT-IR spectrometers, FT-IR and
FT-Raman microscopes, optical plasma-emission spectrometers, and a major
supplier of atomic absorption spectrometers. In liquid chromatography, the
Company believes its competitors include several large companies and
numerous specialty manufacturers. In its remaining analytical instrument
product lines, the Company believes its competitors are mainly smaller,
specialized firms.
The Company is a leading manufacturer of ambient air monitoring instruments
and a major manufacturer of source monitoring and worker-safety monitoring
instruments. Some engineering companies compete for large ambient air
monitoring installations, but they do not manufacture the individual
instruments that form a major part of the system, therefore, they will
often buy these from the Company on an OEM basis.
The Company has a relatively small presence within the large and varied
process control marketplace, which is extremely fragmented and comprises
several large companies and numerous smaller companies.
Alternative-energy Systems
The worldwide independent power market consists of numerous companies,
ranging from small startups to multinational industrial companies. In
addition, a number of regulated utilities have created subsidiaries that
compete as nonutility generators. Nonutility generators often specialize in
market "niches," such as a specific technology or fuel (for example,
gas-fired cogeneration, refuse-to-energy, hydropower, geothermal, wind,
solar, wood or coal) or a specific region of the country where they believe
they have a market advantage. However, many nonutility generators,
including the Company, seek to develop projects on a best-available-fuel
basis. The Company competes primarily on the basis of project experience,
technical expertise, capital resources, and power pricing.
The Company's sale of industrial refrigeration systems is subject to
intense competition. The industrial refrigeration market is mature, highly
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fragmented, and extremely dependent on close customer contacts. Major
industrial refrigeration companies, of which the Company's FES division is
one, account for approximately one-half of worldwide sales, with the
balance generated by many smaller companies. The Company competes
principally on the basis of its advanced control systems and overall
quality, reliability, service, and price. The Company believes it is a
leader in remanufactured refrigeration equipment. NuTemp's rental services
business has one large competitor that supplies rental equipment. The
Company competes in this market based on price, delivery time, and
customized equipment.
The Company's sale of packaged cogeneration systems is subject to intense
competition, both direct and indirect. Direct competitors consist of
companies that sell cogeneration products resembling those sold by the
Company. In addition, electric utilities' pricing programs provide
competition for the Company's cogeneration products. Indirect competitors
include manufacturers of conventional water heaters, air conditioners, and
electric generator sets, since the economic benefits of the Company's
cogeneration and cooling systems depend on the cost of conventional energy
systems. The Company believes it competes in the sale of its systems on the
basis of several factors, including product quality and reliability,
operational savings, ease of installation, service, and price.
As the alternative-fuel engine market becomes fully developed, the Company
anticipates that competition, specifically in the market for natural gas
engines for vehicles, will be intense, and potential competitors may
include major automotive and natural gas companies and other companies that
have substantially greater financial resources than those of the Company.
The Company has experienced intense competition in the marine engine
business in recent years, primarily from the vertical integration of boat
and engine manufacturers that has led to the acquisition of some of its
former customers by competing engine manufacturers. Competition is
primarily on the basis of quality, reliability, and service.
Process Equipment
The Company faces significant competition in the markets for paper-
recycling, water handling and papermachine accessories equipment, and
competes in these markets primarily on the basis of quality, service,
technical expertise, and product innovation. The Company is a leading
supplier of accessory equipment for papermaking machines, and competes in
this market primarily on the basis of service, technical expertise, and
performance.
Although the market for metallurgical processing systems is subject to
intense competition worldwide, competition for particular projects is
typically limited to only a few companies. The Company competes on the
basis of several factors, including technical performance, product quality
and reliability, timely delivery, and price.
Biomedical Products
Competition in the markets for most of the Company's biomedical products,
including those manufactured by Thermo Cardiosystems, Lorad, Nicolet
Biomedical, and ITC, is based to a large extent upon technical performance.
CBI competes with a number of small manufacturers and divisions of larger
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companies primarily on the basis of relative price and quality of its
personal-care products.
The Company is aware of one other company that has submitted a PMA
application with the FDA for an implantable LVAS. The Company is unaware
whether this PMA application has been accepted for filing by the FDA. Also,
the Company is aware of one other company that has received a favorable
recommendation by the FDA Advisory Panel on Circulatory System Devices for
its cardiac-assist device. This is an external device that is positioned on
the outside of the patients' chest and is intended for short-term use in
the hospital environment. The Company is also aware that a total artificial
heart is currently undergoing clinical trials. The requirement of obtaining
FDA approval for commercial sale of an LVAS is a significant barrier to
entry into the U.S. market for these devices. There can be no assurance,
however, that FDA regulations will not change in the future, reducing the
time and testing required for others to obtain FDA approval for commercial
sales. In addition, other research groups and companies are developing
cardiac-assist systems using alternative technologies or concepts, one or
more of which might prove functionally equivalent to or more suitable than
the Company's systems. Among products that have been approved for
commercial sale, the Company competes primarily on the basis of
performance, service capability, reimbursement status, and price.
Lorad and General Electric Company each have approximately 30% of the U.S.
X-ray mammography market. The balance of the market is divided among
approximately 10 other companies. The Company competes in this market
principally on the basis of technological advances and technical service
support and, to a lesser extent, price.
Environmental Services
The Company competes in the market for soil-remediation services based on
its ability to offer customers superior protection from environmental
liabilities using a national network of cleanup facilities. However, the
Company faces competition in local markets from landfills, other treatment
technologies, and from companies competing with similar technologies, which
limits the prices that can be charged by the Company. Pricing is therefore
a major competitive factor for the Company.
The Company's metallurgical services business competes in specialty
machining services. Competition is based principally on services provided,
turnaround time, and price.
Hundreds of independent analytical testing laboratories and consulting
firms compete for environmental services business nationwide. Many of these
firms use equipment and processes similar to those of the Company.
Competition is based not only on price, but also on reputation for
accuracy, quality, and the ability to respond rapidly to customer
requirements. In addition, many industrial companies have their own
in-house analytical testing capabilities. The Company believes that its
competitive strength lies in certain niche markets within which the Company
is recognized for its expertise.
Advanced Technologies
In its contract research and development business, the Company not only
competes with other companies and institutions that perform similar
services, but must also rely on the ability of government agencies and
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other clients to obtain allocations of research and development monies to
fund contracts with the Company. The Company competes for its research and
development programs principally on the basis of technical innovations. As
government funding becomes more scarce, particularly for defense projects,
the competition for such funding will become more intense. In addition, as
the Company's programs move from the development stage to commercializa-
tion, competition is expected to intensify.
The Company believes that its Ramsey subsidiary is the world's leading
supplier of precision weighing and inspection systems for bulk materials
and competes with approximately 15 regional companies of significant size
on the basis of performance, service, and price. Ramsey is also one of the
five leading world suppliers of product quality assurance systems for
packaged products. Ramsey's competitors in this market differ from those in
the bulk materials market and the Company competes on the basis of
performance, service and, to a lesser extent, price.
The Company's product quality assurance systems compete with chemical-
detection systems manufactured by several companies and with other
technologies and processes for product quality assurance. Competition in
the markets for all of the Company's detection products is based primarily
on performance, service and price.
There are a number of competing technologies for instruments that detect
explosives and narcotics, including makers of other chemical-detection
instruments as well as enhanced X-ray detectors. Since the Federal Aviation
Administration (FAA) has not required that U.S. airports and airlines buy
advanced explosives-detection equipment, the Company has not sold any EGIS
systems to U.S. airlines. The Company believes that companies whose devices
are required by the FAA will have a substantial competitive advantage in
the United States.
The Company is a leading supplier of pulsed electromagnetic interference
testing equipment in the U.S., and believes that it is also among the
leading suppliers in Europe and the Pacific Rim, other than Japan. The
Company competes in this market primarily on the basis of performance,
technical expertise, and reputation.
The Company estimates that there are approximately 20 companies that
independently manufacture and market high-voltage power supply systems of
the general type manufactured and marketed by Thermo Voltek. Thermo Voltek
competes for both contracts and commercial sales primarily on the basis of
technical expertise, product performance, and reputation.
(xi) Research and Development
During 1994, 1993, and 1992, the Company expended $99,777,000, $79,378,000,
and $58,101,000, respectively, on research and development. Of these
amounts, $20,925,000, $20,435,000, and $19,426,000 were sponsored by
customers and $78,852,000, $58,943,000, and $38,675,000 were
Company-sponsored. Approximately 807 professional employees were engaged
full-time in research and development activities at December 31, 1994.
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(xii) Environmental Protection Regulations
The Company believes that compliance with federal, state, and local
environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xiii) Number of Employees
At December 31, 1994, the Company employed 10,234 persons.
(d) Financial Information about Exports by Domestic Operations and about
Foreign Operations
Financial information about exports by domestic operations and about
foreign operations is summarized in Note 14 to Consolidated Financial
Statements in the Registrant's 1994 Annual Report to Shareholders and is
incorporated herein by reference.
(e) Executive Officers of the Registrant
Present Title (Year First
Name Age Became Executive Officer)
--------------------------------------------------------------------------
George N. Hatsopoulos (1) 68 Chairman of the Board, President, Chief
Executive Officer, and Director (1956)
John N. Hatsopoulos (1) 60 Executive Vice President and Chief
Financial Officer (1968)
Robert C. Howard 64 Executive Vice President (1968)
Peter G. Pantazelos 64 Executive Vice President (1968)
Arvin H. Smith 65 Executive Vice President (1983)
William A. Rainville 53 Senior Vice President (1993)
Paul F. Kelleher 52 Vice President, Finance (1982)
(1) George N. Hatsopoulos and John N. Hatsopoulos are brothers.
Each executive officer serves until his successor is chosen or appointed
and qualified or until earlier resignation, death, or removal. All
executive officers have held comparable positions with the Company for at
least the last five years.
Item 2. Properties
The location and general character of the Company's principal properties by
industry segment as of December 31, 1994, are as follows:
Instruments
The Company owns approximately 1,203,000 square feet of office,
engineering, laboratory, and production space, principally in California,
Colorado, Florida, New Mexico, Wisconsin, Germany, and England, and leases
approximately 957,000 square feet of office, engineering, laboratory, and
production space principally in California, Connecticut, Massachusetts,
Texas, Wisconsin, Germany, and Japan, under leases expiring from 1995 to
2017.
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Alternative-energy Systems
The Company owns approximately 298,000 square feet of office, engineering,
and production space in Pennsylvania and England, and leases approximately
397,000 square feet of office, engineering, laboratory, and production
space principally in Illinois, Massachusetts and Michigan, under leases
expiring from 1995 to 2017.
The Company operates four independent power plants in California, Maine,
and New Hampshire, under leases expiring from 2003 to 2009. The Company
owns three independent power plants in New Hampshire and California and a
waste-recycling facility in California.
Process Equipment
The Company owns approximately 1,234,000 square feet of office, laboratory,
and production space, principally in Connecticut, Massachusetts, New York,
Canada, England, France, and Mexico, and leases approximately 402,000
square feet of office, engineering, and production space principally in
Georgia, Michigan, and Wisconsin, under leases expiring from 1996 to 2004.
Biomedical Products
The Company owns approximately 97,000 square feet of office and production
space in Connecticut and New Jersey, and leases approximately 484,000
square feet of office, engineering, laboratory, and production space in
Illinois, Massachusetts, New Jersey, and Texas, under leases expiring from
1995 to 2009.
Environmental Services
The Company owns approximately 4,512,000 square feet of office, laboratory,
and production space, principally in California, Florida, Maryland,
Minnesota, Oregon, South Carolina, and the Netherlands, and leases
approximately 1,487,000 square feet of office, engineering, laboratory, and
production space principally in Arizona, California, Massachusetts, New
Jersey, New Mexico, South Carolina, Virginia, and Washington under leases
expiring from 1995 to 2008.
Advanced Technologies and Corporate Headquarters
The Company owns approximately 136,000 square feet of office space in
Massachusetts and New York and leases approximately 489,000 square feet of
office, engineering, and laboratory space principally in California,
Massachusetts, Minnesota, England, Italy, and the Netherlands, under leases
expiring from 1995 to 2003.
The Company believes that its facilities are in good condition and are
suitable and adequate to meet its current needs, and that suitable
replacements are available on commercially reasonable terms for any leases
that expire in 1995 in the event that the Company is unable to renew such
leases on reasonable terms.
Item 3. Legal Proceedings
The Company participates in the operation of the Dade County Downtown
Government Center cogeneration facility in Miami, Florida, through a 50/50
joint venture of subsidiaries of the Company and Rolls-Royce, Inc. This
facility and the joint venture are involved in regulatory and other legal
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proceedings at the Federal Energy Regulatory Commission, the Florida Public
Service Commission and in court. See the information pertaining to this
matter in Note 7 to Consolidated Financial Statements, and under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in the Registrant's 1994 Annual Report to
Shareholders (filed as Exhibit 13 to this Annual Report on Form 10-K),
which information is incorporated herein by reference.
Certain subsidiaries of the Company have been notified that the U.S.
Environmental Protection Agency (EPA) has determined that a release or a
substantial threat of a release of a hazardous substance, as defined in the
Comprehensive Environmental Response Compensation and Liability Act of 1980
(CERCLA or the Superfund law), occurred at sites to which chemical or other
wastes generated by the manufacturing operations of these companies may
have been sent. These notifications generally also allege that these
companies may be potentially responsible parties with respect to the
remedial actions needed to control or clean up any such releases. Under
CERCLA, responsible parties can include current and previous owners of the
site, generators of hazardous substances disposed of at the site, and
transporters of hazardous substances to the site. Each responsible party
can be jointly and severally liable, without regard to fault or negligence,
for all costs associated with site remediation. In each instance the
Company believes that its subsidiary is one of several companies that
received such notification and who may likewise be held liable for any such
remedial costs.
The Company is also involved in situations under state environmental laws
with respect to certain other sites where remediation may be required. The
Company is conducting investigative or remediation activities at these
sites pursuant to arrangements with state environmental agencies.
The Company evaluates its potential liability as a responsible party for
these environmental matters on an ongoing basis subject to factors such as
the estimated remediation costs, the nature and duration of the Company's
involvement with the site, the financial strength of other potentially
responsible parties, and the availability of indemnification from previous
owners of acquired businesses. Estimated liabilities are accrued in
accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies." To date, the Company has not incurred any
significant liability with respect to any of these sites and anticipates
that future liabilities related to sites where the Company is currently a
potentially responsible party or is otherwise conducting investigative or
remediation activities, will not have a material adverse effect on its
business, results of operations, or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the Registrant's
Common Stock, $1.00 par value, and related matters, is included under the
sections labeled "Common Stock Market Information" and "Dividend Policy" in
the Registrant's 1994 Annual Report to Shareholders and is incorporated
herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the sections
"Ten Year Financial Summary" and "Dividend Policy" in the Registrant's 1994
Annual Report to Shareholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1994 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of December 31, 1994,
are included in the Registrant's 1994 Annual Report to Shareholders and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not Applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A, not later than 120 days after the close of the fiscal
year. The information concerning delinquent filers pursuant to Item 405 of
Regulation S-K is incorporated herein by reference from the material
contained under the heading "Disclosure of Certain Late Filings" under the
caption "Stock Ownership" in the Registrant's definitive proxy statement to
be filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship with
Affiliates" in the Registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
25PAGE
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a), (d) Financial Statements and Schedules
(1) The financial statements set forth in the list below are
filed as part of this Report.
(2) The financial statement schedule set forth in the list below
is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Schedule included herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
During the Company's fiscal quarter ended December 31, 1994, the Company
was not required to file, and did not file, any Current Report on Form 8-K.
On March 6, 1995, the Company filed a Current Report on Form 8-K pertaining
to Thermo Instruments' pending acquisition of Fisons plc.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
26PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 7, 1995
THERMO ELECTRON CORPORATION
By:George N. Hatsopoulos
George N. Hatsopoulos
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 7, 1995.
Signature Title
By:George N. Hatsopoulos President, Chief Executive Officer,
George N. Hatsopoulos Chairman of the Board and Director
By:John N. Hatsopoulos Executive Vice President and Chief
John N. Hatsopoulos Financial Officer
By:Paul F. Kelleher Vice President, Finance
Paul F. Kelleher (Chief Accounting officer)
By:John M. Albertine Director
John M. Albertine
By: Director
Peter O. Crisp
By:Elias P. Gyftopoulos Director
Elias P. Gyftopoulos
By:Frank Jungers Director
Frank Jungers
By:Robert A. McCabe Director
Robert A. McCabe
By:Frank E. Morris Director
Frank E. Morris
By:Donald E. Noble Director
Donald E. Noble
By:Hutham S. Olayan Director
Hutham S. Olayan
By:Roger D. Wellington Director
Roger D. Wellington
27PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of
Thermo Electron Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Thermo Electron
Corporation's Annual Report to Shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 10, 1995
(except with respect to the matters discussed in Note 15 as to which the
date is March 1, 1995). Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Item
14 on page 26 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 10, 1995
28PAGE
<PAGE>
SCHEDULE II
Thermo Electron Corporation
Valuation and Qualifying Accounts
(In thousands)
Year Ended December 31, 1994
Balance, Charged
Begin- to Costs Accounts Accounts Balance,
ning of and Recov- Written End of
Year Expenses Other(a) ered Off Year
------------------------------------------------------------------------
Allowance for
Doubtful
Accounts $14,129 $ 4,225 $ 7,646 $ 268 $(4,649) $21,619
========================================================================
Year Ended January 1, 1994
Balance, Charged
Begin- to Costs Accounts Accounts Balance,
ning of and Recov- Written End of
Year Expenses Other(a) ered Off Year
------------------------------------------------------------------------
Allowance for
Doubtful
Accounts $11,341 $ 2,675 $ 1,532 $ 1,961 $(3,380) $14,129
========================================================================
Year Ended January 2, 1993
Balance, Charged
Begin- to Costs Accounts Accounts Balance,
ning of and Recov- Written End of
Year Expenses Other(a) ered Off Year
------------------------------------------------------------------------
Allowance for
Doubtful
Accounts $10,865 $ 2,021 $ 1,760 $ 144 $(3,449) $11,341
========================================================================
(a) Allowances of businesses acquired during the year as described in Note
3 to Consolidated Financial Statements in the Registrant's 1994 Annual
Report to Shareholders.
29PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
2.1 Asset and Stock Purchase Agreement among the
Registrant, Thermo Instrument Corporation and Fisons
plc dated March 1, 1995 (filed as Exhibit 2.3 to Thermo
Instrument's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 [File No. 1-9786] and
incorporated herein by reference). Pursuant to Item
601(b)(2) of Regulation S-K, schedules to this
Agreement have been omitted. The Company hereby
undertakes to furnish supplementally a copy of such
schedules to the Commission upon request.
3.1 Restated Certificate of Incorporation of the
Registrant, as amended (filed as Exhibit 3(i) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 2, 1994 [File No. 1-8002] and
incorporated herein by reference).
3.2 By-laws of the Registrant, as amended (filed as Exhibit
3.2 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994 [File No. 1-8002]
and incorporated herein by reference).
4.1 Fiscal Agency Agreement dated July 29, 1992 between the
Registrant and Chemical Bank, pertaining to the
Registrant's 4 5/8% Senior Convertible Debentures due
1997 (filed as Exhibit 19 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 27, 1992
[File No. 1-8002] and incorporated herein by
reference).
Fiscal Agency Agreement dated as of April 15, 1994
between the Registrant and Chemical Bank, pertaining to
the Registrant's 5% Senior Convertible Debentures due
2001 (filed as Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
April 2, 1994 [File No. 1-8002] and incorporated herein
by reference).
The Registrant agrees, pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K, to furnish to the
Commission upon request, a copy of each instrument with
respect to other long-term debt of the Registrant or
its consolidated subsidiaries.
4.2 Rights Agreement dated as of May 4, 1988 between the
Registrant and The First National Bank of Boston, which
includes as Exhibit A the Form of Certificate of
Designations, as Exhibit B the Form of Rights
Certificate, and as Exhibit C the Summary of Rights to
Purchase Preferred Stock (filed as Exhibit 1 to the
Registrant's Registration Statement on Form 8-A,
declared effective by the Commission on June 25, 1988
[File No. 1-8002] and incorporated herein by
reference).
30PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.1 Thermo Electron Corporate Charter as amended and
restated effective January 3, 1993 (filed as
Exhibit 10.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 2, 1993
[File No. 1-8002] and incorporated herein by
reference).
10.2 Form of Severance Benefit Agreement with officers
(filed as Exhibit 10.15 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
29, 1990 [File No. 1-8002] and incorporated herein by
reference).
10.3 Form of Indemnification Agreement with directors and
officers (filed as Exhibit 10.16 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 29, 1990 [File No. 1-8002] and incorporated
herein by reference).
10.4 Loan and Reimbursement Agreement dated as of December
1, 1991 among North County Resource Recovery
Associates; Union Bank of Switzerland; National
Westminster Bank PLC and Banque Paribas, New York
Branch, as lead managers; Credit Local de France as
co-lead manager; and Union Bank of Switzerland as
issuing bank and as agent (filed as Exhibit 10.39 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 2, 1993 [File No. 1-8002] and
incorporated herein by reference).
10.5 Amended and Restated Reimbursement Agreement dated as
of December 31, 1993 among Chemical Trust Company of
California as Owner Trustee; Delano Energy Company
Inc.; ABN AMRO Bank N.V., Boston Branch, for itself and
as Agent; The First National Bank of Boston, as
Co-agent; Barclays Bank PLC, as Co-agent; Societe
Generale, as Co-agent; and BayBank, as Lead Manager
(filed as Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January
1, 1994 [File No. 1-8002] and incorporated herein by
reference).
10.6 Amended and Restated Participation Agreement dated as
of December 31, 1991 among Delano Energy Company Inc.;
Thermo Energy Systems Corporation; Chemical Trust
Company of California, as Owner Trustee; ABN AMRO Bank
N.V., Boston Branch, as Co-agent; Bank of Montreal, as
Co-agent; Barclays Bank PLC, as Co-agent; Society
Generale, as Co-agent; BayBank, as Lead Manager; and
ABN AMRO Bank N.V., Cayman Island Branch, and joined in
by the Registrant (filed as Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 [File No. 1-8002].
31PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.7 Turnkey Engineering, Procurement, Construction and
Initial Operation Agreement for a deinking pulp
facility dated as of November 1, 1994 between the
Registrant, as contractor, and Great Lakes Pulp
Partners I, L.P., as owner. Pursuant to Item 601(b)(2)
of Regulation S-K, schedules to this Agreement have
been omitted. The Company hereby undertakes to furnish
supplementally a copy of such schedules to the
Commission upon request.
10.8 - 10.20 Reserved.
10.21 Incentive Stock Option Plan of the Registrant (filed as
Exhibit 4(d) to the Registrant's Registration Statement
on Form S-8 [Reg. No. 33-8993] and incorporated herein
by reference). (Maximum number of shares issuable in
the aggregate under this plan and the Registrant's
Nonqualified Stock Option Plan is 6,023,437 shares,
after adjustment to reflect share increases approved in
1984 and 1986, and share decrease approved in 1989, and
3-for-2 stock splits effected in October 1986 and
October 1993).
10.22 Nonqualified Stock Option Plan of the Registrant (filed
as Exhibit 4(e) to the Registrant's Registration
Statement on Form S-8 [Reg. No. 33-8993] and
incorporated herein by reference). (Plan amended in
1984 to extend expiration date to December 14, 1994;
maximum number of shares issuable in the aggregate
under this plan and the Registrant's Incentive Stock
Option Plan is 6,023,437 shares, after adjustment to
reflect share increases approved in 1984 and 1986, and
share decrease approved in 1989, and 3-for-2 stock
splits effected in October 1986 and October 1993).
10.23 Deferred Compensation for Directors of the Registrant
(filed as Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January
3, 1987 [File No. 1-8002] and incorporated herein by
reference). (Maximum number of shares issuable is
301,875 shares, after adjustment to reflect share
increases approved in 1986 and 1992 and 3-for-2 stock
splits effected in October 1986 and October 1993).
10.24 Equity Incentive Plan of the Registrant (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 2, 1994 [File No.
1-8002] and incorporated herein by reference). (Plan
amended in 1989 to restrict exercise price for SEC
reporting persons to not less than 50% of fair market
value or par value; maximum number of shares issuable
is 4,700,000 shares, after adjustment to reflect
3-for-2 stock split effected in October 1993 and share
increase approved in 1994).
32PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.25 Amended and Restated Directors' Stock Option Plan of
the Registrant.
10.26 Thermo Electron Corporation - Thermedics Inc.
Nonqualified Stock Option Plan (filed as Exhibit 4 to a
Registration Statement on Form S-8 of Thermedics [Reg.
No. 2-93747] and incorporated herein by reference).
(Maximum number of shares issuable is 450,000 shares,
after adjustment to reflect share increase approved in
1988, 5-for-4 stock split effected in January 1985,
4-for-3 stock split effected in September 1985, and
3-for-2 stock splits effected in October 1986 and
November 1993).
10.27 Thermo Electron Corporation - Thermo Instrument Systems
Inc. (formerly Thermo Environmental Corporation)
Nonqualified Stock Option Plan (filed as Exhibit 4(c)
to a Registration Statement on Form S-8 of Thermo
Instrument [Reg. No. 33-8034] and incorporated herein
by reference). (Maximum number of shares issuable is
225,000 shares, after adjustment to reflect 3-for-2
stock split effected in July 1993).
10.28 Thermo Electron Corporation - Thermo Instrument Systems
Inc. Nonqualified Stock Option Plan (filed as Exhibit
10.12 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1987 [File No.
1-8002] and incorporated herein by reference). (Maximum
number of shares issuable is 320,152 shares, after
adjustment to reflect share increase approved in 1988
and 3-for-2 stock splits effected in January 1988 and
July 1993).
10.29 Thermo Electron Corporation - Thermo Process Systems
Inc. Nonqualified Stock Option Plan (filed as Exhibit
10.13 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1987 [File No.
1-8002] and incorporated herein by reference). (Maximum
number of shares issuable is 108,000 shares, after
adjustment to reflect 6-for-5 stock splits effected in
July 1988 and March 1989, and 3-for-2 stock split
effected in September 1989).
10.30 Thermo Electron Corporation - Thermo Power Corporation
(formerly Tecogen Inc.) Nonqualified Stock Option Plan
(filed as Exhibit 10.14 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January
3, 1987 [File No. 1-8002] and incorporated herein by
reference).
33PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.31 Thermo Electron Corporation - Thermo Cardiosystems Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.11
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990 [File No. 1-8002]
and incorporated herein by reference). (Maximum number
of shares issuable is 130,500 shares, after adjustment
to reflect share increases approved in 1990 and 1992,
3-for-2 stock split effected in January 1990, 5-for-4
stock split effected in May 1990, and 2-for-1 stock
split effected in November 1993).
10.32 Thermo Electron Corporation - Thermo Ecotek Corporation
(formerly Thermo Energy Systems Corporation)
Nonqualified Stock Option Plan (filed as Exhibit 10.12
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990 [File No. 1-8002]
and incorporated herein by reference).
10.33 Thermo Electron Corporation - ThermoTrex Corporation
(formerly Thermo Electron Technologies Corporation)
Nonqualified Stock Option Plan (filed as Exhibit 10.13
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990 [File No. 1-8002]
and incorporated herein by reference). (Maximum number
of shares issuable is 180,000 shares, after adjustment
to reflect 3-for-2 stock split effected in
October 1993).
10.34 Thermo Electron Corporation - Thermo Fibertek Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.14
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991 [File No. 1-8002]
and incorporated herein by reference). (Maximum number
of shares issuable is 400,000 shares, after adjustment
to reflect 2-for-1 stock split effected in September
1992).
10.35 Thermo Electron Corporation - Thermo Voltek Corp.
(formerly Universal Voltronics Corp.) Nonqualified
Stock Option Plan (filed as Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993 [File No. 1-8002] and
incorporated herein by reference). (Maximum number of
shares issuable is 7,500 shares, after adjustment to
reflect 3-for-2 stock split effected in November 1993).
34PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.36 Thermo Ecotek Corporation (formerly Thermo Energy
Systems Corporation) Incentive Stock Option Plan (filed
as Exhibit 10.18 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 2, 1993
[File No. 1-8002] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Thermo Ecotek
Nonqualified Stock Option Plan is 900,000 shares, after
adjustment to reflect share increase approved in
December 1993).
10.37 Thermo Ecotek Corporation (formerly Energy Systems
Corporation) Nonqualified Stock Option Plan (filed as
Exhibit 10.19 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 2, 1993
[File No. 1-8002] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Thermo Ecotek
Incentive Stock Option Plan is 900,000 shares, after
adjustment to reflect share increase approved in
December 1993).
10.38 Thermo Ecotek Corporation (formerly Thermo Energy
Systems Corporation) Equity Incentive Plan (filed as
Exhibit 10.39 to Thermo Instrument's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
[File No. 1-9786] and incorporated herein by
reference).
10.39 Thermedics Inc. Nonqualified Stock Option Plan (filed
as Exhibit 10(e) to Thermedics' Registration Statement
on Form S-1 [Reg. No. 33-84380] and incorporated herein
by reference). (Maximum number of shares issuable in
the aggregate under this plan and the Thermedics
Incentive Stock Option Plan is 1,931,923 shares, after
adjustment to reflect share increases approved in 1986
and 1992, 5-for-4 stock split effected in January 1985,
4-for-3 stock split effected in September 1985, and
3-for-2 stock splits effected in October 1986 and
November 1993).
10.40 Thermedics Inc. Incentive Stock Option Plan (filed as
Exhibit 10(d) to Thermedics' Registration Statement on
Form S-1 [Reg. No. 33-84380] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Thermedics
Nonqualified Stock Option Plan is 1,931,923 shares,
after adjustment to reflect share increases approved in
1986 and 1992, 5-for-4 stock split effected in January
1985, 4-for-3 stock split effected in September 1985,
and 3-for-2 stock splits effected in October 1986 and
November 1993).
35PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.41 Thermedics Inc. Equity Incentive Plan (filed as
Appendix A to the Proxy Statement dated May 10, 1993 of
Thermedics [File No. 1-9567] and incorporated herein by
reference). (Maximum number of shares issuable is
1,500,000 shares, after adjustment to reflect 3-for-2
stock split effected in November 1993).
10.42 Thermedics Inc. - Thermedics Detection Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.20
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 2, 1993 [File No. 1-8002] and
incorporated herein by reference).
10.43 Thermo Cardiosystems Inc. Incentive Stock Option Plan
(filed as Exhibit 10(f) to Thermo Cardiosystems'
Registration Statement on Form S-1 [Reg. No. 33-25144]
and incorporated herein by reference). (Maximum number
of shares issuable in the aggregate under this plan and
the Thermo Cardiosystems Nonqualified Stock Option Plan
is 1,143,750 shares, after adjustment to reflect share
increase approved in 1992, 3-for-2 stock split effected
in January 1990, 5-for-4 stock split effected in May
1990, and 2-for-1 stock split effected in November
1993).
10.44 Thermo Cardiosystems Inc. Nonqualified Stock Option
Plan (filed as Exhibit 10(g) to Thermo Cardiosystems'
Registration Statement on Form S-1 [Reg. No. 33-25144]
and incorporated herein by reference). (Maximum number
of shares issuable in the aggregate under this plan and
the Thermo Cardiosystems Incentive Stock Option Plan is
1,143,750 shares, after adjustment to reflect share
increase approved in 1992, 3-for-2 stock split effected
in January 1990, 5-for-4 stock split effected in May
1990, and 2-for-1 stock split effected in November
1993).
10.45 Thermo Cardiosystems Inc. Equity Incentive Plan (filed
as Exhibit 10.46 to Thermo Instrument's Annual Report
on Form 10-K for the fiscal year ended December 31,
1994 [File No. 1-9786] and incorporated herein by
reference).
10.46 Thermo Voltek Corp. (formerly Universal Voltronics
Corp.) 1985 Stock Option Plan (filed as Exhibit 10.14
to Thermo Voltek's Annual Report on Form 10-K for the
fiscal year ended June 30, 1985 [File No. 0-8245] and
incorporated herein by reference). (Maximum number of
shares issuable is 200,000 shares, after adjustment to
reflect 1-for-3 reverse stock split effected in
November 1992 and 3-for-2 stock split effected in
November 1993).
36PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.47 Thermo Voltek Corp. (formerly Universal Voltronics
Corp.) 1990 Stock Option Plan (filed as Exhibit 10.2 to
Thermo Voltek's Annual Report on Form 10-K for the
fiscal year ended June 30, 1990 [File No. 1-10574] and
incorporated herein by reference). (Maximum number of
shares issuable is 400,000 shares, after adjustment to
reflect share increase in 1993, 1-for-3 reverse stock
split effected in November 1992, 3-for-2 stock split
effected in November 1993, and share increase approved
in 1994).
10.48 Thermo Voltek Corp. Equity Incentive Plan (filed as
Exhibit 10.49 to Thermo Instrument's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
[File No. 1-9786] and incorporated herein by
reference).
10.49 Thermo Instrument Systems Inc. Incentive Stock Option
Plan (filed as Exhibit 10(c) to Thermo Instrument's
Registration Statement on Form S-1 [Reg. No. 33-6762]
and incorporated herein by reference). (Maximum number
of shares issuable in the aggregate under this plan and
the Thermo Instrument Nonqualified Stock Option Plan is
1,500,000 shares, after adjustment to reflect share
increase approved in 1990 and 3-for-2 stock splits
effected in January 1988 and July 1993).
10.50 Thermo Instrument Systems Inc. Nonqualified Stock
Option Plan (filed as Exhibit 10(d) to Thermo
Instrument's Registration Statement on Form S-1 [Reg.
No. 33-6762] and incorporated herein by reference).
(Maximum number of shares issuable in the aggregate
under this plan and the Thermo Instrument Incentive
Stock Option Plan is 1,500,000 shares, after adjustment
to reflect share increase approved in 1990 and 3-for-2
stock splits effected in January 1988 and July 1993).
10.51 Thermo Instrument Systems Inc. Equity Incentive Plan
(filed as Appendix A to the Proxy Statement dated April
27, 1993 of Thermo Instrument [File No. 1-9786] and
incorporated herein by reference). (Maximum number of
shares issuable is 2,150,000 shares, after adjustment
to reflect share increase approved in December 1993 and
3-for-2 stock split effected in July 1993).
10.52 Thermo Instrument Systems Inc. (formerly Thermo
Environmental Corporation) Incentive Stock Option Plan
(filed as Exhibit 10(d) to Thermo Environmental's
Registration Statement on Form S-1 [Reg. No. 33-329]
and incorporated herein by reference). (Maximum number
of shares issuable in the aggregate under this plan and
the Thermo Instrument (formerly Thermo Environmental)
Nonqualified Stock Option Plan is 618,750 shares, after
adjustment to reflect share increase approved in 1987
and 3-for-2 stock split effected in July 1993).
37PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.53 Thermo Instrument Systems Inc. (formerly Thermo
Environmental Corporation) Nonqualified Stock Option
Plan (filed as Exhibit 10(e) to Thermo Environmental's
Registration Statement on Form S-1 [Reg. No. 33-329]
and incorporated herein by reference). (Maximum number
of shares issuable in the aggregate under this plan and
the Thermo Instrument (formerly Thermo Environmental)
Incentive Stock Option Plan is 618,750 shares, after
adjustment to reflect share increase approved in 1987
and 3-for-2 stock split effected in July 1993).
10.54 Thermo Instrument Systems Inc. - ThermoSpectra Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.51 to
Thermo Instrument's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 [File No. 1-9786] and
incorporated herein by reference).
10.55 ThermoSpectra Corporation Equity Incentive Plan (filed as
Exhibit 10.52 to Thermo Instrument's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 [File No.
1-9786] and incorporated herein by reference).
10.56 ThermoTrex Corporation (formerly Thermo Electron
Technologies Corporation) Incentive Stock Option Plan
(filed as Exhibit 10(h) to ThermoTrex's Registration
Statement on Form S-1 [Reg. No. 33-40972] and
incorporated herein by reference). (Maximum number of
shares issuable in the aggregate under this plan and
the ThermoTrex Nonqualified Stock Option Plan is
1,945,000 shares, after adjustment to reflect share
increases approved in 1992 and 1993, and 3-for-2 stock
split effected in October 1993).
10.57 ThermoTrex Corporation (formerly Thermo Electron
Technologies Corporation) Nonqualified Stock Option
Plan (filed as Exhibit 10(i) to ThermoTrex's
Registration Statement on Form S-1 [Reg. No. 33-40972]
and incorporated herein by reference). (Maximum number
of shares issuable in the aggregate under this plan and
the ThermoTrex Incentive Stock Option Plan is 1,945,000
shares, after adjustment to reflect share increases
approved in 1992 and 1993, and 3-for-2 stock split
effected in October 1993).
10.58 ThermoTrex Corporation - ThermoLase Corporation
(formerly ThermoLase Inc.) Nonqualified Stock Option
Plan (filed as Exhibit 10.53 to ThermoTrex's Annual
Report on Form 10-K for the fiscal year ended
January 1, 1994 [File No. 1-10791] and incorporated
herein by reference).
38PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.59 ThermoLase Corporation (formerly ThermoLase Inc.)
Nonqualified Stock Option Plan (filed as Exhibit 10.54
to ThermoTrex Corporation's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994 [File No.
1-10791] and incorporated herein by reference) (Maximum
number of shares issuable in the aggregate under this
plan and the ThermoLase Incentive Stock Option Plan is
1,400,000 shares, after adjustment to reflect share
increases approved in 1993 and 2-for-1 stock split
effected in March 1994).
10.60 ThermoLase Corporation (formerly ThermoLase Inc.)
Incentive Stock Option Plan (filed as Exhibit 10.55 to
ThermoTrex's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 [File No. 1-10791] and
incorporated herein by reference). (Maximum number of
shares issuable in the aggregate under this plan and
the ThermoLase Nonqualified stock option plan is
1,400,000 shares, after adjustment to reflect share
increase approved in 1993 and 2-for-1 stock split
effected in March 1994).
10.61 Thermo Fibertek Inc. Incentive Stock Option Plan (filed
as Exhibit 10(k) to Thermo Fibertek's Registration
Statement on Form S-1 [Reg. No. 33-51172] and
incorporated herein by reference).
10.62 Thermo Fibertek Inc. Nonqualified Stock Option Plan
(filed as Exhibit 10(l) to Thermo Fibertek's
Registration Statement on Form S-1 [Reg. No. 33-51172]
and incorporated herein by reference).
10.63 Thermo Fibertek Inc. Equity Incentive Plan (filed as
Exhibit 10.60 to Thermo Instrument's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
[File No. 1-9786] and incorporated herein by
reference).
10.64 Thermo Power Corporation (formerly Tecogen Inc.)
Incentive Stock Option Plan (filed as Exhibit 10(h) to
Thermo Power's Registration Statement on Form S-1 [Reg.
No. 33-14017] and incorporated herein by reference).
(Maximum number of shares issuable in the aggregate
under this plan and the Thermo Power Nonqualified Stock
Option Plan is 950,000 shares, after adjustment to
reflect share increases approved in 1990, 1992, and
1993).
39PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.65 Thermo Power Corporation (formerly Tecogen Inc.)
Nonqualified Stock Option Plan (filed as Exhibit 10(i)
to Thermo Power's Registration Statement on Form S-1
[Reg. No. 33-14017] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Thermo Power
Incentive Stock Option Plan is 950,000 shares, after
adjustment to reflect share increases approved in 1990,
1992, and 1993).
10.66 Thermo Power Corporation Equity Incentive Plan (filed
as Exhibit 10.63 to Thermo Instrument's Annual Report
on Form 10-K for the fiscal year ended December 31,
1994 [File No. 1-9786] and incorporated herein by
reference).
10.67 Thermo Process Systems Inc. Incentive Stock Option Plan
(filed as Exhibit 10(h) to Thermo Process' Registration
Statement on Form S-1 [Reg. No. 33-6763] and
incorporated herein by reference). (Maximum number of
shares issuable in the aggregate under this plan and
the Thermo Process Nonqualified Stock Option Plan is
1,850,000 shares, after adjustment to reflect share
increases approved in 1987, 1989, and 1992, 6-for-5
stock splits effected in July 1988 and March 1989, and
3-for-2 stock split effected in September 1989).
10.68 Thermo Process Systems Inc. Nonqualified Stock Option
Plan (filed as Exhibit 10(i) to Thermo Process'
Registration Statement on Form S-1 [Reg. No. 33-6763]
and incorporated herein by reference). (Maximum number
of shares issuable in the aggregate under this plan and
the Thermo Process Incentive Stock Option Plan is
1,850,000 shares, after adjustment to reflect share
increases approved in 1987, 1989, and 1992, 6-for-5
stock splits effected in July 1988 and March 1989, and
3-for-2 stock split effected in September 1989).
10.69 Thermo Process Systems Inc. Equity Incentive Plan
(filed as Exhibit 10.63 to Thermedics' Annual Report on
Form 10-K for the year ended January 1, 1994 [File No.
1-9567] and incorporated herein by reference). (Maximum
number of shares issuable is 1,750,000 shares, after
adjustment to reflect share increased approved in
1994).
10.70 Thermo Process Systems Inc. - Thermo Remediation Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10(l)
to Thermo Process' Quarterly Report on Form 10-Q for
the fiscal quarter ended January 1, 1994 [File No.
1-9549] and incorporated herein by reference).
40PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
10.71 Thermo Remediation Inc. Equity Incentive Plan (filed as
Exhibit 10.7 to Thermo Remediation's Registration
Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
10.72 Thermedics Detection Inc. Equity Incentive Plan (filed as
Exhibit 10.69 to Thermo Instrument's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 [File No.
1-9786] and incorporated herein by reference).
11 Computation of earnings per share.
13 Annual Report to Shareholders for the year ended
December 31, 1994 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
40<PAGE>
Exhibit 10.7
EXECUTION COPY
TURNKEY ENGINEERING, PROCUREMENT, CONSTRUCTION AND
INITIAL OPERATION AGREEMENT
FOR
DEINKING PULP FACILITY
BY AND BETWEEN
GREAT LAKES PULP PARTNERS I, L.P.,
AS OWNER,
AND
THERMO ELECTRON CORPORATION,
AS CONTRACTOR
____________________
Dated as of November 1, 1994
PAGE
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TABLE OF CONTENTS
Page
ARTICLE 1
Definitions
1.1 Definitions ..................................................
ARTICLE 2
Contractor's Work and Other Obligations of Contractor
2.1 Work To Be Performed ...............................................
2.1.1 Scheduling ...............................................
2.1.2 Engineering and Design ..................................
2.1.2.1 Design ..........................................
2.1.2.2 Design Documents ................................
2.1.2.3 Operating Manual ................................
2.1.3 Procurement .............................................
2.1.4 Construction ............................................
2.1.5 Labor and Personnel ......................................
2.1.6 Project Site; Real Estate Rights ........................
2.1.7 Contractor Permitting ...................................
2.1.8 Royalties and License Fees ..............................
2.1.9 Labor Relations .........................................
2.1.10 Inspection and Expediting ...............................
2.1.11 Project Site Access; Owner's Accommodations; Project Site
Meetings .......................................
2.1.12 Uncovering of Work .......................................
2.1.13 Storage and Related Matters ..............................
2.1.14 Utilities; Fuel .........................................
2.1.15 Spare Parts ..............................................
2.1.16 Clean-Up and Waste Disposal ..............................
2.1.17 Schedule Updates; Progress Reports ......................
2.1.18 Taxes ................................................
2.1.19 Employee Identification .................................
2.1.20 Adjoining Utilities .....................................
2.1.21 Protection of Property ...................................
2.1.22 Coordination with Owner Contractors .......................
2.1.23 Contract Documents at Project Site ......................
2.1.24 Commissioning ............................................
2.1.25 Start-Up and Initial Operation ...........................
2.1.26 Further Assurances ......................................
2.1.27 Quality Assurance ........................................
2.2 Commencement of the Work ............................................
2.3 Standard of Performance ...........................................
2.4 Compliance with Applicable Laws ....................................
2.5 Independent Engineer ...............................................
2.6 Safety Precautions and Environmental Protection ....................
2.7 Owner's Right to Carry Out Work ....................................
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ARTICLE 3
Subcontracts
3.1 Project Subcontractors .............................................
3.2 Payments to Subcontractors .........................................
3.3 Subcontractor Warranties ...........................................
3.4 No Privity ................................................
3.5 Review and Approval not Relief of Contractor's Liability ...........
ARTICLE 4
Price and Payment
4.1 Contract Sum ................................................
4.2 Payment Schedule
4.2.1 Request for Payment ......................................
4.2.2 Conditions to Scheduled Payments .........................
4.2.3 Deferral of Scheduled Payments ...........................
4.2.4 Interest on Late Payments ................................
4.3 Deferrable Portion of Contract Sum .................................
4.4 All Payments Subject to Release of Liens ...........................
4.5 Payment or Use Not Acceptance ......................................
4.6 Set-off
4.7 Non-Recourse Obligations ...........................................
ARTICLE 5
Owner's Obligations
5.1 Representatives
5.2 Project Site ..................................................
5.3 Permits
5.4 Utilities ..................................................
5.5 Waste Paper Supply. ................................................
5.6 Disposition of Pulp and Waste Products .............................
5.7 Certain Equipment To Be Supplied by Owner ..........................
5.8 Protection of Property .............................................
5.9 K&K Leased Premises ................................................
5.10 Independent Engineer ...............................................
5.11 Limitation on Certain Amendments ...................................
ARTICLE 6
Completion and Acceptance of Project
6.1 Training
6.2 Project Commissioning ..............................................
6.3 Mechanical Completion ..............................................
6.3.1 Demonstration of Mechanical Completion ...................
6.3.2 Notice of Mechanical Completion ..........................
6.3.3 Achievement of Mechanical Completion .....................
6.4 Initial Operating Period; Performance Tests. .......................
6.5 Completed Performance Tests ........................................
6.6 Interim Performance Test Success ...................................
6.6.1 Demonstration of Interim Performance Test Success ........
6.6.2 Notice and Report of Interim Performance Test Success ....
6.6.3 Achievement of Interim Performance Test Success ..........
6.7 Project Acceptance
6.7.1 Demonstration of Project Acceptance ......................
6.7.2 Notice and Report of Project Acceptance ..................
6.7.3 Achievement of Project Acceptance ........................
6.7.4 Contractor's Election of Project Acceptance ..............
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6.7.5 Deemed Project Acceptance ................................
6.7.6 Access
6.8 Punch List ..................................................
6.9 Acceptance and Approvals Not a Release of Contractor ...............
ARTICLE 7
Guaranteed Dates; Delay Payments; Bonuses
7.1 Guaranteed Completion Date .........................................
7.2 Guaranteed IPT No. 3 Success Date ..................................
7.3 Guaranteed Acceptance Date .........................................
7.4 Delay Payments
7.4.1 Failure to Achieve Guaranteed Completion Date ............
7.4.2 Failure to Achieve Guaranteed IPT No. 3 Success ..........
7.4.3 Failure to Achieve Guaranteed Acceptance Date ............
7.4.4 Liquidated Damages Reasonable ............................
7.4.5 Payment of Liquidated Damages ............................
7.4.6 Liquidated Damages for Delay Only ........................
7.5 Bonus Payments
7.5.1 Early Mechanical Completion ..............................
7.5.2 Early Project Acceptance .................................
7.5.3 Payment of Bonuses .......................................
7.6 Repayment by Owner of Late Completion Payments Under Certain .......
Circumstances
7.7 Repayment by Owner of Late IPT No. 3 Success Payments Under Certain
Circumstances
ARTICLE 8
Performance Guarantees
8.1 Performance Guarantees .............................................
8.1.1 IPT No. 1 Guarantee ......................................
8.1.2 IPT No. 2 Guarantee ......................................
8.1.3 IPT No. 3 Guarantee ......................................
8.1.4 Project Acceptance Guarantee .............................
8.1.5 Performance Guarantee Payments ...........................
8.2 Liquidated Damages Reasonable ......................................
8.3 Payment of Liquidated Damages ......................................
8.4 Repayment by Owner of Liquidated Damages Under Certain Circumstances
8.5 Right of Contractor to Purchase ....................................
ARTICLE 9
Liability and Damages
9.1 Limitations of Certain Contractor Liabilities ......................
9.2 Consequential Damages ..............................................
9.3 No Liability for Independent Engineer ..............................
9.4 Further Limitation of Liability ....................................
ARTICLE 10
Warranties and Guarantees
10.1 General Warranty
10.1.1 Equipment Warranty .......................................
10.1.2 Workmanship Warranty .....................................
10.2 Breach of General Warranty .........................................
10.3 Design Warranty
10.4 Breach of Design Warranty ..........................................
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10.5 No Liens or Encumbrances ...........................................
10.6 EXCLUSIVE REMEDIES
10.7 DISCLAIMER
ARTICLE 11
Force Majeure Event
11.1 Force Majeure Event ................................................
11.2 Burden of Proof
11.3 Excused Performance ................................................
11.4 Suspension Due to Force Majeure Event ..............................
ARTICLE 12
Scope Changes
12.1 Scope Change Orders ................................................
12.2 Scope Change by Owner ..............................................
12.3 Scope Change by Contractor .........................................
12.4 Scope Changes Due to Changes in Applicable Laws ....................
12.5 Performance of Scope Changes .......................................
12.6 Scope Changes Due to Contractor Error ..............................
12.7 Effect of Force Majeure Event ......................................
12.8 Adherence to Project Schedule ......................................
ARTICLE 13
Indemnification
13.1 General Indemnification ............................................
13.1.1 Contractor ...............................................
13.1.2 Owner
13.2 Additional Indemnification .........................................
13.2.1 Taxes. ..................................................
13.2.2 Environmental Matters ....................................
13.3 Patent and Copyright Indemnification ...............................
13.3.1 Contractor's Indemnity ...................................
13.3.2 Action in Case of Injunction .............................
13.4 Notice and Legal Defenses ..........................................
13.5 Failure to Defend Action ......................................
13.6 Survival
ARTICLE 14
Insurance
14.1 Contractor-Provided Insurance ......................................
14.2 Owner-Provided Insurance ...........................................
14.3 Certificates ..................................................
14.4 Responsibility for Deductibles .....................................
14.5 Waivers of Subrogation .............................................
14.6 Failure to Procure Insurance .......................................
14.7 Contractor's or Rented Equipment ...................................
14.8 Unemployment and Other Insurance Benefits ..........................
14.9 Descriptions Not Limitations .......................................
14.10Additional Insureds, etc. ..........................................
14.11No Limitation of Liability .........................................
14.12Insurance Primary
14.13Certain Terms
14.14Owner Property Damage Waiver .......................................
PAGE
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ARTICLE 15
Termination
15.1 Termination For Cause ..............................................
15.2 Termination by Contractor ..........................................
15.3 Requirements Following Termination .................................
15.4 Surviving Obligations ..............................................
15.5 Cancellation Prior to Commencement Date ............................
ARTICLE 16
Assignments
16.1 Consent Required
16.2 Performance in Favor of Financing Parties ..........................
16.3 Successors and Assigns .............................................
16.4 Assignment to Contractor Affiliates ................................
ARTICLE 17
Design Documents
17.1 Owner Review
17.2 Final Drawings and Documentation ...................................
17.3 Ownership. ..................................................
17.4 Use of Documents by Contractor .....................................
ARTICLE 18
Inspection
18.1 Project Inspection
ARTICLE 19
Dispute Resolution
19.1 Arbitration ..................................................
19.2 Continuation of Work ...............................................
ARTICLE 20
Cost Records
20.1 GAAP
20.2 Inspection of Contractor's Books and Records ......................
20.3 Inspection of Owner's Books and Records ...........................
ARTICLE 21
Independent Contractor
21.1 Contractor as Independent Contractor ...............................
ARTICLE 22
Representations and Warranties
22.1 Representations and Warranties of Contractor ......................
22.1.1 Organization and Qualification ...........................
22.1.2 Power and Authority .....................................
22.1.3 No Conflict ..............................................
22.1.4 Validity and Binding Effect ..............................
22.1.5 Litigation ..............................................
22.1.6 Patents; Licenses; Franchises ............................
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22.1.7 Compliance with Laws .....................................
22.1.8 Surety Performance ......................................
22.1.9 Disclosure ..............................................
22.2 Representations and Warranties of Owner .......................
22.2.1 Organization and Qualification ..........................
22.2.2 Power and Authority ......................................
22.2.3 No Conflict .............................................
22.2.4 Validity and Binding Effect ..............................
22.2.5 Litigation ..............................................
22.2.6 Patents; Licenses; Franchises ............................
22.2.7 Compliance with Laws ....................................
22.2.8 Disclosure ................................................
ARTICLE 23
Miscellaneous
23.1 Confidentiality ................................................
23.2 Publicity Releases; Information ...................................
23.3 Estoppel Certificate ..............................................
23.4 Waivers
23.5 Choice of Law
23.6 Severability ................................................
23.7 Notice ................................................
23.8 Headings
23.9 Entire Agreement
23.10Amendments ................................................
23.11Conflicting Provisions .............................................
23.12No Third-Party Rights .............................................
23.13Survival of Provisions .............................................
23.14Title to the Project ..............................................
23.15Schedules
SCHEDULES
Schedule A Approved Testing Procedures, Pulp Quality Standards,
Performance Tests, Maximum Consumption Rates and
Assumed Costs
Schedule 1.1A Krygoski Contract
Schedule 1.1B Hayward Baker Contract
Schedule 1.1C Milestone Schedule
Schedule 1.1D Scope Document
Schedule 1.1E Determination of Buydown Amount
Schedule 2.2 Form of Notice to Proceed
Schedule 2.1.18 Exemptions from Sales and Use Taxes
Schedule 4.2.1 Information Required for Payment Request
Schedule 4.3A Form of Contractor's Final
Waiver of Liens
Schedule 4.3B Form of Rust's Final
Waiver of Liens
Schedule 4.4A Form of Contractor's Partial
Waiver of Liens
Schedule 4.4B Form of Rust's Partial
Waiver of Liens
Schedule 5.2 Real Estate Rights
Schedule 5.3 Owner Permits/Contractor Permits
Schedule 5.4 Utilities
Schedule 5.5 Qualifying Waste Paper Specifications
PAGE
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Schedule 5.7 Owner-Supplied Equipment
Schedule 6.1 Scope of Training
Schedule 6.2 Owner's Operating Personnel
Schedule 6.3.2 Procedure for Commissioning and
Mechanical Completion
Schedule 6.7.2 Report of Performance Test Results for
Project Acceptance
Schedule 10.2A Fiberprep Equipment Spare Parts
Schedule 10.2B U.S. Filter Equipment Spare Parts
Schedule 12.2 Form of Scope Change Order
Schedule 14.3 Form of Insurance Certificate
Schedule 23.1 Confidentiality Agreement
PAGE
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THIS TURNKEY ENGINEERING, PROCUREMENT, CONSTRUCTION AND INITIAL
OPERATION AGREEMENT FOR DEINKING PULP FACILITY, dated as of November 1,
1994, is made by and between GREAT LAKES PULP PARTNERS I, L.P., as Owner,
and THERMO ELECTRON CORPORATION, as Contractor.
W I T N E S S E T H :
WHEREAS, Contractor desires to provide and Owner desires to
obtain turnkey engineering, procurement, construction and related services
for the Overall Project hereinafter described, all of which shall be
provided on a fixed-price basis and in accordance with the terms and
conditions herein specified.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings indicated (such meanings as necessary to be equally
applicable to both the singular and plural forms of the terms defined and
the word "including" to mean "including without limitation"):
"Accrued Bond Interest" means, for any period, the aggregate
amount of interest accrued on the Bonds outstanding during such period,
whether paid or not paid during such period.
"Actual Price Per BDST" means, for any period, the average price
per BDST of Pulp sold during such period.
"Actual Unit Cost" means, for any period, the average cost per
unit of Significant Consumable actually purchased during such period.
"Agreement" means this Turnkey Engineering, Procurement,
Construction and Initial Operation Agreement for Deinking Pulp Facility,
all written amendments, modifications and supplements hereto, and all
schedules hereto, all of which by this reference are incorporated herein.
"Applicable Laws" means all laws, treaties, ordinances,
judgments, decrees, injunctions, orders of any court, arbitrator or
governmental agency or authority, and all rules, regulations, orders,
interpretations and Permits of any federal, state, county, municipal,
regional, environmental or other governmental body, instrumentality,
agency, authority, court or other body, having jurisdiction over
construction of the Overall Project on the Project Site, performance of the
Work, operation of the Overall Project, or the health, safety or
environmental condition of the Overall Project or the Project Site, as the
same may be in effect from time to time (including, without limitation, all
laws, rules, regulations and interpretations relating to Governmental
Impositions).
"Applicable Permits" means all Permits required by Applicable
Laws to be obtained or maintained in connection with construction of the
PAGE
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Overall Project, performance of the Work or initial operation of the
Overall Project.
"Approved Test Procedures" means the sampling and test procedures
set forth in Sections A and B of Schedule A hereto as amended and
supplemented from time to time in accordance herewith.
"Assumed Labor Cost" means the Labor Costs per day set forth
under "Assumed Labor Cost" in Schedule A hereto.
"Assumed Price Per BDST" means the price per BDST of Pulp
specified under "Assumed Price Per BDST" in Schedule A hereto.
"Assumed Unit Cost" means, with respect to any Significant
Consumable, the cost per Unit of Consumption for such Significant
Consumable specified in Schedule A hereto.
"Available Cash" as of any date of determination, the amount
available in the General Debt Fund for distribution by the Trustee to
holders of General Debt (as defined in the Indenture).
"Bonds" means all the bonds issued from time to time under the
Indenture and any bonds or other indebtedness issued or incurred from time
to time to refund or refinance such bonds.
"BDST" means bone- or oven-dry short tons.
"Business Days" means all calendar days except Saturday, Sunday
and other days on which banks in the State of New York or the State of
Michigan are required or authorized to close.
"Buydown Amount" shall be determined as set forth in Schedule E
hereto.
"Change Order Proposal" has the meaning set forth in Section
hereof.
"Commencement Date" means the date as of which all conditions set
forth in Section hereof have been satisfied and on which Contractor is to
commence performance of the Work, as specified in the Notice to Proceed
delivered to Contractor by Owner pursuant to Section hereof.
"Commissioning" means the systematic verification that each piece
of equipment integrated within a definable system, and its associated
subsystems, including structural, mechanical, electrical and
instrumentation subsystems, have been checked for readiness to start-up.
To "commission the Overall Project" means to provide Commissioning thereof.
"Construction Period" means the period from the Commencement Date
to Mechanical Completion.
"Construction Quality Assurance Plan" is Contractor's written
quality assurance program for the Work, including the written procedures to
implement such program, as described in the Scope Document.
PAGE
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"Contract Documents" means, collectively, this Agreement, the
Design Documents, all Scope Change Orders, the Construction Quality
Assurance Plan and the Operating Manual.
"Contract Sum" means the fixed price payable by Owner to
Contractor in consideration of performance of the Work in accordance with
the terms hereof, as such price may be adjusted from time to time as
provided herein.
"Contractor" means Thermo Electron Corporation, a Delaware
corporation, and its successors and permitted assigns as contractor
hereunder.
"Contractor Indemnified Parties" has the meaning set forth in
Section hereof.
"Contractor Permits" has the meaning set forth in Section
hereof.
"Damages" has the meaning set forth in Section hereof. Use of
the defined term "Damages" shall not be construed to permit the recovery of
special, indirect, punitive, incidental or consequential loss or damage
where such recovery would otherwise be precluded by the terms of Section
hereof.
"Days" or "days" means calendar days.
"Deferrable Portion" has the meaning set forth in Section
hereof.
"Delay Payment" means, collectively, any Late Completion Payment,
Late IPT No. 3 Success Payment or Late Acceptance Payment.
"Design Documents" has the meaning set forth in Section hereof.
"Design Warranty" has the meaning set forth in Section hereof.
"Design Warranty Period" has the meaning set forth in Section
hereof.
"Discount Rate" means 11% per annum.
"Distribution Fund" means the fund to be designated as such under
the Indenture and upon and after the effectiveness of the Indenture, the
fund designated as such under the Indenture.
"Early Acceptance Bonus" has the meaning set forth in Section
hereof.
"Early Completion Bonus" has the meaning set forth in Section
hereof.
"Final Drawings and Documentation" means all drawings,
specifications and other documentation, prepared in accordance with the
standard of performance described in Section hereof, which completely and
accurately represent, in all material respects, the physical placement of
all Project components and systems as installed and/or constructed and as
PAGE
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they exist at the time of Project Acceptance, as such term is further
described in Section hereof.
"Financial Closing" means the initial issuance of the first
series of the Bonds.
"Financing Parties" means any and all lenders providing the
construction, interim or long-term financing (including any refinancing
thereof) for the Overall Project, any trustee or agent acting on their
behalf and the Partners.
"Five-Day Performance Test" has the meaning set forth in Section
hereof.
"Force Majeure Event" has the meaning set forth in Article 11.
"General Debt Fund" means the fund to be designated as such under
the Indenture and upon and after the effectiveness of the Indenture, the
fund designated as such under the Indenture.
"General Warranty" has the meaning set forth in Section hereof.
"General Warranty Period" has the meaning set forth in Section
hereof.
"GLP&F" means Great Lakes Pulp & Fibre, Inc., a Wisconsin
corporation.
"Good Industry Practices" means those practices, methods and acts
that at any particular time, in the exercise of reasonable judgment, and
consistent with the then current industry practices in connection with
facilities similar to the Overall Project, would accomplish the desired
result.
"Governmental Impositions" means any impositions by any
governmental entity, including but not limited to sales, use and ad valorem
taxes, duties, social welfare charges, workers compensation rates, and
other governmental impositions, but excluding impositions on net income.
"Grade A Criteria" means the measurements and concentrations set
forth under the designation "Grade A" under Pulp Quality Definitions as set
forth on Schedule A hereto. Whether Pulp satisfies or exceeds the Grade A
Criteria shall be determined in accordance with the Approved Test
Procedures specified in Schedule A hereto including any testing
requirements associated any particular Performance Guarantee with respect
to which compliance is being determined.
"Grade B Criteria" means the measurements and concentrations set
forth under the designation "Grade B" under Pulp Quality Definitions as set
forth on Schedule A hereto. Whether Pulp satisfies or exceeds the Grade B
Criteria shall be determined in accordance with the Approved Test
Procedures specified in Schedule A hereto including any testing
requirements associated any particular Performance Guarantee with respect
to which compliance is being determined.
"Grade C Criteria" means the measurements and concentrations set
forth under the designation "Grade C" under Pulp Quality Definitions as set
PAGE
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forth on Schedule A hereto. Whether Pulp satisfies or exceeds the Grade C
Criteria shall be determined in accordance with the Approved Test
Procedures specified in Sections A and B of Schedule A hereto including any
testing requirements associated any particular Performance Guarantee with
respect to which compliance is being determined.
"Guaranteed Acceptance Date" means the date that falls thirty-two
(32) calendar months, plus the number of days (not exceeding ninety (90)
days), if any, with respect to which Late Completion Payments or Late IPT
No. 3 Success Payments shall have been made by Contractor, after the
Commencement Date; provided, however, that for the purposes of Section and
Section hereof, the Guaranteed Acceptance Date shall be the date that is
thirty-two (32) calendar months after the Commencement Date.
"Guaranteed Completion Date" means the date that falls nineteen
(19) calendar months after the Commencement Date.
"Guaranteed IPT No. 3 Success Date" means the date that is
twenty-four (24) calendar months, plus the number of days (not exceeding
ninety (90) days), if any, with respect to which Late Completion Payments
shall have been made by Contractor, after the Commencement Date.
"Hazardous Materials" means any material that by reason of its
composition or characteristics is hazardous or toxic waste as defined in
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901. et
seq., and the regulations thereunder or is hazardous waste or a hazardous
or toxic substance or a hazardous or toxic material as defined in or under
any other applicable state or federal law or the regulations thereunder.
"Indemnified Parties" has the meaning set forth in Section
hereof.
"Indenture" means the Trust Indenture, dated as of December 1,
1994, between the Michigan Strategic Fund and The Chase Manhattan Bank
(National Association), as trustee, and any amendments and supplements
permitted thereby.
"Independent Engineer" means Ford Bacon & Davis Engineering Co.,
Inc. and any other engineering company or companies engaged by Owner from
time to time under the provisions of contracts with the Financing Parties
to act in connection with the review of the Overall Project and the Work.
"Initial Operating Period" has the meaning set forth in Section
hereof.
"Internal Rate of Return" means, with respect to any Partner's
investment in Owner, the annual discount rate at which the present value,
as of the date such investment was made, of (i) distributions actually made
to such Partner in respect of such investment from the date on which such
investment was made to the date as of which Internal Rate of Return is
being determined plus (ii) in the case of any determination made under
Section hereof only, any amounts held by the Owner constituting Available
Cash (as defined in the Partnership Agreement) or Net Proceeds (as defined
in the Partnership Agreement) and distributable to such Partner would equal
the amount of such investment.
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"IPT No. 1 Success" means the achievement of the performance
milestone to be achieved by Contractor in the manner described in Section
hereof.
"IPT No. 2 Success" means the achievement of the performance
milestone to be achieved by Contractor in the manner described in Section
hereof.
"IPT No. 3 Success" means the achievement of the performance
milestone to be achieved by Contractor in the manner described in Section
hereof.
"K&K Lease" means the Lease dated the date of Financial Closing
between Owner and K&K Warehousing, a general partnership, and any
amendments and supplements thereto.
"K&K Leased Premises" (the "Premises") means the "Demised
Premises" under the K&K Lease.
"K&K Warehouse" means the K&K Warehouse, located adjacent to the
Project Site, a 210,000 square-foot portion of which has been leased to
Owner pursuant to the K&K Lease.
"Labor Costs" means compensation payable to or in respect of
employees of Owner, including salaries, hourly and overtime compensation,
payments and reserves for pension, retirement, health, hospitalization and
sick leave benefits and similar expenses to be paid by Owner, to the extent
attributable to the Overall Project.
"Late Acceptance Payments" has the meaning set forth in Section
hereof.
"Late IPT No. 3 Success Payments" has the meaning set forth in
Section hereof.
"Late Completion Payments" has the meaning set forth in Section
hereof.
"Late Payment Rate" means the Prime Rate, plus three percent (3%)
per annum.
"Maximum Consumption Rates for Project Acceptance" means the
rates of consumption of the chemical and other materials as set forth in
the tables titled "Table 3 - Process Chemicals Consumption" and "Table 4 -
Process Consumption" in Schedule A hereto.
"Mechanical Completion" has the meaning set forth in Section
hereof.
"Milestone Schedule" means the schedule of values of various
items of Work based upon which installment payments of the Contract Sum
will be made as set forth in Schedule C hereto, as the same may be adjusted
pursuant to this Agreement.
"Monthly Progress Report" means a progress report containing the
following information: (a) a description of Contractor's and all
Subcontractors' activities and engineering, procurement and construction
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progress as compared with the Project Schedule (and, at the request of
Owner, an updated Project Schedule), (b) an identification and evaluation
of problems and deficiencies in the Work and description of any corrective
action being taken (including but not limited to an evaluation of any
factors that are anticipated to have a material effect on the Project
Schedule), (c) the status of material and equipment deliveries, (d) quality
assurance reports with respect to all procurement and construction activity
at the Project Site and (e) all other reasonable information requested by
Owner. The specific reports, data and explanations that will be included
in each Monthly Progress Report are described in the Project Execution Plan
of the Scope Document.
"Most Recently Completed Performance Test" shall mean (i) at any
time after IPT No. 1 Success, the most recently completed Five-Day
Performance Test, or if no such Performance Test has then been completed,
the Performance Test that is the basis for IPT No. 1 Success, (ii) at any
time after IPT No. 2 Success, the most recently completed Five-Day
Performance Test, and (iii) at any time after IPT No. 3 Success, the most
recently completed Ten-Day Performance Test, or if no such Performance Test
has then been completed, the Performance Test that is the basis for IPT No.
3 Success.
"Net Bond Interest" has the meaning set forth in Section (d)
hereof.
"Notice of Interim Performance Test Success" has the meaning set
forth in Section hereof.
"Notice of Mechanical Completion" has the meaning set forth in
Section hereof.
"Notice of Project Acceptance" has the meaning set forth in
Section hereof.
"Notice to Proceed" means the written notice to be delivered by
Owner to Contractor pursuant to Section hereof setting forth the
Commencement Date.
"Operating Manual" means the complete equipment and system
instructions and procedures for the start-up, operation and maintenance of
the Project.
"Operation and Maintenance Expenses" means for any fiscal period
all costs and expenses for the operation and maintenance of the Overall
Project for such fiscal period determined in accordance with generally
accepted accounting principles including, but not limited to Owner's
expenses in respect of operation, maintenance and repairs and recurring and
ordinary renewal, replacement and reconstruction of the Overall Project,
including without limiting the generality of the foregoing, Labor Costs,
costs of labor (other than Labor Costs), energy and supplies relating to
the operation of the Overall Project; costs of management, technical and
advisory services; costs associated with the transportation, handling and
delivery to the Overall Project of waste paper; fees and expenses of
obtaining and renewing government licenses and services; commissions and
other costs of marketing pulp produced by the Overall Project; taxes,
assessments and similar charges (but excluding income taxes); fees and
expenses of the Independent Engineer and other engineering expenses related
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to operation and maintenance of the Overall Project; fees and expenses of
the Trustee; auditing expenses; and insurance premiums. "Operation and
Maintenance Expenses" does not include costs of extraordinary, nonrecurring
major repairs or replacements, amounts payable as principal or interest on
the Bonds or on Facility Parity Debt (as defined in the Indenture) or
General Debt (as defined in the Indenture) or reserves therefor or any
other costs that are capitalized in accordance with generally accepted
accounting principles on the books of Owner.
"Overall Project" means, collectively, all structures,
facilities, appliances, lines, conductors, instruments, equipment,
apparatus, components and other property comprising and integrating the
entire facility described generally in the Scope Document, including any
Owner-Supplied Equipment.
"Owner" means Great Lake Pulp Partners I, L.P., a Delaware
limited partnership, and its successors and permitted assigns as owner
hereunder.
"Owner Contractors" means contractors engaged by Owner or its
designees to perform services or provide equipment at the Project Site,
provided that such contractors (i) perform services or provide equipment
within the scope described as Owner's scope of work in the Scope Document
or (ii) perform other services that do not unreasonably interfere with
Contractor's performance of the Work hereunder.
"Owner's Field Representative" has the meaning set forth in
Section hereof.
"Owner-Supplied Equipment" means the equipment listed on Schedule
hereto.
"Owner Permits" has the meaning set forth in Section hereof.
"Owner's Project Manager" has the meaning set forth in Section
hereof.
"Partner" means any Person who at the time in question is the
general partner or a limited partner of Owner.
"Party" or "Parties" means, respectively, a party or both parties
to this Agreement.
"Performance Guarantee Payments" has the meaning set forth in
Section hereof.
"Performance Guarantees" has the meaning set forth in Section
hereof.
"Performance Test" means the operation of the Project in
accordance with the provisions of Section hereof and the Approved Test
Procedures as set forth in Schedule A hereto for the purposes of
determining the Project's level of achievement of one or more of the
Performance Guarantees.
"Permit" means any waiver, exemption, variance, permit,
authorization, license or similar order of or from any federal, state,
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county, municipal, regional, environmental or other governmental body,
instrumentality, agency, authority, court or other body having jurisdiction
over the matter in question.
"Person" means any individual, corporation, partnership,
association, joint stock company, trust, unincorporated organization, joint
venture, government or political subdivision or agency thereof.
"Price-Adjusted Gross Revenues" means, for any fiscal period, the
gross revenues of Owner derived through the sale of Pulp produced by the
Overall Project for such period, determined in accordance with generally
accepted accounting principles and calculated by multiplying the greater of
(i) the Actual Price Per BDST or (ii) the Assumed Price Per BDST, by the
number of BDST of Pulp sold in such period.
"Price-Adjusted Operation and Maintenance Expenses" means, for
any fiscal period, Operation and Maintenance Expenses for such period,
determined in accordance with generally accepted accounting principles;
provided, however, that (a) in lieu of expenses in respect of each
Significant Consumable, expenses in respect of such Significant Consumable
for such fiscal period shall be calculated by multiplying the lower of (i)
the Actual Unit Cost of such Significant Consumable for such fiscal period
or (ii) the Assumed Unit Cost of such Significant Consumable times the
actual Units of Consumption for such Significant Consumable during such
period and (b) the expense that constitutes Labor Costs shall be the lower
of (i) actual Labor Costs and (ii) Total Assumed Labor Costs.
"Price-Adjusted Project Cash Flow" means for any fiscal period
the difference between (i) Price Adjusted Gross Revenues for such period,
minus (ii) Price-Adjusted Operation and Maintenance Expenses for such
period, all determined in accordance with generally accepted accounting
principles.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Citibank, N.A. as its "prime rate."
"Project" means the Overall Project, excluding any Owner-Supplied
Equipment and excluding landscaping and permanent fencing described in the
Scope Document.
"Project Acceptance" means the performance milestone to be
achieved by Contractor in the manner described in Section , Section or
Section hereof.
"Project Schedule" means the construction and design schedule for
the engineering, procurement, construction and initial operation of the
Project prepared from time to time by Contractor under the provisions of
Section hereof, which is to be consistent with the initial Project
Schedule set forth in the Scope Document, as adjusted pursuant to this
Agreement.
"Project Site" means all those parcels of land in Menominee,
Michigan owned or leased by Owner, the K&K Leased Premises and any other
Real Estate Rights of Owner upon which the Overall Project will be located
or from which the Project will otherwise benefit, (all as more particularly
described in Schedule hereto), excluding the parcel upon which Owner will
create a landfill.
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"Proposal Request" has the meaning set forth in Section hereof.
"Pulp" means pulp produced as a result of operation of the
Overall Project.
"Punch List" means the list prepared (and periodically revised)
by Contractor, and submitted for review by Owner, of minor items of Work
which may remain to be performed by Contractor to achieve Project
Acceptance, but which items do not affect Owner's ability to operate the
Project in accordance with Applicable Laws and the Contract Documents.
"Qualifying Pulp" means Pulp satisfying of exceeding the Grade C
Criteria.
"Qualifying Waste Paper" means mixed office waste paper
satisfying the specifications set forth in Schedule attached hereto.
"Real Estate Rights" means all rights in or to real estate
(including title to or other rights to use or access the Project Site),
leases, contracts, permits, easements, licenses, private rights of way, and
utility and railroad crossing rights required to be obtained or maintained
in connection with construction of the Overall Project on the Project Site,
performance of the Work or operation of the Overall Project.
"Rust" means Rust International Corporation (Delaware), a
Delaware corporation.
"Scheduled Payments" has the meaning set forth in Section
hereof.
"Scope Change" has the meaning set forth in Section hereof.
"Scope Change Order" means a written order to Contractor issued
and signed by Owner in accordance with the provisions of Article hereof
after the execution and delivery of this Agreement authorizing a Scope
Change and, if appropriate pursuant to the terms hereof, an adjustment in
one or more of the Contract Sum, the Guaranteed Completion Date, the
Guaranteed IPT No. 3 Success Date, the Guaranteed Acceptance Date, the
Milestone Schedule, the Project Schedule and the Performance Guarantees or
any other amendment of the terms and conditions of the Contract Documents.
"Scope Document" means the description of the Project and
services to be performed by Contractor set forth in Schedule D hereto
entitled "Great Lakes Pulp & Fibre Inc., Scope of Work and Capital Cost
Estimate, Rust Contract 21-6200" dated September 16, 1994, as revised
through December 22, 1994, including all Significant Design Documents and
other schedules, exhibits, annexes or other attachments, whether or not
included in Schedule D hereto.
"Security Agreement" means the Security Agreement to be dated as
of December 1, 1994 between Owner and The Chase Manhattan Bank (National
Association).
"Significant Consumable" means electricity, gas, waste paper and
the chemicals listed in Schedule A hereto.
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"Significant Design Documents" means those documents contained in
Sections D1.5, D3.11, D4.6 and D6.6 of the Scope Document, as such
documents may be revised from time to time hereunder.
"Site Preparation Contracts" means (i) the Trade Contract between
Owner and Krygoski Construction Company dated as of October 1, 1994 and
attached hereto as Schedule A pursuant to which Krygoski Construction
Company has agreed to perform certain site preparation work at the Project
Site, including, among other things, excavation and backfill and the
installation of stone support columns and (ii) the Trade Contract between
Owner and Hayward Baker Inc. dated as of November 23, 1994 and attached
hereto as Schedule B pursuant to which Hayward Baker Inc. has agreed to
perform certain site preparation work at the Project Site, including, among
other things, vibro-compaction of replacement fill sand and sand underlying
the Project Site.
"Stabilization Period" has the meaning set forth in Section
hereof.
"Subcontract" means a contract between Contractor and a
Subcontractor for the performance or supply of a portion of the Work by
such Subcontractor.
"Subcontractors" has the meaning set forth in Section hereof.
"Taxes" has the meaning set forth in Section hereof.
"Ten-Day Performance Test" has the meaning set forth in Section
hereof.
"Termination For Cause" means a termination of this Agreement
pursuant to Section hereof.
"Three-Day Performance Test" has the meaning set forth in Section
hereof.
"Title Insurer" means any and all title insurance companies
writing title insurance with respect to any portion of the Project Site,
the Real Estate Rights, the Overall Project or any interest therein.
"Total Assumed Labor Costs" means for any period Assumed Labor
Cost multiplied by the number of days worked during such period.
"Trustee" means The Chase Manhattan Bank (National Association),
and any successor trustee under the Indenture.
"Units of Consumption" means, with respect to any Significant
Consumable, for any fiscal period, the amount of such Significant
Consumable actually used during such fiscal period expressed in terms of
the units of volume, weight or other measurement applicable to such
Significant Consumable, as specified in the tables titled "Table 3 -
Process Chemicals Consumption" and "Table 4 - Process Consumption" in
Schedule A hereto.
"Utilities" means electricity, water, telephone, sewage and waste
disposal services and all other utilities necessary for the performance of
the Work and the operation of the Overall Project.
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"Work" has the meaning set forth in Section hereof.
ARTICLE 2
Contractor's Work and Other Obligations of Contractor
2.1 Work To Be Performed. Except as otherwise expressly set forth in
Article hereof, and subject to the specific provisions of and exclusions
set forth in the Scope Document, Contractor shall perform or cause to be
performed any and all work and services required or appropriate in
connection with the design, engineering, procurement, construction,
Commissioning, start-up, testing, initial operation and completion of the
Project and shall provide all materials, equipment, machinery, tools,
labor, transportation, administration and other services and items required
to complete and deliver to Owner the fully operational Project, all in
accordance with and as specified in and subject to the Contract Documents
(collectively, the "Work"). All Work shall be provided on a fixed price,
turnkey basis, as set forth in Section hereof and other allowances and
reimbursable amounts specified in the Contract Documents. Certain details
of the Work are described in this Article . Without limiting the
foregoing, Contractor shall perform or cause to be performed the following
as part of the Work:
2.1.1 Scheduling. The initial Project Schedule is set forth
in the Scope Document. Contractor shall revise and/or update the Project
Schedule on a monthly basis showing in detail the progress to date and the
then-current scheduling of all major elements of design, procurement and
construction of the Project. The initial Project Schedule will be revised
and issued within sixty (60) days after the Commencement Date in Critical
Path Method format integrating engineering, procurement and construction
aspects of the Work. The Project Schedule, as so revised, will be
resource-loaded reflecting the planned units of resources required to
accomplish each specific task on schedule.
2.1.2 Engineering and Design. After the Commencement Date,
Contractor shall be entitled to make revisions or additions to Significant
Design Documents, subject to review and comment by Owner and Independent
Engineer and, in the case of any revisions or additions that materially
change the scope of the Work, acceptance by Owner and Independent Engineer.
Where acceptance is required, Owner's and Independent Engineer's acceptance
or rejection (specifying particular reasons therefor) shall be made within
five (5) days following receipt of such revisions or additions from
Contractor. If Owner and Independent Engineer do not reject any such
revision or addition within five (5) days, it shall be deemed accepted.
Contractor shall cooperate with Owner in making such further revisions or
additions to the Significant Design Documents as Owner may recommend,
subject to the provisions of Article 12. Prior to the Commencement Date,
all revisions or additions to Significant Design Documents shall be subject
to acceptance by Owner.
2.1.2.1 Design. Owner has caused to be conducted certain
soil and geotechnical tests and surveys of the Project Site, and delivered
written reports thereof to Contractor. Contractor acknowledges that such
tests and surveys, and the results thereof, are acceptable to Contractor
and adequate to allow Contractor to design, procure and construct the
Project in accordance with this Agreement, Applicable Laws and Good
Industry Practices; provided, however, that Contractor assumes no
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responsibility for the accuracy or completeness of such tests and surveys.
Subject to the provisions of Article hereof, Contractor shall not be
excused from any of its obligations under this Agreement for any condition
so disclosed and affecting the Project, the Project Site or the Work.
Contractor expressly acknowledges and agrees that while the Scope Document
sets forth a general guide as to the requirements of the Project,
Contractor shall have full responsibility as required by this Agreement for
completion of the Project in accordance with all Contract Documents,
Applicable Laws and Good Industry Practices.
2.1.2.2 Design Documents. Based on the Scope Document and
on the Significant Design Documents, Contractor shall prepare comprehensive
drawings and specifications setting forth in detail the requirements for
the procurement and construction of the Project. Prior to Contractor's
commencement of construction of any portion of the Project, Contractor
shall submit such drawings and specifications relating to such portion to
Owner for review and comment. As the drawings and specifications are
issued, they shall be clearly identified as the drawings and specifications
for the Overall Project (all such drawings and specifications, including
the Significant Design Documents, are herein called the "Design
Documents").
2.1.2.3 Operating Manual. Not later than four (4) months
before the date on which Mechanical Completion is anticipated to occur,
Contractor shall deliver a draft of the Operating Manual to Owner for
review, and Owner shall provide comments thereon within thirty (30) days
after receipt of such draft. Not later than two months before the date on
which Mechanical Completion is anticipated by Contractor to occur,
Contractor shall prepare in individually numbered, bound volumes and
deliver to Owner ten (10) sets of the Operating Manual, but Contractor
shall be required to provide only five (5) sets of books, manuals and other
documents generated by equipment manufacturers or vendors. Subsequent to
such delivery, Contractor shall update and revise the Operating Manual, as
required in order to reflect changes in operating or maintenance
procedures, or to make revisions reasonably requested by Owner until
Project Acceptance has been achieved. Contractor shall obtain all
instruction manuals and special directions required for preparation of the
Operating Manual from equipment manufacturers or vendors or shall itself
provide any such written instructions when they are not available from such
manufacturers or vendors. Contractor further agrees and will cause the
Subcontractors to agree, that adherence to the Operating Manual shall not
impair any warranty or guarantee on equipment, materials or services
relating to the Project. Owner acknowledges that operation by Owner of the
Project in a manner contrary to that set forth in the Operating Manual
could impair or void such warranty or guarantee.
2.1.3 Procurement. Contractor shall procure and pay for, in
Contractor's name as an independent contractor and not as agent for Owner,
all materials, equipment, supplies, consumables, transportation, labor,
supervision and other necessary services (whether on or off the Project
Site), to complete the Project in accordance with the Contract Documents.
2.1.4 Construction. Contractor shall develop and provide
copies to Owner of a written project design, engineering, procurement and
construction plan included in Schedule 1.1D and shall construct and install
the Project expeditiously and in accordance with the Contract Documents.
Contractor's construction plan shall include procedures for environmental
protection, Project Site security and physical protection of property
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adjacent to the Project Site during the Construction Period in accordance
with this Agreement. Contractor shall, as required by Good Industry
Practices, inspect or cause to be inspected all materials and equipment to
be incorporated in the Project and shall reject or revise those items or
procedures determined not to be in compliance with the Contract Documents
or Good Industry Practices. Contractor shall require all Subcontractors to
perform their portions of the Work in accordance with the Contract
Documents and, in performing the duties incident to such responsibility,
Contractor shall issue to the Subcontractors such directives and impose
such restrictions as may be required in the construction of the Project to
obtain compliance by the Subcontractors with the relevant terms of the
Contract Documents.
2.1.5 Labor and Personnel. Contractor shall provide all
labor and personnel required in connection with the Work, including without
limitation: (a) professional engineers licensed to perform engineering
services in each state where the performance of the Work requires such
licensing; (b) a Project engineer and lead structural, mechanical,
electrical, instrumentation and control, civil, cost and schedule
engineers, and procurement, construction, start-up and training
supervisors, all of whom shall have had extensive experience in facilities
of similar technology and magnitude to that of the Project; (c) a Project
Manager or other representative who shall be fully acquainted with the
Project and shall have the authority to administer this Agreement on behalf
of Contractor; and (d) quality assurance personnel, all of which quality
assurance personnel shall report directly to Contractor's home office
managers and not to the Project personnel located at the Project Site.
2.1.6 Project Site; Real Estate Rights. Contractor
acknowledges that the Project Site, as described in Schedule 5.2 hereto,
is, subject to the terms of the Contract Documents, sufficient for
Contractor to undertake and complete the Work except to the extent that
there may exist conditions not described in the reports furnished to
Contractor. If Contractor at any time becomes aware of any Real Estate
Right not possessed by Owner but required in connection with the Overall
Project, Contractor shall immediately give notice thereof to Owner. If
Contractor becomes aware of any deficiency in subsurface conditions
(including engineered fill provided by an Owner Contractor prior to the
Commencement Date), Contractor shall immediately give notice thereof to
Owner. Contractor shall provide all necessary information and documents
and use its reasonable efforts to assist Owner in obtaining all Real Estate
Rights required to be obtained by Owner. Owner will furnish the Project
Site as provided in Section hereof. Contractor agrees to assume on the
Commencement Date the obligations of Owner under the Site Preparation
Contracts (other than Owner's obligations to pay for the work described in
the Site Preparation Contracts) and to prepare the Project Site in the
manner set forth in the Scope Document.
2.1.7 Contractor Permitting. Contractor acknowledges that
Schedule hereto lists all of the Applicable Permits known by it to be
required for the undertaking and completion of the Work and the operation
of the Project (without warranting that said Permits are all of the
Applicable Permits). Contractor shall prepare applications and apply for
in a timely manner, diligently attempt to obtain, obtain and maintain in
effect those Applicable Permits for the Project designated in Schedule
hereto as "Contractor Permits" (together with any other Applicable Permits
required to be obtained by Contractor pursuant to the fourth sentence of
this Section , collectively, "Contractor Permits"). Contractor shall
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cooperate with Owner in connection with Owner's efforts to obtain Owner
Permits. If any Applicable Permit is not listed on Schedule hereto, if it
is a building, construction or similar Permit (excluding building occupancy
permits and operating permits), Contractor shall be responsible for
obtaining such Permit at its own expense. If Contractor at any time
becomes aware of any Applicable Permit that is not listed on Schedule
hereto, Contractor shall immediately give notice thereof to Owner. Owner
will obtain Owner Permits as provided in Section hereof.
2.1.8 Royalties and License Fees. Contractor shall pay all
required royalties and license fees and shall procure, as required, the
appropriate proprietary rights, licenses, agreements and permissions for
materials, methods, processes and systems incorporated into the Project.
In performing the Work hereunder, Contractor shall not incorporate into the
Project any materials, methods, processes or systems which involve the use
of any confidential information, intellectual property or proprietary
rights which, to Contractor's knowledge, Owner does not have the right to
use.
2.1.9 Labor Relations. Contractor shall be responsible for
all labor relations matters relating to the Work (other than with respect
to Owner's employees, agents or representatives) and shall at all times use
all reasonable efforts to maintain harmony among the unions (if any) and
other personnel employed in connection with the Work. Contractor shall at
all times use all reasonable efforts and judgment as an experienced
contractor to adopt and implement policies and practices designed to avoid
work stoppages, slowdowns, disputes and strikes. Nothing herein shall be
construed to require Contractor to settle a labor dispute against its
judgment.
2.1.10 Inspection and Expediting. Contractor shall perform
all inspection, expediting, quality surveillance and traffic services as
are required for performance of the Work on a timely basis. Contractor's
responsibilities under this Section shall include, without limitation,
inspecting all materials and equipment both on and off the Project Site
that comprise or will comprise the Project or that are to be used in
performance of the Work hereunder, including the start-up and testing of
the Project. Contractor shall perform such detailed inspection of all Work
in progress at intervals appropriate to the stage of construction or
fabrication off the Project Site as is necessary to ensure that such Work
is proceeding in accordance with the Contract Documents in an effort to
protect Owner against defects and deficiencies in such Work. On the basis
of such inspections, Contractor shall keep Owner periodically informed of
the progress and quality of all Work and shall provide Owner with written
reports of deficiencies revealed through such inspections and of measures
proposed by Contractor to remedy such deficiencies. Contractor shall use
all reasonable efforts to secure for Owner or its representatives the
option of being present at any inspections undertaken by Contractor off the
Project Site. In the event that the progress and quality of the Work is
not proceeding in accordance with the Contract Documents, Owner shall be
entitled to make recommendations to Contractor for the purpose of remedying
such deficiencies. No inspection performed or failed to be performed by
Owner or its representatives or any recommendation from Owner in connection
therewith shall be a waiver of any of Contractor's obligations hereunder or
be construed as an approval or acceptance of any Work hereunder.
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2.1.11 Project Site Access; Owner's Accommodations; Project
Site Meetings. During the Construction Period, Contractor shall control
the Project Site. Contractor shall provide Owner, the Independent Engineer
and their designees reasonable access to the Project Site at all times and
arrange for reasonable access by Owner, the Independent Engineer and their
designees to the engineering, manufacturing and fabricating premises of all
Subcontractors sufficient to permit Owner, the Independent Engineer and
their designees to inspect Work being performed and to monitor compliance
by Contractor and the Subcontractors with the terms hereof. Contractor
shall conduct regularly scheduled, monthly meetings at the offices of Rust
in Birmingham, Alabama until mobilization has begun and Contractor
determines to hold such meetings at the Project Site, and thereafter, at
the Project Site, to discuss thoroughly the progress and status of
engineering, procurement and construction with Owner's Field
Representative, the Independent Engineer and any other representatives of
Owner that Owner desires. Such meetings shall be attended by Contractor's
construction manager and project manager, the Independent Engineer, Owner's
representatives and representatives of Contractor's home engineering office
staff. Notwithstanding the foregoing, Owner acknowledges that until
Mechanical Completion, Contractor, at Owner's expense, is responsible for
safety and security of and at the Project Site and agrees that Owner will,
and will require Owner Contractors, Independent Engineer and each of their
employees and agents, to, comply with all reasonable rules and regulations
of Contractor regarding access to, inspection of and construction
activities on or adjacent to the Project Site. In addition, after
reasonable notice from Owner, Contractor shall use all reasonable efforts
to coordinate the scheduling of work by Owner Contractors so as not to
delay unnecessarily or interfere with the performance of the Work by
Contractor, subject to Article 11.
2.1.12 Uncovering of Work. Contractor will notify Owner
36 hours before Work will be covered. Owner must inspect within such
36 hours. If any portion of the Work should be covered contrary to the
written request of Owner or to requirements specifically expressed in the
Contract Documents, such portion of the Work shall, if requested in writing
by Owner, be uncovered for observation and shall be replaced at
Contractor's expense and with no change in the schedule. If any other
portion of the Work has been covered which Owner has not specifically
requested to observe prior to being covered, Owner may request to see such
Work and it shall be uncovered by Contractor. If such other portion of the
Work is found to be in accordance with the Contract Documents, the cost of
uncovering and replacement and costs of any delay caused by such uncovering
and replacement shall, by appropriate Scope Change Order, be charged to
Owner (and, if required under the circumstances, appropriate adjustments to
the Project Schedule shall made by the Scope Change Order). If such
portion of the Work is found not to be in accordance with the Contract
Documents, Contractor shall pay such costs and the Project Schedule shall
not be changed.
2.1.13 Storage and Related Matters. Contractor shall warehouse
or otherwise provide appropriate storage (in accordance with manufacturers'
recommendations) for all materials, supplies and equipment required for
performance of Work. Owner shall provide to Contractor, without cost, the
procurement or disposal of, as appropriate, all sand, gravel and similar
material required for performance of the Work hereunder. Contractor agrees
to store equipment and spare parts to be installed or held available for
installation in the portion of the K&K Leased Premises made available by
Owner pursuant to Section . Contractor acknowledges that it has been
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furnished a copy of the K&K Lease and agrees not to take any action that
would constitute a default under the K&K Lease. All materials, supplies
and equipment that are stored at a location other than on the Project Site
shall be (a) stored in a bonded warehouse or other appropriate location and
(b) properly secured, tagged and identified for the Overall Project to
establish the rights of title provided under Section hereof, and
segregated from other goods. Prior to delivery at the Project Site, all
equipment shall be labeled with permanently affixed durable nameplates that
will include the manufacturer's name, equipment model number, equipment
serial number, equipment tag number and all appropriate design parameters.
2.1.14 Utilities; Fuel. Contractor shall pay for all costs of
Utilities and fuel consumed in the performance of the Work other than
Utilities and fuel required for Commissioning and operation of the Overall
Project and those expressly required to be furnished by Owner pursuant to
Section hereof. Contractor shall supply all chemicals and consumables
that are required to enable Contractor to perform the Work hereunder during
the Construction Period, other than those expressly required to be
furnished by Owner pursuant to Section hereof.
2.1.15 Spare Parts. Owner shall pay to Contractor, in
addition to the Contract Sum, a lump sum payment of $2,050,000 for the
spare parts that will be required for the Project through Project
Acceptance. Such amount shall be payable to Contractor from time to time
on the dates that Scheduled Payments are required to be made subject to
compliance by Contractor with the provisions of Section hereof (it being
agreed by Owner and Contractor that such provisions shall also apply to
requests for payment for spare parts). Contractor shall procure prior to
Mechanical Completion and maintain through Project Acceptance all start-up
and operating spare parts required for the Project and prior to Mechanical
Completion shall deliver to Owner and Independent Engineer a complete list
of all such start-up and operating spare parts required for the Project,
which list shall be subject to the review of Independent Engineer.
Contractor and Owner agree that Owner shall not be required to spend more
than $2,050,000 in aggregate for all spare parts required for the Project
through Project Acceptance and that Contractor shall, without reimbursement
by Owner, pay the cost of all spare parts required through Project
Acceptance to the extent such cost exceeds $2,050,000. In the event the
cost of all spare parts required for the Project through Project Acceptance
is less than $2,050,000, Contractor shall be entitled to retain the amount
of the difference between $2,050,000 and the actual cost of the spare
parts. Contractor shall cause all such spare parts to be delivered to the
K&K Leased Premises or other storage location on the Project Site. All
unused spare parts for the Overall Project shall remain with the Overall
Project after Project Acceptance is achieved without additional cost to
Owner. Contractor shall store under its control all spare parts procured
hereunder until Project Acceptance; provided, however, each such item shall
be clearly labeled as a part designated for the Overall Project.
Contractor may use any spare parts procured hereunder; provided, however,
Contractor shall promptly replace and supply to Owner any spare parts
available from vendors under applicable warranties to replace the parts
that Contractor uses during performance of the Work hereunder. All spare
parts supplied by Contractor under the preceding sentence shall be new and
properly packaged for storage. Contractor shall have the right to purchase
at its own expense any spare parts in addition to those shown on such list
and, to the extent not used prior to Project Acceptance, such additional
spare parts shall remain the property of Contractor.
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2.1.16 Clean-Up and Waste Disposal. Contractor shall keep the
Project Site reasonably free from accumulation of waste materials, rubbish
and other debris resulting from construction of the Project and other Work
performed by or on behalf of Contractor during the Construction Period. On
or before Project Acceptance, Contractor shall remove to Owner's waste
material staging area on the Project Site all waste materials (other than
those for which Owner is responsible pursuant to Section hereof and other
than oil or any Hazardous Materials), rubbish and other debris and shall
leave the Project Site in a neat, clean and usable condition and shall also
remove from the Project Site all tools, construction equipment, machinery
and surplus material to which Owner does not hold title. All cleanup and
waste disposal shall be conducted in accordance with all Applicable Laws;
provided, however, no materials (other than excess soil excavated from the
Project Site) shall be disposed of on the Project Site. Contractor's
obligations under this Section shall include removal and disposal of all
Hazardous Materials brought by Contractor or Subcontractors to the Project
Site or produced by Contractor or Subcontractors on the Project Site, but
shall not include removal or disposal of Hazardous Materials at the Project
Site prior to the Commencement Date or brought on or generated in
connection with the operation of the Overall Project by Owner or Owner
Contractors at any time.
2.1.17 Schedule Updates; Progress Reports. Contractor shall
keep and furnish to Owner regularly updated schedules of the Work
supplementing the Project Schedule and Monthly Progress Reports of actual
progress of the Work. Contractor shall be responsible for ensuring that
performance of the Work proceeds in accordance with the Project Schedule
(as modified and/or updated in accordance with Section hereof), for
coordinating and incorporating the schedules of all Subcontractors into the
aforementioned schedules and progress reports and for coordinating with
Owner Contractors. Contractor shall update the Project Schedule on a
monthly basis as the Work progresses, including the incorporation of delay
and acceleration analyses where appropriate. Any delay and/or acceleration
analysis will include a comprehensive Critical Path Method schedule
analysis, which will be based upon the Project Schedule, including approved
changes, in effect at the time the delay and/or acceleration analysis
impact occurred.
2.1.18 Taxes. It is assumed that the purchase and
installation of (i) items in the categories described under the heading
"Taxable Items" in Schedule hereto will result in Michigan sales or use
tax liability to Contractor or, as applicable, a Subcontractor, in the
aggregate amount of $579,143, which amount is included in the Contract Sum,
(ii) items in the categories described under the heading "Industrial
Processing Equipment" in Schedule hereto will result in no Michigan sales
or use tax liability to Owner as such property constitutes, in Owner's
hands, property of an "industrial processor for use or consumption in
industrial processing" within the meaning of Michigan Compiled Laws ("MCL")
Section 205.94(g)(i) and in no Michigan sales or use tax liability to
Contractor or, as applicable, a Subcontractor, as such property is to be
purchased for resale within MCL Section 205.94(c) and (iii) items listed in
Schedule under the heading "Water Pollution Control Property", with a
total estimated cost of $8,222,000, will result in no Michigan sales and
use tax liability to Contractor, or as applicable, a Subcontractor, as such
items are component parts of a "water pollution control facility" within
the meaning of MCL Section 323.351. Owner and Contractor shall cooperate
with each other in securing appropriate exemptions consistent with the
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foregoing assumptions and Contractor will use its reasonable efforts to
minimize the amount of any applicable sales and use tax. If,
notwithstanding the foregoing, a Michigan sales or use tax is imposed upon
Contractor or, as applicable, a Subcontractor, as a result of (i) a change
in Applicable Law or (ii) a determination that any item within the
categories described under the heading "Industrial Processing Equipment" or
"Water Pollution Control Property" on Schedule hereto is subject to a
sales or uses tax, which tax results in the aggregate amount of sales and
uses taxes exceeding $579,143, the Contract Sum shall be increased by the
amount of such excess by means of a Scope Change pursuant to Section
hereof; provided, however, that no such increase in the Contract Sum shall
be made to the extent any such excess is attributable to a failure of
Contractor or Subcontractor to hold a sales tax license or timely or
properly claim a resale exemption as contemplated by clause (ii) of the
first sentence of this Section . Contractor shall maintain all cost and
other records necessary to distinguish taxable from nontaxable items and
shall assist Owner in determining the appropriate amounts of sales and use
taxes and any available exemptions therefrom based on Owner's determination
of categories of equipment and material. Owner shall be responsible for
making appropriate applications for exemptions from sales and use taxes.
Contractor shall administer and, subject to inclusion of certain sales and
use taxes in the Contract Sum as provided above, pay all gross receipts,
customs duty, import duty and other taxes and contributions imposed by any
taxing authority upon the sale, purchase, use or importation of materials,
supplies, equipment, services or labor incorporated in the Project or used
in the Work. Contractor shall be responsible for administering and paying,
without additional reimbursement hereunder, all taxes measured by
Contractor's receipts hereunder or measured by wages earned by employees of
Contractor or any Subcontractor (all of the above, together with sales and
use taxes, the "Taxes"), and shall furnish to the appropriate taxing
authorities all required information and reports in connection with such
Taxes and promptly furnish copies of all such information and reports to
Owner; provided, however, that Owner shall be solely responsible for and
shall pay all real property taxes assessed on the Project Site, all ad
valorem taxes or personal property taxes on the Overall Project and all
income taxes imposed on Owner's operations. All Subcontracts shall include
the amount of any sales or use tax as a separate line item on the face
thereof along with adequate supporting documentation.
2.1.19 Employee Identification. Contractor shall provide a
method, which shall be subject to the reasonable review of Owner, of
checking the employees of Contractor and its Subcontractors in and out of
the Project Site and other areas in which the construction Work is to be
performed. All employees of Contractor and its Subcontractors shall be
identified while on the Project Site by the use of a distinctive badge
approved by Owner, which approval shall not be unreasonably withheld or
delayed.
2.1.20 Adjoining Utilities. Contractor shall do all things
reasonably necessary or expedient to protect any and all parallel,
converging and intersecting electric lines and poles, communication lines
and poles, highways, waterways, railroads, sewer lines, natural gas
pipelines, drainage ditches, culverts, fences, walls, gates and any and all
tangible property of third parties from physical damage as a result of its
performance of the Work hereunder. Except as otherwise agreed by any
Person holding an interest in such property, to the extent that any such
property is physically damaged or destroyed by Contractor or any
Subcontractor through its intentional tort or negligence, or if Contractor
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would be strictly liable therefor, in the course of the performance of the
Work hereunder, Contractor shall be responsible for such damage or
destruction, and Contractor shall at its own expense rebuild, restore or
replace such damaged or destroyed property to a condition at least equal to
the condition of such property before such damage or destruction occurred.
2.1.21 Protection of Property. Contractor shall provide and
shall require that each Subcontractor provides proper and ample protection
from damage or loss to the Project, the Project Site, materials,
construction equipment and tools during its performance of the Work
hereunder. Where ingress and egress to and from the Project Site require
the traverse of public or private lands, Contractor shall limit the
movement of its crews and equipment and of Owner Contractors' crews and
equipment and of all Subcontractors and Owner Contractors so as to cause as
little physical damage as possible to property and shall use all reasonable
efforts to avoid marring such lands, and shall in all respects comply with
all obligations of and any restrictions imposed on Owner by the Real Estate
Rights and disclosed to Contractor (including without limitation those
contained in the K&K Lease). All fences and walls that must be opened or
moved during construction of the Project shall be replaced by Contractor.
Contractor shall not be reimbursed by Owner for costs associated with loss
of or damage to tangible property of third parties, whether on or off the
Project Site or rights-of-way thereto, to the extent caused by Contractor.
2.1.22 Coordination with Owner Contractors. Contractor shall
permit Owner Contractors to introduce and store materials and perform their
services during the Construction Period. Contractor shall cooperate with
Owner and Owner Contractors to coordinate the Work with the work of Owner
Contractors, and Owner shall require Owner Contractors to cooperate with
Contractor and to coordinate with the Work so that the work of Owner
Contractors does not unreasonably interfere with or delay the Work.
2.1.23 Contract Documents at Project Site. Contractor shall
maintain at the Project Site, on a current basis, one record copy of all of
the Contract Documents, in good order and marked currently to reflect
accurately and completely all material changes, and a complete set of all
working drawings used in performance of the Work. These shall be available
to Owner and the Independent Engineer. Contractor shall advise Owner on a
current basis of all material changes in the Work made during the
Construction Period which affect the general arrangement of the Project,
the electrical one-line drawings or the piping and instrumentation
diagrams.
2.1.24 Commissioning. Commencing as soon as practicable prior
to start-up operations, but in any event in accordance with the Project
Schedule, Contractor shall commission the Project as more specifically
provided in Section hereof.
2.1.25 Start-Up and Initial Operation. The Work shall include
the start-up of components, calibration of controls and equipment, total
system function and verification tests, and all other start-up functions
pertaining to the Project. The Work shall also include monitoring the
operation of the Project during the Initial Operation Period and
supervising Owner's personnel during all Performance Tests, as required
under Section hereof. At all times during the performance of the Work,
Contractor shall use all reasonable efforts to minimize (consistent with
Good Industry Practices and the terms of the Contract Documents) the use of
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the Utilities, consumables, chemicals and fuel that are for Owner's
account.
2.1.26 Further Assurances. Consistent with the other
requirements of the Contract Documents, each of Contractor and Owner shall
execute and deliver all further instruments and documents, and take all
further action, including but not limited to, in the case of Contractor,
assisting Owner in filing a notice of commencement and a notice of
completion with the appropriate state and local lien recording offices,
that Owner or Contractor, as the case may be, may reasonably request in
order to enable Contractor to complete performance of the Work or to
effectuate the purposes or intent of the Contract Documents, and any
additional costs to Contractor in doing so shall be paid by Owner.
2.1.27 Quality Assurance. Contractor shall fully observe and
implement the Construction Quality Assurance Plan until Project Acceptance.
All tests, inspections and quality assurance procedures required by this
Agreement, or recommended by Subcontractors, shall be in addition to, and
not in lieu of, applicable Construction Quality Assurance Plan activity.
Contractor shall regularly document and report to Owner Contractor's
compliance with the Construction Quality Assurance Plan in accordance with
the procedures contained therein.
2.2 Commencement of the Work. Contractor shall commence performance
of the Work and other services hereunder on the date specified by Owner
(the "Commencement Date") in a written notice delivered to Contractor in
the form set forth as Schedule hereto (the "Notice to Proceed"); provided,
however, that the Commencement Date shall not be deemed to occur unless and
until Financial Closing shall have occurred.
2.3 Standard of Performance. Without limiting any other provision of
this Agreement, subject to the provisions of Article hereof, (i)
Contractor shall perform all the Work in accordance with Good Industry
Practices, all Applicable Laws, applicable codes and standards (including
applicable underwriters' and fire codes and standards), and the Contract
Documents, (ii) all engineering and design services shall be provided
utilizing Good Industry Practices and the generally accepted standard of
care, skill and diligence as would be provided by an engineering firm
experienced in supplying engineering services nationally to pulp producing
entities, and (iii) the Project shall be constructed and erected in a good
and workmanlike manner; provided, however, that Contractor shall not be
obligated to modify the design of the Overall Project in order to satisfy
requirements of Owner's insurance underwriters other than pursuant to a
Scope Change Order. All engineering work of Contractor requiring
certification shall be certified, and all Design Documents requiring
sealing shall be sealed, by professional engineers licensed and properly
qualified to perform such engineering services in all appropriate
jurisdictions.
2.4 Compliance with Applicable Laws. Contractor shall comply with
and shall perform the Work, including without limitation the design,
engineering and construction of the Project, subject to the provisions of
Article hereof, in compliance with all Applicable Laws as they may be in
effect at the time of Contractor's performance hereunder. Notwithstanding
the foregoing, the effect of any change in Applicable Laws (excluding
therefrom any change in Applicable Permits resulting from the acts or
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omissions of Contractor or any Subcontractor) enacted after the date of
this Agreement shall be determined under Article 12.
2.5 Independent Engineer. The documents that govern Owner's
transactions with the Financing Parties for the Overall Project provide to
the Independent Engineer certain rights of review and consultation with
Owner concerning the Overall Project and the Work in order that the
Independent Engineer may regularly and completely apprise the Financing
Parties and Owner of the progress and other aspects of the Overall Project
and the Work. Contractor shall not unreasonably interfere with and shall
use all reasonable efforts to cooperate with the Independent Engineer in
the Independent Engineer's performance of its duties. Any acceptance or
comment by the Independent Engineer or the Financing Parties shall not be
construed to impose on the Independent Engineer or the Financing Parties
any control of any portion of the Work, or relieve Contractor of any of its
duties, liabilities or obligations under the Contract Documents. Owner
shall cause Independent Engineer to exercise its rights of review and
consultation hereunder at reasonable times and so as to minimize
interference with the Work, and shall use all reasonable efforts to cause
Independent Engineer not to withhold or delay unreasonably its reports to
Owner. Independent Engineer performs its duties solely for the benefit of
Owner and the Financing Parties.
2.6 Safety Precautions and Environmental Protection. Contractor
shall implement and administer a safety and health program for the Project
which shall include: (i) development of a Project safety manual
establishing Contractor and Subcontractor safety guidelines and
requirements, (ii) conducting of regular Project safety meetings with all
Subcontractors and to the extent deemed appropriate by Contractor, with
Owner Contractors, (iii) development, implementation and enforcement of
procedures for advising Subcontractors of, and correction of, safety
violations and deficiencies, (iv) the requirement of taking of all other
actions necessary to provide a safe work environment in accordance with
Applicable Laws and (v) the requirement of fire protection. Contractor
shall incorporate in its safety and health program the safety requirements
and procedures required by Owner's insurance underwriters pursuant to
Section hereof; provided, however, that Contractor shall not be obligated
to perform additional work beyond the Scope of Work in order to satisfy
requirements of Owner's insurance underwriters other than pursuant to a
Scope Change Order. Upon commencement of mobilization for construction of
the Project, Contractor shall review its safety and health program with,
and provide one copy of such safety and health program to, each of Owner's
Field Representative, Owner's Project Manager and the Independent Engineer.
Contractor shall take all reasonable precautions for the safety of, and
shall provide all reasonable protection to prevent physical damage, injury
or loss to: (i) all Persons employed by Contractor or Subcontractors in
connection with the Work and all other Persons on the Project Site, (ii)
all materials and equipment to be incorporated into the Overall Project,
whether in storage on or off the Project Site, under the care, custody or
control of Contractor or any Subcontractor, and (iii) other property at the
Project Site or adjacent thereto, including but not limited to, trees,
shrubs, lawns, walks, pavements, fences, walls, gates, roadways, structures
and utilities not designated for removal, relocation or replacement in the
course of construction. During start-up, testing and initial operation of
the Overall Project, Contractor shall require all Subcontractors, and Owner
shall require all Owner Contractors, working on the Project Site to comply
with all safety and environmental protection requirements in effect at all
such times. Contractor shall erect and maintain, as required by existing
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conditions and the progress of the Work, all reasonable safeguards for
safety and physical protection, including the implementation of a
controlled key-lock system of all electrical apparatus, the furnishing of
barricades and the posting of danger signs and other warnings against
hazards. Contractor shall be responsible during the Construction Period
for the security of the Work, the Project Site and all equipment and
materials stored at the Project Site or at any other location (in
accordance with Section hereof); provided, however, that the cost of
outside security personnel shall be paid by Owner. Gates shall be secured
whenever Contractor's personnel are not present. Contractor shall be
responsible in accordance with Article 13 hereof for all Damages incurred
by reason of failure to maintain during the Construction Period reasonable
security at the Project Site or at the location where equipment and
materials are stored. Contractor shall otherwise comply with all safety,
security and environmental protection procedures and requirements set forth
in the Contract Documents, or otherwise required by Applicable Laws.
2.7 Owner's Right to Carry Out Work. If Contractor defaults or
neglects to carry out the Work in accordance with the Contract Documents,
and fails within fifteen (15) days after receipt of written notice from
Owner to commence and continue correction of such default or neglect with
diligence and promptness and if such neglect or failure shall be reasonably
likely to result in personal injury, property damage or violation of
Applicable Law, Owner may, without prejudice to any other remedy Owner may
have, make good such deficiencies in the Work. In such case, an
appropriate Scope Change Order shall be issued by Owner deducting from the
payments then or thereafter due Contractor the reasonable cost of
correcting such deficiencies in the Work. If the payments then or
thereafter due Contractor are not sufficient to cover such amount,
Contractor shall pay the difference to Owner within thirty (30) days after
receipt of Owner's invoice therefor. Notwithstanding the foregoing, Owner
shall be entitled to act in an emergency to prevent imminent personal
injury or serious property damage without any notice to Contractor at
Owner's expense, subject to Article hereof.
ARTICLE 3
Subcontracts
3.1 Project Subcontractors. Contractor shall select only those
vendors, suppliers and materialmen as have, in the reasonable discretion of
Contractor, attained a standard of reliability and performance comparable
to Rust's. All vendors, suppliers, materialmen, consultants and
subcontractors of all tiers providing equipment, materials or services to
Contractor in connection with the Project (excluding Owner Contractors) are
herein referred to as "Subcontractors." Rust is expressly approved by
Owner as a Subcontractor.
3.2 Payments to Subcontractors. From and after the Commencement
Date, Contractor shall be solely responsible for paying each Subcontractor
and any other Person to whom any amount is due from Contractor for
services, equipment, materials or supplies in connection with the Project.
3.3 Subcontractor Warranties. Contractor shall, for the protection
of Owner, obtain from all Subcontractors the most favorable guarantees and
warranties reasonably obtainable on all machinery, equipment, services,
materials, supplies and other items used and installed hereunder, and such
guarantees and warranties shall not be amended, modified or otherwise
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discharged without the prior written consent of Owner. Contractor shall
provide to Owner copies of all such guarantees and warranties and shall
enforce guarantees and warranties (other than guarantees and warranties
provided by Fiberprep, Inc. and U.S. Filter Corporation, each of which is
to be enforced by Owner) to the fullest extent thereof, short of
litigation, on behalf of Owner throughout the term of this Agreement.
Prior to the expiration of the General Warranty Period, Contractor shall
assign to Owner all guarantees and warranties of all Subcontractors then
remaining in effect; provided, however, (i) such assignment shall not
relieve Contractor of its warranty obligations under the Contract Documents
and (ii) Contractor shall have the prior right to enforce the guarantees
and warranties of Subcontractors (other than guarantees and warranties
provided by Fiberprep, Inc. and U.S. Filter Corporation) to the extent
necessary to assure satisfaction of Contractor's warranty obligations to
Owner under the Contract Documents. Contractor shall not and shall not
permit any Subcontractor, or any other Person under Contractor's control,
to take any action not otherwise permitted under the Contract Documents
that could release, void, impair or waive any warranties or guarantees on
equipment, materials or services that it procures from others. Owner shall
not and shall not permit any Owner Contractor, or any other Person under
Owner's control, to take any action that could release, void, impair or
waive any warranties or guarantees on equipment, materials or services that
it procures from others.
3.4 No Privity. Owner shall not be deemed by virtue of this
Agreement to have any contractual obligation to or relationship with any
Subcontractor.
3.5 Review and Approval not Relief of Contractor's Liability. Any
inspection, review or approval by Owner or any other Person permitted under
the Contract Documents of any portion of the Work or of any work in
progress by Contractor or Subcontractors shall not relieve Contractor of
any duties, liabilities or obligations under the Contract Documents.
ARTICLE 4
Price and Payment
4.1 Contract Sum. As full consideration to Contractor for the full
and complete performance of the Work and all costs incurred in connection
therewith, Owner shall pay, and Contractor shall accept, the sum of
$144,700,000 (such amount, as it may be adjusted from time to time in
accordance with this Agreement, herein referred to as the "Contract Sum"),
which will be paid in accordance with the provisions of Section hereof.
The Contract Sum shall not include the amount to be paid by Owner to
Contractor for spare parts pursuant to Section hereof or any amounts to be
paid by Owner under the Site Preparation Contracts and pursuant to Section
hereof. In the event the Commencement Date does not occur on or before
December 31, 1994, either Owner or Contractor may terminate this Agreement
upon written notice to the other party, whereupon neither party will have
any liability to the other, except to the extent Owner has expressly agreed
to make any payments to Contractor with respect to items procured prior to
the Commencement Date.
4.2 Payment Schedule. The Contract Sum shall be paid by Owner to
Contractor in installments on the Commencement Date and, commencing after
the Commencement Date, monthly on the dates provided in Section hereof
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("Scheduled Payments") in accordance with the Milestone Schedule, as
adjusted pursuant to the terms of this Agreement.
4.2.1 Request for Payment. On or prior to the Commencement
Date and thereafter not later than the tenth (10th) calendar day of each
month, Contractor shall submit to Owner a written request for the
applicable Scheduled Payment based upon completion of items of Work set
forth on the Milestone Schedule and shall certify to Owner that such
requested payment is properly payable. Contractor shall furnish to Owner
with each payment request the information listed in Schedule hereto as
well as all cost details relating to such payment request which the Owner
may request and which are necessary to satisfy the requirements of all
federal, state and local tax authorities. Such information shall be
subject to audit in accordance with Section hereof. Owner and Contractor
shall use all reasonable efforts to cooperate with each other to cause each
request for payment to be reviewed and approved by Owner within fifteen
(15) days after receipt of the payment request. Contractor acknowledges
that the provisions of Owner's contracts with the Financing Parties require
Owner to obtain Independent Engineer's approval of each payment request.
Contractor agrees that no information shall be submitted to Owner under
this Section unless at the same time such information is submitted to
Independent Engineer for review. Subject to the foregoing, payments for
Milestones achieved earlier than scheduled shall be made in the month in
which such Milestone is achieved, and payment for Milestones not completed
in the month scheduled shall be made in the month in which such Milestone
is achieved.
4.2.2 Conditions to Scheduled Payments. Subject to the terms
of this Agreement, and provided that Owner has received Contractor's
request for payment and the information required pursuant to Section
hereof, Owner shall make, or cause to be made, by wire transfer of funds to
the account specified in writing by Contractor to Owner at least five (5)
Business Days prior to the date of payment, or if no account is so
specified, by check, the corresponding Scheduled Payment to Contractor with
respect to the Work on the Commencement Date or the twenty-fifth (25th)
calendar day of the month as applicable, provided that Owner may withhold
all or part of any Scheduled Payment for the month in which the event
occurs, to the extent of the occurrence of any of the following events:
(a) Contractor's request for payment does not meet the
requirements of Section hereof or the Monthly Progress Report for the
month for which the request for payment is made has not been prepared as
described in Section hereof;
(b) Contractor or Rust has not supplied Owner with the
lien waiver required under Section hereof;
(c) one or more third parties have filed a mechanics'
lien or similar claim of lien against Owner or the Overall Project or
Project Site resulting from the actions or inactions of Contractor, any
Subcontractor or any Person for whom Contractor is legally responsible, and
Contractor has not furnished in respect thereof a bond meeting the
requirements of the penultimate sentence of Section hereof; or
(d) Contractor has failed to pay any amounts due and
payable to Owner under the Contract Documents.
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4.2.3 Deferral of Scheduled Payments. Any Scheduled Payment
that Owner is not obligated to make under any clauses of Section hereof
shall be made, without interest, following the applicable payment date
under Section hereof, upon satisfaction of the conditions described in
such clauses.
4.2.4 Interest on Late Payments. Except as set forth in
Section hereof with respect to the Deferrable Portion, any amount not paid
when due shall bear interest at the Late Payment Rate from the date such
payment is due until the date it is actually paid; provided, however, that
the foregoing and the payment by Owner of interest shall not be deemed to
excuse Owner from making any such payment when due.
4.3 Deferrable Portion of Contract Sum. A portion of the Contract
Sum equal to $5,000,000 (the "Deferrable Portion") that would otherwise be
payable as all or a portion of a Scheduled Payment shall not so be paid
(the Deferrable Portion to be withheld to the extent required under this
Section from Scheduled Payments in inverse order of the due dates,
commencing with the final Scheduled Payment), but instead Owner shall pay
the Deferrable Portion, together with interest from the date on which the
following conditions are satisfied to the date of payment at an interest
rate per annum equal to (i) the Prime Rate, in the case of any portion of
such period occurring during the calendar year following the first date all
of the following conditions are satisfied, and (ii) twelve and one-half
percent (12-1/2%) per annum, in the case of any portion of such period
occurring after the first calendar year following the date on which all of
the following conditions are satisfied. The Deferrable Portion, plus such
accrued interest, shall be payable only after the following conditions have
been met: (i) Project Acceptance has been achieved pursuant to Section
hereof, (ii) receipt by Owner of a final waiver, in the form of Schedule A
hereto, of all constitutional, statutory and contractual liens Contractor
may have against Owner, the Overall Project and the Project Site,
(iii) receipt by Owner from Contractor of final waivers of mechanics' and
materialmen's liens in the form of Schedule B hereto from Rust, and (iv)
all other conditions to a Scheduled Payment contained in this Agreement or
to which Contractor has otherwise agreed, and shall be payable in one or
more installments on the first day of each month (or if such day is not a
Business Day, the first day thereafter that is a Business Day), commencing
with the first such day to occur after Project Acceptance, to the extent
that there exists Available Cash therefor determined as of the twenty-fifth
(25th) day of the preceding month. Owner's obligation to pay the
Deferrable Portion will be secured pursuant to the Security Agreement.
Contractor acknowledges and agrees that Owner's obligation to pay the
Deferrable Portion is subordinate and junior in right of payment to certain
other obligations of Owner, all as and to the extent provided in the
Indenture.
4.4 All Payments Subject to Release of Liens. At the time of each
Scheduled Payment hereunder, Contractor shall (a) certify to Owner that the
Overall Project, the Project Site and any and all interests and estates
therein, and all improvements and materials placed on the Project Site,
are, to the extent of the most recent payment received by Contractor, free
from any and all claims of lien, liens, security interests or encumbrances
in the nature of mechanics', labor or materialmen's liens or other liens
(in this Section , referred to collectively as "Liens") arising out of or
in connection with performance by Contractor, or any Subcontractor, of the
Work, or to the extent that any such Liens exist, that a bond or guaranty
by Contractor satisfying the requirements of the next sentence with respect
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to such Liens has been furnished, (b) provide a release and waiver, in the
form of Schedule A hereto, of Contractor's constitutional, statutory and
contractual Lien claims, to the extent of the most recent payment received
by Contractor and (c) provide a release and waiver, in the form of Schedule
B hereto, of Rust's Lien claims, to the extent of the most recent payment
received by Contractor. If any Lien is filed or notification of
withholding money for labor or material furnished under this Agreement is
served on Owner or any Financing Party, Owner may withhold from any
Scheduled Payment or other amount payable to Contractor under this
Agreement or otherwise, an amount sufficient to discharge any or all such
Liens, unless Contractor shall furnish a bond or guaranty by Contractor in
form, substance and amount reasonably satisfactory to Owner, the Financing
Parties and the Title Insurer to protect Owner, the Overall Project and the
Project Site against such Liens or claims, and, after thirty (30) days from
the time such Lien is made, unless Contractor shall have furnished a bond
or guaranty as described above, Owner may discharge such Lien with the
moneys withheld, whereupon for purposes of this Agreement such moneys shall
be deemed to have been paid to Contractor hereunder. Nothing contained in
this Section hereof or elsewhere in this Article 4 shall prohibit
Contractor from withholding any payment to a Subcontractor for cause as
determined by Contractor.
4.5 Payment or Use Not Acceptance. No Scheduled Payment or other
payment to Contractor or any use of the Overall Project by Owner shall
alone constitute an acceptance of any of the Work or relieve Contractor of
any of its obligations or liabilities with respect thereto.
4.6 Set-off. Owner may deduct and set-off against any part of the
balance due or to become due to Contractor under this Agreement, any
undisputed amounts due from Contractor to Owner under or in connection with
this Agreement, including any amounts due or to become due from Contractor
to Owner pursuant to Article or Article hereof. Contractor may deduct
and set-off against any amounts due or to become due from Contractor to
Owner under this Agreement, excluding any amounts due or to become due
pursuant to Article 7 or Article 8 hereof, any undisputed amounts due from
Owner to Contractor under or in connection with this Agreement.
4.7 Non-Recourse Obligations. Notwithstanding any provision of this
Agreement to the contrary, none of the officers or partners of Owner or any
of their respective affiliates shall be personally liable for payments due
under this Agreement or for the performance of any obligation hereunder,
and the sole recourse of Contractor for the payment of amounts due from
Owner or for the satisfaction of any other obligations of Owner hereunder
shall be against amount on deposit in the Construction Fund held by the
Trustee under the Indenture and Revenues of Owner. For purposes of the
foregoing, "Revenues" means moneys constituting revenues or receipts
derived from the Overall Project or its operations, including without
limitation, sales of deinked pulp produced by the Facility, and any other
revenue deposited to the Revenue Fund (as defined in the Indenture) held by
the Trustee pursuant to the Indenture and available for the payment of such
obligations. In the event a default by Owner occurs under this Agreement,
no action shall be brought against any officer, employee or partner of
Owner or any Financing Party or any of their respective affiliates for such
breach.
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ARTICLE 5
Owner's Obligations
5.1 Representatives. Owner shall designate a representative (the
"Owner's Project Manager") to administer the Contract Documents on behalf
of Owner. Owner's Project Manager shall have the authority to (a) issue
Owner's instructions and other communications to Contractor, (b) consult
with the Independent Engineer, and (c) execute Proposal Requests and Scope
Change Orders. Owner's Project Manager shall be the recipient of notices
and other written communications from Contractor under the Contract
Documents. In furtherance of his responsibilities described hereunder,
Owner's Project Manager may conduct observations and inspections of the
Overall Project throughout design, procurement and construction, provided
that no such observations or inspections shall relieve Contractor of any of
its obligations under the Contract Documents. Owner shall also designate a
representative to observe the Work on the Project Site ("Owner's Field
Representative"). Owner's Field Representative shall have the right to be
present at the Project Site at all times, to occupy the field office of
Owner at the Project Site and to participate in weekly Project status
meetings conducted by Contractor. Owner's Field Representative shall have
the right to observe and inspect the progress of procurement and
construction of the Overall Project, and communicate with Contractor as to
the conformance of the Work with the Contract Documents. A copy of all
written communications from Contractor to Owner shall be delivered to
Owner's Field Representative simultaneously with delivery to Owner's
Project Manager. Contractor shall notify Owner's Field Representative
before commencing any significant items of construction for the Project.
However, Owner's Field Representative shall not have the authority to make
decisions or give instructions binding upon Owner, except to the extent
expressly authorized by Owner in writing. In the event Owner employs or
designates a different Owner's Project Manager or Owner's Field
Representative, Owner shall give Contractor written notice of the identity
of the new Owner's Project Manager or Owner's Field Representative.
Owner's Project Manager or Owner's Field Representative may delegate any or
all of his authority to one or more delegees, but no such delegation shall
be effective unless made in a written instrument from him delivered to
Contractor naming the delegee, his tenure and the extent of his authority.
In addition, Owner shall have the right to retain one or more independent
consultants to monitor and inspect the Work at the Project Site or specific
portions of the Work. Owner shall cause Owner's Project Manager and
Owner's Field Representative and their delegees and any independent
consultants and Owner Contractors to conduct all of their observations,
communications and other activities in a manner that does not disrupt,
delay or otherwise interfere with the Work.
5.2 Project Site. On or before the Commencement Date and
continuously thereafter through Project Acceptance, Owner shall, at its own
expense, furnish the Project Site which is described in Schedule hereto,
and access to the Project Site and not later than April 1, 1995 shall, at
its own expense, purchase and install or cause to be installed the
permanent fencing necessary to secure the Project Site.
5.3 Permits. Owner has secured at its own expense all Applicable
Permits that are listed in Schedule hereto and designated therein as
"Owner Permits" and will secure when required any other Applicable Permit
that is required for the operation of the Overall Project (together with
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the Owner Permits listed on Schedule 5.3 hereof, the "Owner Permits").
Owner shall, at its own expense, maintain all Applicable Permits. Owner
shall cooperate with Contractor in connection with Contractor's efforts to
obtain Contractor Permits.
5.4 Utilities; Consumables. Owner shall arrange for the delivery of
those Utilities set forth on Schedule hereto and shall pay for the costs
of all equipment and piping and other material required for the delivery of
such Utilities, and the costs of installation thereof. Owner shall pay the
cost of all Utilities and fuel consumed in connection with the operation of
the Overall Project during Commissioning and the Initial Operating Period.
Owner shall supply and pay the cost of all chemicals and consumables
required for operation of the Overall Project during the Initial Operating
Period, and Owner shall supply vessels or other method of storage
sufficient for the storage of chemicals and consumables required for
operation of the Overall Project during the Initial Operating Period.
Owner shall pay for the costs of all electricity provided by the Wisconsin
Public Service Corporation substation to be located at the Project Site.
Contractor shall begin use of the permanent power from such substation at
the time the substation is ready to accept the power load.
5.5 Waste Paper Supply. Owner shall furnish Qualifying Waste Paper
at the pulper feed conveyor of the Overall Project in quantities and at or
prior to the times requested by Contractor at least one hundred twenty
(120) days prior to the date such Qualifying Waste Paper is first required,
for utilization during the Initial Operating Period.
5.6 Disposition of Pulp and Waste Products. During the Initial
Operating Period, Owner shall, at no expense to Contractor, arrange for the
disposition of all pulp and waste products (including sludge) resulting
from operation of the Overall Project during the Initial Operating Period
in such manner as Owner shall determine. Owner shall also be responsible
for any remediation of the Project Site required under Applicable Law to
correct any condition existing at the Commencement Date or brought onto the
Project Site by or created by Owner or Owner Contractors.
5.7 Certain Equipment To Be Supplied by Owner. Owner agrees to cause
to be delivered to and installed at the Project Site the equipment
identified in Schedule hereto at the times specified therein.
5.8 Protection of Property. Owner shall ensure that each Owner
Contractor provides proper and ample protection from physical damage or
loss to the Overall Project, the Project Site, materials, construction
equipment and tools during its performance of its work.
5.9 K&K Leased Premises. Owner, at its own expense, agrees to make
available to Contractor 100,000 square feet of the K&K Leased Premises for
use by Contractor for the storage of spare parts procured by Contractor
pursuant Section hereof and equipment, supplies and materials to be used
in the construction of the Project. The remainder of the K&K Leased
Premises is to be used by Owner for purposes related to the Overall
Project, including the storage of waste paper.
5.10 Independent Engineer. Owner acknowledges that Owner is
responsible for paying the fees and expenses of the Independent Engineer to
the extent agreed between the two of them, and shall indemnify Contractor
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against any claims by the Independent Engineer for the payment of such fees
and expenses.
5.11 Limitation on Certain Amendments. Unless an Event of Default (as
defined in the Indenture) has occurred and is continuing, Owner will not
consent to any amendments or waivers pertaining to the Bond Documents (as
defined in the Indenture) if the effect of such amendment or waiver would
be to adversely affect the ability of Contractor to be paid amounts owing
under this Agreement out of the General Debt Fund.
ARTICLE 6
Completion and Acceptance of Project
6.1 Training. Contractor shall provide Owner's personnel with
classroom and on-the-job training in the operation and maintenance of the
Project at the times and regarding the scope of items set forth in
Schedule hereto. Owner shall be responsible to provide operation and
maintenance personnel in sufficient numbers and having sufficient
background and experience operating similar plants and who are able to
comprehend the training required to be provided by Contractor and to
operate the Project subsequent to receiving such training. Contractor
shall have the right to require that Owner replace or to hire replacement
personnel for any personnel who do not satisfactorily perform their duties
or for other cause. Contractor shall coordinate all training sessions in a
manner sufficient to provide Owner's personnel with an adequate
understanding of the basic and principal design, and the operation and
maintenance aspects, of each dimension of the Project as an integrated
whole.
6.2 Project Commissioning. Prior to Commissioning of the Project,
Contractor shall propose, for Owner's review, a Commissioning program for
the Project, including a Commissioning schedule, an organization chart of
Contractor's personnel conducting the Commissioning, and a procedure for
the review of the Operating Manual and the application of its contents to
Project systems . Owner shall supply its operating and maintenance
personnel as listed in Schedule hereto to perform the labor necessary to
start-up the Project and to observe and verify Commissioning tasks
performed by Contractor. Contractor shall proceed to commission the
Project. During Project Commissioning, Contractor, with the assistance of
and observation by Owner's personnel, shall thoroughly flush and clean all
piping and equipment within the Project in accordance with system cleaning
procedures provided in the Operating Manual, Applicable Laws and procedures
for environmental protection and safety.
6.3 Mechanical Completion.
6.3.1 Demonstration of Mechanical Completion. "Mechanical
Completion" shall mean that the Project has been substantially completed in
accordance with the terms of the Contract Documents (with the exception of
Punch List); Contractor has provided to Owner the Operating Manual in
accordance with Section hereof; Contractor has provided to Owner the Punch
List; all Project control systems being provided by Contractor are
functional; the Project is mechanically and hydraulically functional and
free of material defects; all systems being provided by Contractor have
been checked for readiness to start up and are functional; Contractor shall
have flushed all applicable Project system elements with water for a period
of twenty-four (24) hours, under operating condition pressure, without
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process leaks or equipment failure or interruption, and Mechanical
Completion has been either acknowledged by Owner or deemed to have been
achieved pursuant to Section hereof.
6.3.2 Notice of Mechanical Completion. When Contractor
believes that it has achieved Mechanical Completion, it shall deliver to
Owner and Independent Engineer a notice thereof (the "Notice of Mechanical
Completion"), which shall include the information shown on Schedule .
6.3.3 Achievement of Mechanical Completion. Owner
shall, within three (3) Business Days following receipt of the Notice of
Mechanical Completion (including all the information shown in Section 1.2
of Schedule 6.3.2), (a) if the requirements of Section hereof have been
satisfied, acknowledge that Mechanical Completion has been achieved, or (b)
if reasonable cause exists for doing so, notify Contractor in writing that
Mechanical Completion has not been achieved, stating in detail the reasons
therefor. In the event that Owner determines that Mechanical Completion
has not been achieved, Contractor shall promptly take such reasonable
actions, including the performance of additional Work as will achieve
Mechanical Completion and shall issue to Owner another Notice of Mechanical
Completion pursuant to Section hereof. Such procedure shall be repeated
as necessary until Mechanical Completion has been achieved. For all
purposes of this Agreement, the date of achievement of Mechanical
Completion shall be the date on which Owner receives a Notice of Mechanical
Completion relating thereto with respect to which Owner ultimately
acknowledges that Mechanical Completion has been achieved. In the event
Owner fails to provide the acknowledgment or notice required in (a) and (b)
above within three (3) Business Days after Owner receives a Notice of
Mechanical Completion, Mechanical Completion will be deemed to have been
achieved on the date upon which Contractor's Notice of Mechanical
Completion is received by Owner.
6.4 Initial Operating Period; Performance Tests. The "Initial
Operating Period" shall commence upon Mechanical Completion and shall
continue until Project Acceptance. During the Initial Operating Period,
Owner's personnel as listed on Schedule hereto and such other personnel as
Contractor and Owner may agree prior to Mechanical Completion shall operate
the Overall Project and conduct the Performance Tests, and Contractor's
personnel shall monitor operation of the Project and advise Owner's
personnel regarding operation of the Project. During any Performance Test,
Contractor's personnel shall supervise Owner's personnel and direct their
actions to the extent deemed necessary by Contractor to achieve optimal
results from any Performance Test. Owner shall cause its personnel to
follow the directions of Contractor's personnel during any Performance
Test, provided that such directions shall not require operation of the
Overall Project in a manner contrary to the Contract Documents or
Applicable Law or in violation of the terms of employment of any of Owner's
personnel. Contractor shall be entitled to substitute its own personnel to
perform operations that would otherwise be performed by Owner's personnel
during any Performance Test, if Contractor determines that any of Owner's
personnel is not performing its duties adequately. Contractor shall also
be entitled to require that operations of the Overall Project be limited or
suspended in order to permit repairs, adjustments and modifications to be
made for the purpose of improving the Overall Project performance.
Contractor shall give Owner and the Independent Engineer at least two (2)
Business Days' prior written notice of the date on which Contractor intends
any Performance Test to be commenced. A Performance Test shall consist of
the operation of the Project in accordance with the Contract Documents and
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Approved Test Procedures for a period of three (3) consecutive days, five
(5) consecutive days, or ten (10) consecutive days, (subject to the
following sentence, a "Three-Day Performance Test," a "Five-Day Performance
Test" and a "Ten-Day Performance Test", respectively). Notwithstanding the
provisions of Section hereof, if any Performance Test is interrupted by a
Force Majeure Event, such Performance Test may be continued at such time as
the Force Majeure Event shall no longer be preventing the continuation of
such Performance Test, and the days on which such Force Majeure Event
prevented continuation of such Performance Test plus the number of days
reasonably required to stabilize operations of the Project at production
levels comparable to those being achieved prior to the Force Majeure Event
(the "Stabilization Period") shall be disregarded for purposes of
determining whether any Performance Guarantee has been satisfied, with the
effect that the Force Majeure Event and the Stabilization Period shall not
prevent such Performance Test from being deemed to have been conducted for
the period of consecutive days required for satisfaction of any Performance
Guarantee. The days of a Performance Test of a shorter duration may, at
Contractor's election, be included in a Performance Test of longer duration
so long as the Performance Test of shorter duration resulted in achievement
of the Performance Guarantee sought to be achieved during such Performance
Test, and any notice given with respect to the Performance Test of shorter
duration shall be deemed to be a notice with respect to the Performance
Test of longer duration. Any number of Performance Tests may be conducted
until Project Acceptance is achieved. Owner's personnel shall be
responsible for the taking and analysis of samples of Pulp in accordance
with the Approved Test Procedures, subject to the supervision of
Contractor's personnel. Contractor shall not have the right to commence
any Performance Test if any Commissioning has not been completed or if
Mechanical Completion has not occurred prior to the Performance Tests or if
any aspect of the Project has not been completed sufficiently to permit the
safe operation of all or any part of the Project during the Performance
Test in accordance with Applicable Laws, Good Industry Practices, the
Contract Documents and the Approved Test Procedures.
6.5 Completed Performance Tests. Contractor shall provide to Owner a
written report of the results of each Performance Test attempted to achieve
IPT No. 1 Success, IPT No. 2 Success, IPT No. 3 Success or Project
Acceptance. The performance results will be calculated in accordance with
Approved Test Procedures for the Performance Tests, including any
adjustments to reflect deviations from base conditions to be calculated as
set forth in the Approved Test Procedures all as verified by Owner.
6.6 Interim Performance Test Success.
6.6.1 Demonstration of Interim Performance Test Success. IPT
No. 1 Success, IPT No. 2 Success and IPT No. 3 Success shall be achieved
hereunder if the following conditions have been met:
(a)(i) in the case of IPT No. 1 Success, IPT No. 2
Success and IPT No. 3 Success, Contractor has concluded one or more
Performance Tests in which Contractor satisfies Performance Guarantees set
forth in Section hereof;
(ii) in the case of IPT No. 2 Success and IPT No.
3 Success, Contractor has concluded one or more Performance Tests in which
Contractor satisfies Performance Guarantees set forth in Section hereof;
and
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(iii) in the case of IPT No. 3 Success, Contractor
has concluded one or more Performance Tests in which Contractor satisfies
Performance Guarantees set forth in Section hereof;
(b) Mechanical Completion has occurred and all
portions of the Project are capable of being used safely in accordance with
all Applicable Laws, Good Industry Practices and the Contract Documents;
and
(c) Owner has acknowledged that IPT No. 1 Success, IPT
No. 2 Success or IPT No. 3 Success, as the case may be, has been achieved
or IPT No. 1 Success, IPT No. 2 Success or IPT No. 3 Success, as the case
may be, is deemed to have been achieved pursuant to Section hereof.
6.6.2 Notice and Report of Interim Performance Test Success.
When Contractor believes that it has achieved successful completion of a
Performance Test providing the basis for achieving IPT No. 1 Success, IPT
No. 2 Success or IPT No. 3 Success, it shall deliver to Owner and
Independent Engineer a notice thereof (the "Notice of Interim Performance
Test Success"). The Notice of Interim Performance Test Success shall
include the results of the Performance Test which Contractor believes
satisfies the applicable clause (or clauses) of Section (a) hereof.
6.6.3 Achievement of Interim Performance Test Success. Owner
shall, within ten (10) Business Days following receipt of the Notice of
Interim Performance Test Success, (a) if the requirements of Section
hereof have been satisfied, acknowledge to Contractor that IPT No. 1
Success, IPT No. 2 Success or IPT No. 3 Success, as the case may be, has
been achieved, or (b) if reasonable cause exists for doing so, notify
Contractor in writing that IPT No. 1 Success, IPT No. 2 Success or IPT No.
3 Success, as the case may be, has not been achieved, stating in detail the
reasons therefor. In the event that Owner determines that IPT No. 1
Success, IPT No. 2 Success or IPT No. 3 Success has not been achieved,
Contractor shall promptly take such reasonable actions, including the
performance of additional Work and the completion of additional Performance
Tests, as will achieve IPT No. 1 Success, IPT No. 2 Success or IPT No. 3
Success, as the case may be, and shall issue to Owner another Notice of
Interim Performance Test Success pursuant to Section hereof. Such
procedure shall be repeated as necessary until IPT No. 1 Success, IPT No. 2
Success and IPT No. 3 Success have been achieved. In the event Owner fails
to acknowledge within ten (10) Business Days that IPT No. 1 Success, IPT
No. 2 Success and IPT No. 3 Success has been achieved, or to notify
Contractor to the contrary, IPT No. 1 Success, IPT No. 2 Success and IPT
No. 3 Success, as the case may be, will be deemed to have been achieved on
the date upon which Contractor's Notice of Interim Performance Test Success
is received by Owner. For all purposes of this Agreement, the date of
achievement of IPT No. 1 Success, IPT No. 2 Success and IPT No. 3 Success
under Section hereof shall be the date on which Owner receives a Notice of
IPT Success with respect to which Owner acknowledges that IPT No. 1
Success, IPT No. 2 Success and IPT No. 3 Success, as the case may be, has
been achieved or with respect to which IPT No. 1 Success, IPT No. 2 Success
and IPT No. 3 Success, as the case may be, is deemed to have been achieved.
6.7 Project Acceptance. Project Acceptance shall be achieved
hereunder pursuant to Section , Section or Section hereof.
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6.7.1 Demonstration of Project Acceptance. Project
Acceptance shall be achieved hereunder if the following conditions have
been met:
(a) Contractor has concluded one or more Performance
Tests in which Contractor satisfies each of Performance Guarantees;
(b) Contractor has performed all of the Work required
by the Contract Documents, including any remaining items listed in the
Punch List;
(c) All portions of the Project are capable of being
used safely in accordance with all Applicable Laws, Good Industry Practices
and the Contract Documents;
(d) All equipment and facilities necessary for the
full and safe reliable operation of the Project have been properly
constructed, installed, insulated and protected where required for such
operation, and correctly adjusted, all as provided in the Contract
Documents;
(e) All quality assurance documentation has been
provided to and reviewed by Owner in accordance with the Construction
Quality Assurance Plan and Contractor shall have otherwise complied with
the Construction Quality Assurance Plan; and
(f) Owner has acknowledged that the conditions for
Project Acceptance set forth in clauses (a) through (e) of this Section
have been satisfied or Project Acceptance is deemed to be achieved pursuant
to Section hereof.
6.7.2 Notice and Report of Project Acceptance. When
Contractor believes that it has achieved Project Acceptance, it shall
deliver to Owner and the Independent Engineer a notice thereof (the "Notice
of Project Acceptance"). The Notice of Project Acceptance shall include
the results of the Performance Test(s) which Contractor believes satisfies
Section (a) hereof and otherwise contain a report in the form set forth in
Schedule 6.7.2 hereto.
6.7.3 Achievement of Project Acceptance. Owner shall, within
ten (10) Business Days following receipt of the Notice of Project
Acceptance, inspect the Overall Project and all Work hereunder and shall,
(a) if the requirements of Section hereof have been satisfied, acknowledge
that Project Acceptance has been achieved, or (b) if reasonable cause
exists for doing so, notify Contractor in writing that Project Acceptance
has not been achieved, stating in detail the reasons therefor. In the
event Owner determines that Project Acceptance has not been achieved,
Contractor shall promptly take such reasonable action, including the
performance of additional Work as required herein and the completion of
additional Performance Tests, as will achieve Project Acceptance, and shall
issue to Owner and the Independent Engineer another Notice of Project
Acceptance pursuant to Section hereof. Such procedure shall be repeated
as necessary until Project Acceptance has been achieved. In the event
Owner fails to acknowledge within ten (10) Business Days after Owner has
received a Notice of Project Acceptance that Project Acceptance has been
achieved, or to notify Contractor to the contrary, Project Acceptance will
be deemed to have been achieved on the date upon which Contractor's Notice
of Project Acceptance is received by Owner. For all purposes of this
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Agreement, the date of achievement of Project Acceptance under Section
hereof shall be the date on which Owner receives a Notice of Project
Acceptance with respect to which Owner acknowledges that Project Acceptance
has been achieved or with respect to which Project Acceptance is deemed to
have been achieved.
6.7.4 Contractor's Election of Project Acceptance. If any
time after Mechanical Completion, Contractor has exhausted all reasonable
repair and replacement alternatives and Contractor has determined in good
faith that the performance of the Project cannot be improved by additional
reasonable repair and replacements alternatives, Contractor may give to
Owner seven (7) days' notice of its election to declare Project Acceptance.
Contractor will be obligated to pay all Performance Guarantee Payments as
provided in Section hereof. For all purposes of this Agreement, the date
of achievement of Project Acceptance under this Section hereof shall be
the date specified in such notice. If Contractor has made any plant
modifications subsequent to such Most Recently Completed Performance Test,
Contractor shall conduct a final (i) Three-Day Performance Test if IPT No.
1 Success has not been achieved, (ii) Five-Day Performance Test if IPT No.
1 Success has been achieved but IPT No. 2 Success or No. 3 Success has not
been achieved or (iii) Ten-Day Performance Test if IPT No. 3 Success has
been achieved but Project Acceptance has not been achieved, the results of
which shall be used to calculate the Performance Guarantee Payments;
provided, however, that this Section in no way derogates from Contractor's
obligation hereunder to cause the Project to comply with all Applicable
Laws or to perform its other obligations hereunder following Project
Acceptance.
6.7.5 Deemed Project Acceptance. Unless Project Acceptance
shall already have occurred pursuant to Section or Section hereof,
Project Acceptance shall be deemed to occur hereunder on the first (1st)
anniversary of the Guaranteed Acceptance Date; provided, however, that this
Section in no way shall derogate from Contractor's obligations hereunder
prior to such anniversary to cause the Project to comply with all
Applicable Laws, Good Industry Practices and the Contract Documents, to pay
any Delay Payments and any Performance Guarantee Payments required
hereunder and to perform its other obligations hereunder following Project
Acceptance.
6.7.6 Access. Contractor shall have reasonable access to the
Overall Project and the reasonable cooperation of Owner to perform its
obligations pursuant to Article hereof. Contractor shall perform its
obligations under Article hereof with minimal interference to operations
of the Overall Project, and only to the extent necessary.
6.8 Punch List. At any time after Mechanical Completion, Owner may
submit to Contractor additions to the Punch List within the Scope of the
Work, provided that Owner does not have the right to submit additions to
the Punch List after Project Acceptance.
6.9 Acceptance and Approvals Not a Release of Contractor. The
acceptance by Owner of the Design Documents, or any other part of the Work
or the Project shall not constitute a waiver or relinquishment by Owner of
any of its rights under this Agreement, nor exonerate or relieve Contractor
from any obligation, warranty or liability hereunder, except to the extent
expressly provided herein. Each such acceptance or approval shall be given
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by Owner in reliance upon, and subject to, the performance by Contractor of
its obligations hereunder.
ARTICLE 7
Guaranteed Dates; Delay Payments; Bonuses
7.1 Guaranteed Completion Date. Contractor guarantees that
Mechanical Completion shall be achieved on or before the Guaranteed
Completion Date subject to the terms of this Agreement.
7.2 Guaranteed IPT No. 3 Success Date. Contractor guarantees that
IPT No. 3 Success shall be achieved on or before the Guaranteed IPT No. 3
Success Date subject to the terms of this Agreement.
7.3 Guaranteed Acceptance Date. Contractor guarantees that Project
Acceptance shall be achieved pursuant to Section hereof on or before the
Guaranteed Acceptance Date subject to the terms of this Agreement.
7.4 Delay Payments.
7.4.1 Failure to Achieve Guaranteed Completion Date. If
Mechanical Completion does not occur on or before the Guaranteed Completion
Date, subject to Section hereof, Contractor hereby agrees to pay to Owner,
as liquidated damages and not as a penalty, from time to time as set forth
in Section hereof, amounts that in the aggregate shall equal Accrued Bond
Interest for the period from the Guaranteed Completion Date to the earlier
of Mechanical Completion or the Project Acceptance ("Late Completion
Payments").
7.4.2 Failure to Achieve Guaranteed IPT No. 3 Success. If
IPT No. 3 Success is not achieved on or before the Guaranteed IPT No. 3
Success Date, subject to Section hereof, Contractor hereby agrees to pay
to Owner, as liquidated damages and not as a penalty (without duplication
of any amounts payable pursuant to Section hereof), from time to time as
more particularly set forth in Section hereof amounts ("Late IPT No. 3
Success Payments") that in the aggregate shall equal (i) Accrued Bond
Interest for the period from the Guaranteed IPT No. 3 Success Date, to the
earlier to occur of IPT No. 3 Success or Project Acceptance minus (ii) any
Price-Adjusted Project Cash Flow for such period (any positive amount not
to exceed the amount of Accrued Bond Interest, and it being understood that
if Price-Adjusted Project Cash Flow for such period is a loss, such amount
shall be expressed as a negative number, and any loss for such period shall
result in an addition to the amount in clause (i)). In the event
Contractor is required to make any Late IPT No. 3 Success Payments,
Contractor may, unless and until Contractor fails to make a Late IPT No. 3
Success Payment when due, elect, upon seven (7) Business Days' notice to
Owner, to require Owner to shut down temporarily its operations at the
Project. For the period following the effective date of such shutdown
until operations at the Project resume, 50% of Total Assumed Labor Costs
shall be subtracted from Price Adjusted Operation and Maintenance Expenses
in calculating Price-Adjusted Project Cash Flow. Contractor shall give
Owner not less than seven (7) Business Days' notice of the date on which
operations at the Project are to resume and from and after such date, 100%
of Total Assumed Labor Costs shall be used in calculating Price-Adjusted
Project Cash Flow for the purpose of determining the amount of Late
IPT No. 3 Success Payments to be paid by Contractor.
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7.4.3 Failure to Achieve Guaranteed Acceptance Date. If
Project Acceptance is not achieved pursuant to Section hereof on or before
the Guaranteed Acceptance Date, subject to Section hereof, Contractor
hereby agrees to pay to Owner, as liquidated damages and not as a penalty
(without duplication of any amounts payable pursuant to Section or Section
hereof), from time to time as set forth in Section hereof, amounts ("Late
Acceptance Payments") that in the aggregate shall equal (i) Accrued Bond
Interest for the period from the Guaranteed Acceptance Date, to Project
Acceptance minus (ii) any Price-Adjusted Project Cash Flow for such period
(any positive amount not to exceed the amount of Accrued Bond Interest, and
it being understood that if Price-Adjusted Project Cash Flow for such
period is a loss, such amount shall be expressed as a negative number, and
any loss for such period shall result in an addition to the amount in
clause (i)). In the event Contractor is required to make any Late
Acceptance Payments, Contractor may, unless and until Contractor fails to
make a Late Acceptance Payment when due, elect, upon seven (7) Business
Days' prior written notice to Owner, to require Owner to shut down
temporarily operations at the Project. For the period following the
effective date of such shutdown until operations at the Project resume, 50%
of Total Assumed Labor Costs shall be subtracted from Price-Adjusted
Operation and Maintenance Expenses in calculating Price-Adjusted Project
Cash Flow. Contractor shall give Owner not less than seven (7) Business
Days' notice of the date on which operations at the Project are to resume
and from and after such date, 100% of Total Assumed Labor Costs shall be
used in calculating Price-Adjusted Project Cash Flow for the purpose of
determining the amount of Late Acceptance Payments to be paid by
Contractor.
7.4.4 Liquidated Damages Reasonable. Owner and Contractor
hereby acknowledge and agree that the terms, conditions and amounts fixed
pursuant to this Section are reasonable, considering the reduction in
value of the Overall Project to Owner and the actual costs that Owner will
incur in the event of Contractor's failure to achieve Mechanical
Completion, IPT No. 3 Success or Project Acceptance by the Guaranteed
Completion Date, the Guaranteed IPT No. 3 Success Date or the Guaranteed
Acceptance Date, respectively. The amounts of these liquidated damages is
agreed upon and fixed hereunder because of the difficulty of ascertaining
the exact amount of costs that will be actually incurred by Owner for late
Mechanical Completion, IPT No. 3 Success or Project Acceptance, and Owner
and Contractor agree that the liquidated damages specified herein shall be
applicable regardless of the amount of such costs actually incurred by
Owner.
7.4.5 Payment of Liquidated Damages. Contractor shall be
obligated to pay Delay Payments under this Section for each day on which
the Overall Project shall continue to fail to have achieved Mechanical
Completion, IPT No. 3 Success or Project Acceptance after the Guaranteed
Completion Date, the Guaranteed IPT No. 3 Success Date or the Guaranteed
Acceptance Date, respectively. Contractor shall pay the liquidated damages
required under this Section monthly in arrears on the twenty-fifth (25th)
day of each month. Owner's rights of set-off under Section hereof
expressly apply to any amounts not timely paid by Contractor hereunder.
7.4.6 Liquidated Damages for Delay Only. The Delay Payments
shall be the measure of Contractor's liability only for delay in achieving
Mechanical Completion, IPT No. 3 Success or Project Acceptance, as the case
may be, and shall not limit Contractor's liability for defects in the Work,
for its obligations to satisfy Performance Guarantees or make Performance
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Guarantee Payments, or for Contractor's failure to perform its other
obligations under and as specified in the Contract Documents. The Delay
Payments also (i) shall not affect Owner's right to receive the Performance
Guarantee Payments pursuant to Article hereof, and (ii) are in lieu of
Owner's right to terminate this Agreement pursuant to Section hereof or
exercise any other remedy as a result of any schedule delay.
7.5 Bonus Payments.
7.5.1 Early Mechanical Completion. In the event Mechanical
Completion occurs on or prior to the Guaranteed Completion Date, Owner will
pay to Contractor a bonus payment (an "Early Completion Bonus"), in an
aggregate amount equal to $2,000,000, together with interest accrued on
such amount (or any portion thereof remaining unpaid) at the Prime Rate
from Mechanical Completion to the date of payment. Any Early Completion
Bonus, and interest thereon, will be payable in one or more installments as
provided in Section hereof.
7.5.2 Early Project Acceptance. If Project Acceptance is
achieved pursuant to Section hereof prior to the Guaranteed Acceptance
Date, Owner will pay to Contractor a bonus (an "Early Acceptance Bonus"),
determined pursuant to this Section . The Early Acceptance Bonus shall be
an amount equal to the sum of the following amounts:
(i) if Project Acceptance is achieved on or prior to the
date that is nine (9) months prior to the Guaranteed Acceptance
Date, $1,000,000;
(ii) if Project Acceptance is achieved on or prior to the
date that is eight (8) months prior to the Guaranteed Acceptance
Date, $1,000,000;
(iii) if Project Acceptance is achieved on or prior to the date
that is seven (7) months prior to the Guaranteed Acceptance Date,
$1,000,000;
(iv) if Project Acceptance is achieved on or prior to the date
that is six (6) months prior to the Guaranteed Acceptance Date,
$600,000;
(v) if Project Acceptance is achieved on or prior to the date
that is five (5) months prior to the Guaranteed Acceptance Date,
$600,000;
(vi) if Project Acceptance is achieved on or prior to the
date that is four (4) months prior to the Guaranteed Acceptance
Date, $600,000;
(vii) if Project Acceptance is achieved on or prior to the
date that is three (3) months prior to the Guaranteed Acceptance
Date, $600,000;
(viii) if Project Acceptance is achieved on or prior to the
date that is two (2) months prior to the Guaranteed Acceptance
Date, $400,000; and
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(ix) if Project Acceptance is achieved on or prior to the
date that is one (1) month prior to the Guaranteed Acceptance
Date, $400,000;
provided, however, that, in the event that Project Acceptance is achieved
on a date that is not an integral number of months prior to the Guaranteed
Acceptance Date, any Early Acceptance Bonus shall include an amount with
respect to the number of days (the "Numerator") by which the date of
Project Acceptance exceeds the next date that is an integral number of
months prior to the Guaranteed Acceptance Date (or, if the date of Project
Acceptance is less than one (1) month prior to the Guaranteed Acceptance
Date, by which the date of Project Acceptance exceeds the Guaranteed
Acceptance Date), which amount shall be determined by multiplying the
amount that would have been included in the Early Acceptance Bonus pursuant
to one of the foregoing clauses if Project Acceptance had been achieved on
the date that is the next greater integral number of months prior to the
Guaranteed Project Acceptance Date times a fraction the numerator of which
is the Numerator and the denominator of which is the number of days in the
period between such date and the next succeeding date that is an integral
number of months prior to the Guaranteed Acceptance Date (or, if the date
of Project Acceptance is less than one (1) month prior to the Guaranteed
Acceptance Date, the Guaranteed Acceptance Date); and, provided further,
that in no event shall the Early Acceptance Bonus exceed $5,670,000. Any
Early Acceptance Bonus shall bear interest at the Prime Rate from Project
Acceptance to the date of payment for a period of one year after Project
Acceptance, and thereafter, any unpaid amount of the Early Acceptance Bonus
shall bear interest at twelve and one-half percent (12-1/2%) per annum.
Any Early Acceptance Bonus, and accrued interest thereon, shall be payable
in one or more installments as provided under Section hereof.
7.5.3 Payment of Bonuses. Owner shall be obligated to pay
any Early Completion Bonus and any Early Acceptance Bonus in one or more
installments on the first day of each month (or if such day is not a
Business Day, the first day thereafter that is a Business Day) to the
extent that there exists Available Cash therefor determined as of the
twenty-fifth (25th) day of the preceding month, (i) in the case of any
Early Completion Bonus, and interest accrued on such amount, commencing
with the first such date to occur after Mechanical Completion and (ii) in
the case of any Early Acceptance Bonus, and interest accrued on such
amount, commencing with the first such date to occur after Project
Acceptance. Any payment by Owner shall be applied to interest, first; and
to the Early Acceptance Bonus or the Early Completion Bonus, second.
Owner's obligations to pay the Early Acceptance Bonus and the Early
Completion Bonus will be secured by the Security Agreement. Contractor
acknowledges and agrees that Owner's obligation to pay the Early Completion
Bonus and the Early Acceptance Bonus is subordinate and junior in right of
payment to certain other obligations of Owner, all as and to the extent
provided in the Indenture.
7.6 Repayment by Owner of Late Completion Payments Under Certain
Circumstances. In the event that Contractor makes any Late Completion
Payments under Section hereof, Project Acceptance has been achieved
pursuant to Section hereof and Contractor has paid any Performance
Guarantee Payments required to be paid under Section hereof, Owner agrees
to pay to Contractor from time to time in accordance with the provisions of
this Section an amount equal to the sum of any Late Completion Payments so
made with respect to the two-month period immediately succeeding the
Guaranteed Completion Date (whether or not Mechanical Completion is
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achieved during such period or after such period), together with interest
accrued at the Prime Rate on each portion of such amount from the date of
payment by Contractor of the Late Completion Payment to which such portion
corresponds (treating each payment under this Section as a repayment of
all or a portion of the earliest Late Completion Payment that was made by
Contractor (and not previously repaid to Contractor under this Section )
and the related interest thereon). On the first (1st) day of each month
after Contractor shall have become entitled to the payment of any amount
under this Section , until such amount has been repaid in full (and after
the payment of the Deferrable Portion and any related interest thereon
pursuant to Section hereof, the payment of any bonuses and related
interest thereon payable under Section hereof and the payment of certain
other amounts as set forth in Appendix C of the Indenture), Owner shall pay
Contractor all or a portion of such amount to the extent that Available
Cash exists therefor determined as of the twenty-fifth (25th) day of the
preceding calendar month. Owner's obligation to pay any amount under this
Section will be secured pursuant to the Security Agreement. Contractor
acknowledges and agrees that Owner's obligation to pay any amount under
this Section is subordinate and junior in right of payment to certain
other obligations of Owner, all as and to the extent provided in the
Indenture.
7.7 Repayment by Owner of Late IPT No. 3 Success Payments Under
Certain Circumstances. In the event that Contractor makes any Late IPT No.
3 Success Payments under Section hereof, Project Acceptance has been
achieved pursuant to Section hereof and Contractor has paid any
Performance Guarantee Payments required to be paid under Section hereof,
Owner agrees to pay to Contractor from time to time in accordance with the
provisions of this Section an amount equal to the sum of any Late IPT No.
3 Success Payments so made with respect to the period of (a) one month plus
(b) the lesser of two (2) months or the number of days between the
Guaranteed Completion Date and Mechanical Completion immediately succeeding
the Guaranteed IPT No. 3 Success Date (whether or not IPT No. 3 Success is
achieved during such period or after such period), together with interest
accrued at the Prime Rate on each portion of such amount from the date of
payment by Contractor of the Late IPT No. 3 Success Payment to which such
portion corresponds (treating each payment under this Section as a
repayment of all or a portion of the earliest Late IPT No. 3 Success
Payment that was made by Contractor (and not previously repaid to
Contractor under this Section ) and the related interest thereon). On the
first (1st) day of each month after Contractor shall have become entitled
to the payment of any amount under this Section , until such amount has
been repaid in full (and after the payment of the Deferrable Portion and
any related interest thereon pursuant to Section hereof, the payment of
any bonuses and related interest thereon payable under Section hereof and
the payment of certain other amounts as set forth in Appendix C of the
Indenture), Owner shall pay Contractor all or a portion of such amount to
the extent that Available Cash exists therefor as of the twenty-fifth
(25th) day of the preceding calendar month. Owner's obligation to pay
any amount under this Section will be secured pursuant to the Security
Agreement. Contractor acknowledges and agrees that Owner's obligation to
pay any amount under this Section is subordinate and junior in right of
payment to certain other obligations of Owner, all as and to the extent
provided in the Indenture.
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ARTICLE 8
Performance Guarantees
8.1 Performance Guarantees. Subject to the provisions of this
Agreement, Contractor guarantees that the Project will achieve all of the
performance specifications referred to in this Section (the "Performance
Guarantees") during one or more Performance Tests, including any
adjustments to reflect deviations from base conditions to be calculated as
set forth in the Approved Test Procedures. Subject to Section hereof,
Contractor agrees to exhaust all reasonable repair and replacement
alternatives in order that the Project might attain the Performance
Guarantees. If Contractor exhausts all reasonable repair and replacement
alternatives, and the Project nevertheless fails to achieve Project
Acceptance pursuant to Section hereof on or prior to achieving Project
Acceptance pursuant to either Section hereof or Section hereof,
Contractor shall pay Owner as liquidated damages and not as penalties the
amounts calculated in accordance with the provisions of this Section (the
"Performance Guarantee Payments"). Contractor's liability to Owner for
failure of the Project to achieve Project Acceptance pursuant to Section
hereof shall be limited to the Performance Guarantee Payments, subject to
the limitation set forth in Section hereof; provided that such payment of
liquidated damages shall not derogate from Contractor's other obligations
under the Contract Documents, including its liability for defects in the
Work and its obligation to make the Delay Payments except as otherwise
provided in Sections and .
8.1.1 IPT No. 1 Guarantee. Subject to the provisions of this
Agreement, Contractor guarantees to Owner that the Project will, during a
Three-Day Performance Test, produce not less than 915 BDST of Pulp
satisfying or exceeding the Grade C Criteria.
8.1.2 IPT No. 2 Guarantee. Subject to the provisions of this
Agreement, Contractor guarantees to Owner that the Project will, during a
Five-Day Performance Test, produce not less than 1,690 BDST of Pulp
satisfying or exceeding the Grade C Criteria, including at least 845 BDST
of Pulp satisfying or exceeding the Grade B Criteria.
8.1.3 IPT No. 3 Guarantee. Subject to the provisions of this
Agreement, Contractor guarantees to Owner that the Project will, during a
Five-Day Performance Test, produce a total of not less than 1,690 BDST of
Pulp satisfying or exceeding the Grade C Criteria, including not less than
1,487 BDST of Pulp satisfying or exceeding the Grade A Criteria and 1,656
BDST of Pulp satisfying or exceeding the Grade B Criteria.
8.1.4 Project Acceptance Guarantee. Subject to the
provisions of this Agreement, Contractor guarantees to Owner that the
Project will, during a Ten-Day Performance Test, produce a total of not
less than 4,000 BDST of Pulp satisfying or exceeding the Grade C Criteria,
including at least 3,520 BDST of Pulp satisfying or exceeding the Grade A
Criteria and 3,920 BDST of Pulp satisfying or exceeding the Grade B
Criteria, at the Maximum Consumption Rates for Project Acceptance set forth
in Schedule A hereto.
8.1.5 Performance Guarantee Payments. If Mechanical
Completion does not occur prior to Project Acceptance, Contractor hereby
agrees to pay to Owner, as liquidated damages and not as a penalty, an
amount equal to one hundred (100%) of the Contract Sum (excluding the
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Deferrable Portion). If Mechanical Completion is achieved but IPT No. 1
Success is not achieved prior to Project Acceptance, in addition to all
amounts payable pursuant to Section hereof, subject to Section hereof,
Contractor hereby agrees to pay to Owner, as liquidated damages and not as
a penalty, an amount equal to fifty percent (50%) of the Contract Sum
(excluding the Deferrable Portion). If Mechanical Completion and IPT No. 1
Success are achieved, but Project Acceptance is not achieved pursuant to
Section hereof prior to Project Acceptance, in addition to all amounts
payable pursuant to Section hereof, subject to Section hereof, Contractor
hereby agrees to pay to Owner, as liquidated damages and not as a penalty,
an amount equal to the Buy-Down Amount.
8.2 Liquidated Damages Reasonable. Owner and Contractor hereby
acknowledge and agree that the terms, conditions and amounts fixed pursuant
to this Article for Performance Guarantee Payments are reasonable,
considering the actual reduction in the value of the Overall Project that
Owner will sustain in the event of Contractor's failure to achieve the
Performance Guarantees. The amounts of these liquidated damages are agreed
upon and fixed hereunder because of the difficulty of ascertaining on the
date hereof the exact amount of such reduction in value that will actually
be sustained by Owner in the event of any such failure by Contractor, and
Owner and Contractor hereby agree that the liquidated damages specified
herein shall be applicable regardless of the amount of such reduction in
value actually sustained by Owner. The payment of any such liquidated
damages hereunder (i) shall not affect Owner's right to receive Delay
Payments pursuant to Section hereof, and (ii) is in lieu of Owner's right
to terminate this Agreement pursuant to Section hereof or exercise any
other remedies as a result of any failure to meet the Performance
Guarantees.
8.3 Payment of Liquidated Damages. Contractor shall pay to Owner all
liquidated damages required under this Article within thirty (30) days
after Project Acceptance. Owner's rights of set-off under Section hereof
expressly apply to any amounts not timely paid by Contractor hereunder.
8.4 Repayment by Owner of Liquidated Damages Under Certain
Circumstances. In the event that Contractor makes any Performance
Guarantee Payments under Section hereof, and Contractor has not purchased
the Partners' interests in Owner pursuant to Section hereof, Owner agrees
to pay to Contractor from time to time in accordance with the provisions of
this Section an amount equal to the amount of Performance Guarantee
Payments so made without interest thereon. On the fifteenth (15th) day of
each month after the month in which all Performance Guarantee Payments have
been made in full to the extent owed under this Agreement, if as of the
twenty-fifth (25th) day of the preceding month (the "determination date")
all distributions to Partners theretofore made, plus any amounts held by
Owner constituting Available Cash (as defined in the Partnership Agreement)
or Net Proceeds (as defined in the Partnership Agreement) and distributable
to the Partners, in the aggregate have provided (or would provide) to each
Partner an Internal Rate of Return of twenty-five percent (25%) per annum
as of the determination date, Owner shall until such Performance Guarantee
Payments have been repaid in full pay Contractor all or a portion of the
Performance Guarantee Payments previously paid by Contractor to the extent
that there exist funds in the Distribution Fund. Owner agrees that if
Contractor has paid Performance Guarantee Payments, Owner shall not make
distributions to its Partners that in the aggregate on the date of
determination provide to each Partner an Internal Rate of Return in excess
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of twenty-five percent (25%) per annum until Owner shall have paid in full
all amounts payable to Contractor under the provisions of this Section .
Not later than the fifth (5th) day of each month (or the next Business
Day if the first day is not a Business Day) Owner shall notify Contractor
in writing of the amount of the balance in the Distribution Fund as of the
determination date and of the Internal Rate of Return for each Partner as
of such determination date. In the event Contractor notifies Owner within
ten (10) days that Contractor does not agree with Owner's calculation of
the Internal Rate of Return for such month, and in the event such dispute
is not resolved by Owner and Contractor within thirty (30) days after the
date Owner receives Contractor's notice, Owner's calculation shall prevail
unless Contractor notifies Owner in writing (a "Resolution Notice") that
such dispute must be resolved by independent certified accountants and
provides to Owner the name of an independent certified public accountant.
Not later than fifteen (15) Business Days after Owner's receipt of such
Resolution Notice, Owner shall either notify Contractor that Owner accepts
Contractor's calculation of the Internal Rate of Return or provide to
Contractor the name and address of a second independent certified public
accountant. The independent certified public accountants selected by
Contractor and Owner shall attempt to resolve the dispute and shall notify
Owner and Contractor of their determination or, if such accountants cannot
resolve such dispute within ten (10) Business Days, shall select a third
independent certified public accountant to determine the Internal Rate of
Return within ten (10) Business Days. Contractor and Owner agree that
absent manifest error the determination by such third independent certified
public accountant of the Internal Rate of Return shall be final and binding
on Contractor and Owner.
8.5 Right of Contractor to Purchase Certain Partnership Interests
Under Certain Circumstances. In the event that Contractor is required to
pay Performance Guarantee Payments that in the aggregate exceed twenty
percent (20%) of the Contract Sum and Contractor has paid such Performance
Guarantee Payments in full to the extent owed hereunder and unless the
holders of at least fifty-one percent (51%) in aggregate principal amount
of Bonds and Facility Parity Debt then Outstanding under the Indenture
(collectively, "Senior Debt") object in writing within sixty (60) days
after the Purchase Notice described below is given by Contractor,
Contractor or any of its subsidiaries shall have the right to purchase from
all of the Partners their respective partnership interests in Owner.
Contractor agrees that such right to purchase shall be a right of
Contractor and its subsidiaries, to purchase all, but no fewer than all, of
the Partners' partnership interests in Owner. Contractor agrees that each
Partner's entire partnership interest in Owner, and not a portion thereof,
shall be purchased either by Contractor or by any one of Contractor's
subsidiaries at a purchase price sufficient to provide to each such Partner
an Internal Rate of Return to the date such Partner receives such purchase
price of twelve and one-half percent (12p%) per annum; provided, however,
that in the event the aggregate purchase price so determined is less than
eighty-five percent (85%) of the fair market value of all of the Partners'
interests in Owner, determined as set forth in the next paragraph,
Contractor shall have the right to purchase all of the Partners' interests
in Owner for an aggregate purchase price equal to the fair market value
thereof, determined as set forth in the next paragraph, and otherwise in
accordance with the provisions of this Section . Contractor may elect to
exercise its right to purchase the partnership interests by notifying
Owner, each Partner and the Trustee of such election not more than sixty
(60) days after Project Acceptance has occurred and by directing the
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Trustee to give, at the expense of and in the form provided by Contractor,
written notice (the "Purchase Notice") of such election to the holders of
the Senior Debt. Within thirty (30) days after receipt of any such notice,
Owner shall deliver to Contractor a notice specifying the aggregate
purchase price of all of the partnership interests that would provide to
each such Partner an Internal Rate of Return to the date of purchase of
twelve and one-half percent (12p%) per annum, including reasonably detailed
calculations thereof, the purchase price of each partnership interest and a
date, not later than ninety (90) days after the delivery of such notice or
the date Owner and Contractor are notified by the Trustee that the Trustee
has not received objections from the holders of at least fifty-one percent
(51%) in the aggregate principal amount of Senior Debt, on which the
purchase of such partnership interests is to be consummated. Such notice
shall be accompanied by all instruments and other documents required to
convey the partnership interests to Contractor (or any subsidiary of
Contractor, as applicable) and to provide for indemnification by the entity
that purchases the general partner's partnership interest in the Owner, of
each Partner for all liabilities such Partner may have under any Project
Agreement (as defined in the Indenture). Owner and Contractor shall
cooperate to produce documentation reasonably satisfactory in form and
substance to each of them. In the event Contractor and Owner do not agree
on the calculation of the Internal Rate of Return or on the amounts to be
paid to any Partner pursuant to this Section , such disputes shall, at
Contractor's expense, be resolved in the manner provided in Section
hereof.
For purposes of this Section , the fair market value of the Partners'
interests in Owner shall be determined by mutual agreement of Owner and
Contractor within ten (10) days of delivery of notice of the purchase price
by Owner, or if they do not so agree, shall be determined by a single
appraiser mutually selected by Owner and Contractor. If Owner and
Contractor cannot agree on a single appraiser within ten (10) days after
the expiration of the ten (10) day period described above, then such value
shall be as specified in an appraisal prepared and mutually agreed to by
three (3) recognized independent appraisers, one of which shall be
appointed by Owner within fifteen (15) days after expiration of the ten
(10) day period referred to above, one of which shall be appointed by
Contractor within the same fifteen (15) day period, and the other of which
shall be appointed by mutual consent of the two previously appointed
appraisers within a further thirty (30) day period. If any party should
fail to appoint an appraiser within fifteen (15) days of receiving notice
of the appointment of an appraiser by the other party, then such appraisal
shall be made by the appraiser appointed by the party providing such
notice. If the two previously appointed appraisers cannot agree upon a
mutually acceptable third appraiser within thirty (30) days after the
appointment of the second appraiser, then either party may apply to the
American Arbitration Association office in such location as the parties may
select to make such appointment. The appraisal shall be completed within
thirty (30) days of the appointment of the last appraiser appointed. If
three appraisers are appointed and cannot agree on the relevant value, the
values determined by the three appraisers shall be averaged, the
determination which differs most from such average shall be excluded, the
remaining two determinations shall be averaged and such average shall be
the final determination. The valuation made by the appraisers shall be
binding on Owner and Contractor in the absence of fraud or manifest error.
The costs of the appraisal shall be borne equally by Owner and Contractor
and, if three appraisers are appointed, the party appointing its appraiser
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shall bear its costs and the expenses of the third appraiser shall be borne
equally by the relevant parties.
ARTICLE 9
Liability and Damages
9.1 Limitations of Certain Contractor Liabilities. In no event shall
Contractor's liability for Late Completion Payments under Section hereof
for any day exceed an amount equal to the amount of Accrued Bond Interest
for such day. In no event shall the sum of Contractor's liability to Owner
under this Agreement for all Delay Payments under Section hereof and all
Performance Guarantee Payments under Section hereof exceed an amount equal
to : (a) until Mechanical Completion has occurred, (I) one hundred percent
(100%) of the Contract Sum minus (II) the Deferrable Portion; (b) after
Mechanical Completion and prior to IPT No. 1 Success, (I) fifty percent
(50%) of the Contract Sum minus (II) the Deferrable Portion; (c) after IPT
No. 1 Success and prior to IPT No. 2 Success, (I) thirty percent (30%) of
the Contract Sum minus (II) the Deferrable Portion; (d) after IPT No. 2
Success and prior to IPT No. 3 Success, (I) twenty percent (20%) of the
Contract Sum minus (II) the Deferrable Portion; and (e) after IPT No. 3
Success and prior to the achievement of Project Acceptance pursuant to
Section hereof, (I) ten percent (10%) of the Contract Sum minus (II) the
Deferrable Portion. If Project Acceptance is achieved pursuant to Section
hereof, Contractor will have no liability for Performance Guarantee
Payments. Subject to the provisions of Section hereof, in no event shall
the sum of Contractor's liability to Owner for breach of the General
Warranty provisions under Section hereof exceed ten percent (10%) of the
Contract Sum minus the Deferrable Portion to the extent unpaid. Subject to
the provisions of Section hereof, in no event shall the sum of
Contractor's liability to Owner for breach of the Design Warranty
provisions under Section hereof exceed ten percent (10%) of the Contract
Sum minus the Deferrable Portion to the extent unpaid. In addition to the
foregoing limitations, after Project Acceptance and the payment by
Contractor of Performance Guarantee Payments, Contractor shall not be
liable for any breach of the General Warranty or the Design Warranty which
was continuing during the Most Recently Completed Performance Test on which
the Performance Guarantee Payments were based but only to the extent that
such breach resulted in any portion of the production shortfall on which
the Performance Guarantee Payments were based; provided, however, that
subject to the two foregoing sentences, this sentence shall not limit the
liability of Contractor for any breach of the General Warranty or Design
Warranty under Section 10 hereof arising after the Most Recently Completed
Performance Test on which the Performance Guarantee Payments were based.
This Section shall not be construed to limit Contractor's other
obligations or liabilities arising under or in connection with this
Agreement.
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9.2 Consequential Damages. None of Contractor, Rust, their
respective subsidiaries, affiliates, directors, officers, employees,
successors, assigns, agents and contractors providing equipment, materials
or services for the Overall Project shall be liable to Owner or to any of
its contractors or agents for special, punitive, indirect, incidental or
consequential loss or damage of any nature, including but not limited to
loss of use or loss of profit or revenue, loss to Owner's customers or cost
of capital, and Owner hereby releases Contractor, Rust, their respective
subsidiaries, affiliates, directors, officers, employees, successors,
assigns, agents and contractors from any such liability. None of Owner,
its subsidiaries, affiliates, directors, officers, employees, successors,
assigns, agents and contractors shall be liable to Contractor or Rust or
any of their contractors or agents for special, punitive, indirect,
incidental or consequential loss or damage of any nature, including but not
limited to loss of use or loss of profit or revenue, loss to Contractor's
customers or cost of capital, and Contractor hereby releases (and will
cause Rust to release) Owner, its subsidiaries, affiliates, directors,
officers, employees, successors, assigns, agents and contractors from any
such liability. The foregoing exclusions shall (i) not preclude recovery
by Owner, where applicable, of liquidated damages pursuant to Section or
Section hereof, and (ii) not be construed to limit recovery by either
Party under any indemnity in Article hereof in respect of third-party
claims for damage to or destruction of property of, or death of or bodily
injury to, any Person.
9.3 No Liability for Independent Engineer. Contractor acknowledges
and agrees that the Independent Engineer shall not be liable to Contractor
under this Agreement in connection with the rendering by Independent
Contractor of any services to Owner.
9.4 Further Limitation of Liability. The limitations of liability
and remedies and the exclusions of consequential damages set forth in this
Agreement shall apply irrespective of whether a Party or any affiliate
thereof, or any partner, shareholder, officer, director or employee of a
Party or an affiliate thereof or any other Person, asserts a theory of
liability in contract, tort, negligence, misrepresentation (including
negligent misrepresentation), or any other theory of liability.
ARTICLE 10
Warranties and Guarantees
10.1 General Warranty. Contractor warrants and guarantees to
Owner (the "General Warranty") as follows:
10.1.1 Equipment Warranty. All materials, equipment and
systems incorporated into the Project shall be free of defects in materials
and workmanship, new, unused and undamaged when installed, in compliance
with Good Industry Practices and the Contract Documents and otherwise in
compliance with the standard of performance set forth in Section hereof;
provided, however, that such warranty shall not extend to materials,
equipment and systems incorporated into the Overall Project (excluding any
such items provided by Fiberprep, Inc. and U.S. Filter Corporation) with
respect to which warranties shall not have been obtained from any
Subcontractor by Contractor or to such items to the extent that the
respective warranties so obtained are limited or qualified by the terms
thereof, in each case, subject to compliance by Contractor with the
provisions of Section hereof.
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10.1.2 Workmanship Warranty. The construction, procurement
and installation services of Contractor and Subcontractors included in the
Work shall be performed in a good and workmanlike manner, in compliance
with the Contract Documents, and shall otherwise comply with the standard
of performance set forth in Section hereof. The completed Project shall
be free of defects in materials and workmanship.
10.2 Breach of General Warranty. If Owner notifies Contractor in
writing during the General Warranty Period, or no later than fifteen (15)
days after the expiration of the General Warranty Period, that a breach of
the General Warranty has occurred during the General Warranty Period,
Contractor shall correct the breach with due diligence and without
additional compensation; provided, however, that except as provided in
Section , Contractor's liability for a breach of the equipment warranty
shall be limited to the reperformance, replacement or repair until
correction has been achieved as provided in the warranty from the
particular vendor. Contractor's liability for breach of the workmanship
warranty shall include labor, parts, transportation, testing, dismantling,
re-erecting and re-testing, in each case, associated with the correction of
such defects as required or appropriate to cure the breach of General
Warranty. The "General Warranty Period" for the Project, and each
component thereof, shall be the period ending one (1) year after Mechanical
Completion; provided, however, with respect to those parts provided for
Fiberprep equipment that are listed on Schedule A hereto and not designated
thereon as "wear parts," and with respect to those parts provided for U.S.
Filter Corporation equipment that are listed on Schedule B hereto and not
designated thereon as "wear parts," the "General Warranty Period" shall be
the period ending one (1) year after the Guaranteed Acceptance Date unless
Project Acceptance is before the Guaranteed Acceptance Date, in which case
the General Warranty Period shall be the period ending one (1) year after
Project Acceptance; and provided, further, with respect to those parts
provided for U.S. Filter Corporation equipment that are designated on
Schedule B hereto as "wear parts," the "General Warranty Period" shall be
the period ending one (1) year after completion and startup of the
wastewater treatment system. The duties, liabilities and obligations of
Contractor under this Section do not extend to, and Contractor is not
responsible in any way for, any repairs, adjustments, alterations,
replacements or maintenance of materials that are required as a direct
result of Owner's operation of the Overall Project other than in accordance
with the Operating Manual or that are required as a result of normal
corrosion, erosion, or wear and tear in the operation of the Overall
Project other than as caused by the negligence of or breach of the Contract
Documents by Contractor.
10.3 Design Warranty. Contractor warrants to Owner (the "Design
Warranty") as follows:
(a) The design and engineering of the Project shall be
performed in accordance with the standard of care, skill and diligence as
would be provided by an engineering firm experienced in supplying similar
services nationally to pulp and paper producing entities and in compliance
with Contract Documents, and otherwise in compliance with the standard of
performance set forth in Section hereof.
(b) The Final Drawings and Documentation shall be accurate
and complete, comply, in all material respects, with the description in the
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Contract Documents, and completely and accurately reflect, in all material
respects, the condition of the Project as of Project Acceptance.
10.4 Breach of Design Warranty. If Owner notifies Contractor in
writing during the Design Warranty Period, or no later than thirty (30)
days after expiration of the Design Warranty Period, that a breach of the
Design Warranty has occurred within the shorter of the period ending
eighteen months after Mechanical Completion and the period ending one (1)
year after Project Acceptance (the "Design Warranty Period"), Contractor
shall promptly investigate and determine the source of the deficiency or
defect (including any inaccuracy or other deficiency in the Final Drawings
and Documentation), promptly correct any defective design which resulted
therefrom and promptly issue corrected Final Drawings and Documentation.
Should the investigation determine that the Design Warranty has not been
breached by Contractor or by any Subcontractor or other party acting for
Contractor, then all costs associated with the investigation and correction
shall be paid by Owner. In no event shall Contractor have any liability
for the replacement of equipment or materials or rework associated with the
defective design, or for any damages incurred by Owner as a result of such
breach. The provisions of Section hereof and this Section shall not
affect the obligations or rights of the Parties under Article hereof nor
shall the payment of any amounts by Contractor under this Section as
limited by Section hereof affect the amounts payable under Article
hereof.
10.5 No Liens or Encumbrances. Contractor warrants and guarantees
that title to the Project, any portion or component of the Project, and all
Work provided hereunder, shall pass to Owner as provided under Section
hereof, free and clear of all liens, claims of liens, security interests
and other encumbrances (other than inchoate liens provided by Applicable
Laws to secure payments not yet delinquent), and that none of such work,
materials, supplies or equipment shall be acquired by Contractor subject to
any agreement under which a security interest or other lien or encumbrance
is retained by any Person. Such warranty shall become effective as title
to Work passes to Owner under Section hereof, subject to Owner's
obligation to pay for such Work in accordance with the Contract Documents.
10.6 EXCLUSIVE REMEDIES. THE REMEDIES OF DELAY PAYMENTS, PERFORMANCE
GUARANTEE PAYMENTS AND THE REPAIR/REPLACEMENT OBLIGATIONS SET FORTH IN
ARTICLES 7 AND AND THIS ARTICLE 10 ARE THE EXCLUSIVE REMEDIES OF OWNER IN
RESPECT OF BREACH OF WARRANTIES PROVIDED BY CONTRACTOR, AND THERE ARE NO
WARRANTIES OR REMEDIES THEREFOR, EXPRESS OR IMPLIED, OTHER THAN AS SET
FORTH IN ARTICLES 7 AND HEREOF AND IN THIS ARTICLE . ALL IMPLIED
WARRANTIES (INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE) ARE HEREBY DISCLAIMED.
10.7 DISCLAIMER. CONTRACTOR MAKES NO WARRANTY WITH RESPECT TO:
(i) BREACHES OF THE WARRANTIES UNDER THIS ARTICLE 10 NOT REPORTED TO
CONTRACTOR WITHIN FIFTEEN (15) DAYS AFTER EXPIRATION OF THE
GENERAL WARRANTY PERIOD OR THIRTY (30) DAYS AFTER EXPIRATION OF
THE DESIGN WARRANTY PERIOD, AS APPLICABLE;
(ii) DEFECTS OR DAMAGE DUE TO NEGLIGENCE, CASUALTY, OR ABUSE (OTHER
THAN THAT OF CONTRACTOR OR ITS SUBCONTRACTORS);
(iii) ANY EXISTING EQUIPMENT OR STRUCTURES ON THE PROJECT SITE TO
THE EXTENT NOT MODIFIED OR ADDED TO BY CONTRACTOR; AND
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(iv) ANY ENVIRONMENTAL CONDITION AS DEFINED IN SECTION HEREOF
EXISTING ON THE PROJECT SITE PRIOR TO THE COMMENCEMENT DATE OR
CREATED BY PERSONS OTHER THAN CONTRACTOR OR ITS SUBCONTRACTORS.
ARTICLE 11
Force Majeure Event
11.1 Force Majeure Event. A "Force Majeure Event" means any act or
event that significantly adversely affects the performance by Owner or
Contractor of its obligations under the Contract Documents or compliance
with any other requirements of the Contract Documents if such act or event
is beyond the reasonable control of and not the fault of the affected Party
and such Party could not have avoided or overcome such act or event by the
exercise of due diligence or foresight, or, without limitation, by
following the requirements in the Contract Documents for safety precautions
and environmental protection, including but not limited to: flood,
lightning, earthquake, fire, explosion, epidemic, quarantine, hurricane,
sabotage, war (declared or undeclared), strikes and other labor disputes
(including collective bargaining disputes and lockouts, but excluding a
Project Site labor dispute to the extent Contractor fails to take immediate
and appropriate action to end such dispute); riot or similar civil
disturbance, act of God (including extreme weather conditions), act of the
public enemy, action of a court, regulatory body or other public authority
having a direct effect on the Overall Project or the Project Site or the
Work, unavailability of dock or rail unloading facilities, damage or
destruction of equipment in transit, subsurface conditions not disclosed in
writing to Contractor by Owner prior to the date of this Agreement, and as
to a Party, any breach of an obligation under the Contract Documents by the
other Party that prevents the first Party from performing its obligations
under the Contract Documents (including without limitation any breach by
the other party of its obligations to obtain Applicable Permits hereunder)
or any other similar event or circumstances. Late delivery of equipment or
materials (except to the extent due to a Force Majeure Event otherwise
excusable hereunder), economic hardship, Project Site labor disputes (to
the extent Contractor fails to take immediate and appropriate action to end
such dispute), late issuance of any Applicable Permit attributable to the
failure by Owner or Contractor, as the case may be, to apply for in a
timely manner and diligently attempt to obtain such Applicable Permit and
reasonably foreseeable weather conditions are explicitly excluded from a
Force Majeure Event. The impact of changes in Applicable Laws shall be
governed exclusively by the provisions of Section hereof.
11.2 Burden of Proof. In the event that Owner and Contractor are
unable in good faith to agree that a Force Majeure Event has occurred,
either Party may submit the dispute to the applicable dispute resolution
process provided for under Article hereof, provided that the burden of
proof as to whether a Force Majeure Event has occurred and whether the
Force Majeure Event excuses the Party from performance under Section below
shall be upon the Party claiming a Force Majeure Event.
11.3 Excused Performance. If a Force Majeure Event occurs, the
affected Party will be excused by Scope Change Order from whatever
performance is significantly adversely affected by the Force Majeure Event
to the extent so affected, provided that:
(a) the affected Party gives the other Party notice
describing the particulars of the occurrence, including an estimation of
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its expected duration and probable impact on the performance of such
party's obligations hereunder, and continues to furnish timely regular
reports with respect thereto during the continuation of the Force Majeure
Event;
(b) the notice described in clause (a) above shall be given
promptly after the occurrence of the Force Majeure Event, and in no event
more than ten (10) days after the affected Party becomes aware of such
occurrence and its adverse effect;
(c) the suspension of performance shall be of no greater
scope and of no longer duration than is reasonably required by the Force
Majeure Event and may include in addition a Stabilization Period of a
duration reasonably acceptable to both Parties;
(d) no liability of either Party which arose before the
occurrence of the Force Majeure Event causing the suspension of performance
shall be excused as a result of the occurrence;
(e) the affected party shall exercise all reasonable
efforts to mitigate or limit damages to the other party;
(f) the affected party shall use all reasonable efforts to
continue to perform its obligations hereunder and to correct or cure the
event or condition excusing performance; and
(g) when the affected party is able to resume performance
of the affected obligations under the Contract Documents, that party shall
give the other party written notice to that effect, a Scope Change Order
shall be executed by Owner and Contractor to adjust the Contract Sum,
Milestone Schedule, the Project Schedule, the Guaranteed Completion Date,
the Guaranteed IPT No. 3 Success Date, the Guaranteed Acceptance Date and
any other affected provisions of the Contract Documents to account for the
actual effect on the affected party's performance of its obligations by the
Force Majeure Event, and the affected party shall promptly resume
performance under the Contract Documents. Contractor will provide
documented proof through its project records that a cost adjustment is
warranted.
11.4 Suspension Due to Force Majeure Event. If the occurrence and
continuation of a Force Majeure Event causes Contractor to suspend
performance entirely for a period of sixty (60) consecutive days, then
Contractor shall have the right to demobilize. Contractor's reasonable
expenses of remaining on the Project Site during such 60-day period (or
such longer period in excess of sixty (60) days if Contractor does not
demobilize after sixty (60) days) and of re-mobilizing following a
demobilization pursuant to the immediately preceding sentence shall be
added to the Contract Sum by a Scope Change Order. In the event such
suspension continues for more than one hundred twenty (120) days,
Contractor shall have the right to terminate this Agreement pursuant to
Section hereof.
ARTICLE 12
Scope Changes
12.1 Scope Change Orders. A Scope Change means a material addition
to, deletion from, suspension of or other modification to, the quality,
function or intent of the Project as delineated in the Scope Document, or a
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material change to the requirements of this Agreement (including, without
limitation, any changes requiring the approval of the Independent Engineer
as provided below), but shall not include correction of the Work by
Contractor from time to time. Owner may order Scope Changes to the Work,
subject to Contractor approval, in which event one or more of the Contract
Sum, the Milestone Schedule, the Project Schedule, the Guaranteed
Completion Date, the Guaranteed IPT No. 3 Success Date and the Guaranteed
Acceptance Date shall be equitably adjusted, if necessary. All Scope
Changes must be authorized by a written Scope Change Order approved and
signed by Owner's Project Manager and Contractor. If either Owner or
Contractor believes a Scope Change is necessary, it shall proceed as set
forth in this Article . However, the requirements of this Article shall
not excuse Contractor from acting in an emergency to prevent imminent
personal injury or property damage. Notwithstanding anything in this
Article 12 to the contrary, the following Scope Changes shall also require
the written consent of the Independent Engineer on the Scope Change Order:
(i) any individual change increasing the Contract Sum by more than two
hundred thousand dollars ($200,000); or (ii) any individual change which,
when aggregated with all previous Scope Change Orders, has increased the
Contract Sum by more than one million dollars ($1,000,000) (provided that
if at any time the Independent Engineer approves such changes aggregating
$1,000,000, thereafter its approval shall not be required unless further
changes are above $200,000 individually or once again reach $1,000,000 in
the aggregate); or (iii) any changes involving a delay in the Guaranteed
Completion Date, the Guaranteed IPT No. 3 Success Date or the Guaranteed
Acceptance Date or any change in the Performance Guarantees or Approved
Test Procedures.
12.2 Scope Change by Owner. If the Scope Change is initiated by
Owner, Owner shall give Contractor a written Proposal Request (herein so
called) setting forth in detail the nature of the requested change. Upon
receipt of a Proposal Request, Contractor shall promptly consult with Owner
(at no charge to Owner) concerning the estimated cost and impact on
schedules of implementing the proposed Scope Change. Following such
consultation, Owner may request and Contractor shall thereupon promptly
prepare two (2) completed copies of its written Change Order Proposal
(herein so called) setting forth in detail, with a separate pay item
(addition or deletion) for purchase and installation of equipment and
materials and an otherwise suitable breakdown of costs by trades and work
classifications, a stipulated sum proposed as an adjustment to the Contract
Sum for the performance of the Scope Change set forth in the Proposal
Request, together with any proposed adjustment to the Guaranteed Completion
Date, Guaranteed IPT No. 3 Success Date, the Guaranteed Acceptance Date,
the Project Schedule and the Milestone Schedule and any other provisions of
the Contract Documents necessary because of such proposed Scope Change.
The stipulated sum set forth in each Change Order Proposal shall equal the
amount obtained by (a) calculating the difference of (i) Contractor's good
faith estimate of the actual costs of the proposed Scope Change (including,
if appropriate, good faith estimates of contingencies, escalation, and risk
amounts) but including only such costs as are directly attributable to and
necessarily incurred as part of the proposed Scope Change and are not
included in Contractor's administrative and overhead expenses, plus amounts
expended by Contractor in preparing the Change Order Proposal, and
(ii) Contractor's good faith estimate of the cost savings, if any, that
will result from the replacement or obviation of previously planned Work by
the performance or supply of the proposed Scope Change, then (b) provided
the difference obtained in clause (a) is a positive number, adding to such
difference an amount to cover the total of Contractor's overhead costs and
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Contractor's profit for services rendered as specified in Contractor's
Change Order Proposal. The adjustment, if any, to the Guaranteed
Completion Date, the Guaranteed IPT No. 3 Success Date, the Guaranteed
Acceptance Date, the Project Schedule and the Milestone Schedule specified
in any Change Order Proposal shall be limited to the delays attributable to
and necessarily incurred as a result of the proposed Scope Change. Each
Change Order Proposal shall be accompanied by appropriate data reasonably
acceptable to Owner supporting the proposed adjustments therein, including
but not limited to, as appropriate, bids, cost estimates, quotations from
suppliers and wage schedules. If Owner approves Contractor's Change Order
Proposal, Owner will issue and Contractor will execute and accept a written
Scope Change Order in the form attached to this Agreement as Schedule , and
the Contract Sum, the Milestone Schedule, the Project Schedule, the
Guaranteed Completion Date, the Guaranteed IPT No. 3 Success Date and the
Guaranteed Acceptance Date shall be adjusted as set forth in such Scope
Change Order. If Owner does not approve Contractor's Change Order
Proposal, Contractor need not perform the Scope Change Order requested by
Owner. If Owner decides to proceed with the proposed Scope Change,
Contractor shall not charge Owner separately for the estimating services.
If Owner decides not to so proceed, Contractor shall be reimbursed only for
the reasonable labor costs for preparing such estimates, on the basis of
actually paid hourly rate(s) times a multiplier of two hundred percent
(200%) and documented expenses at cost.
12.3 Scope Change by Contractor. If Contractor desires to initiate a
Scope Change because of a Force Majeure Event or otherwise, Contractor
shall deliver a written preliminary estimate to Owner, and if Owner so
requests, a Change Order Proposal to Owner, meeting the requirements
specified in Section hereof, together with a detailed explanation of why
Contractor believes the proposed Scope Change is necessary. If Owner
approves Contractor's Change Order Proposal, Owner will issue and
Contractor will execute and accept a written Scope Change Order in the form
attached to this Agreement as Schedule , and the Contract Sum, the
Milestone Schedule, the Project Schedule, the Guaranteed Completion Date,
the Guaranteed IPT No. 3 Success Date and the Guaranteed Acceptance Date
shall be equitably adjusted as set forth in such Scope Change Order. Owner
shall be entitled to decline to approve any Change Order Proposal initiated
by Contractor in Owner's reasonable discretion except a Change Order
Proposal evidencing Contractor's entitlement to a Scope Change Order, under
Section hereof due to changes in Applicable Laws or under Section hereof
due to a Force Majeure Event.
12.4 Scope Changes Due to Changes in Applicable Laws. Contractor
shall be entitled to a Scope Change necessitated by any changes,
modifications, interpretations by governmental authorities, repeal,
adoption or enactment of or in Applicable Laws occurring after the date
hereof or by the requirements of Applicable Permits issued after the date
hereof that are more stringent than those set forth in the Scope Document
shall be treated as a Scope Change under Section hereof. Owner shall be
entitled to a deductive Scope Change to the extent it directs Contractor to
comply with the requirements of Applicable Permits issued after the date
hereof that are less stringent than those set forth in the Scope Document.
For the purposes of this Section , a determination that any item listed
under the heading "Industrial Processing Equipment" or "Water Pollution
Control Property" on Schedule hereto is subject to a sales or uses tax
shall be deemed to be a change in Applicable Laws.
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12.5 Performance of Scope Changes. If Owner issues a Scope Change
Order directing Contractor to perform a Scope Change and Contractor agrees
to such Scope Change Order, Contractor shall promptly perform the
applicable Scope Change, provided that Owner can reasonably demonstrate its
ability to pay for such additional work. Agreement on any Scope Change
Order shall constitute a final settlement on all items covered therein,
subject to performance thereof and payment therefor pursuant to the terms
of this Agreement.
12.6 Scope Changes Due to Contractor Error. Notwithstanding anything
in this Article to the contrary, no Scope Change Order shall be issued and
no adjustment of the Contract Sum, the Guaranteed Completion Date, the
Guaranteed IPT No. 3 Success Date, the Guaranteed Acceptance Date, the
Milestone Schedule, the Project Schedule or the Performance Guarantees
shall be made to the extent of any correction of errors, omissions,
deficiencies, or improper or defective work on the part of Contractor or
any Subcontractor in the performance of the Work hereunder, or correction
of any improper, defective or deficient equipment supplied by Contractor or
any Subcontractor. As used herein the terms "errors", "omissions",
"deficiencies", "improper" and defective shall mean failure to comply with
the standards set forth in the Contract Documents.
12.7 Effect of Force Majeure Event. In the event and to the extent
that a Force Majeure Event affects Contractor's ability to meet the
Guaranteed Completion Date, the Guaranteed IPT No. 3 Success Date or the
Guaranteed Acceptance Date or the cost of performing the Work, a Scope
Change Order shall be issued in accordance with the procedures of this
Article and Section to adjust appropriately one or more of the Contract
Sum, Guaranteed Completion Date, the Guaranteed IPT No. 3 Success Date, the
Guaranteed Acceptance Date, the Milestone Schedule and the Project
Schedule.
12.8 Adherence to Project Schedule. With respect to any Scope Change
proposed by Owner or Contractor or required hereunder, Contractor shall
whenever reasonably possible provide Owner with the option to cause
Contractor to perform the Scope Change without an adjustment in the
Guaranteed Completion Date, the Guaranteed IPT No. 3 Success Date, the
Guaranteed Acceptance Date or the Project Schedule, provided, however, that
the Contract Sum shall be adjusted to compensate Contractor for any
additional costs incurred in performing the Scope Change in accordance with
such time limitation. Owner shall have the right to elect to cause such
Scope Change to be performed without an adjustment in the Guaranteed
Completion Date, the Guaranteed IPT No. 3 Success Date, the Guaranteed
Acceptance Date or the Project Schedule whenever reasonably possible, or to
cause such Scope Change to be performed upon any other terms and conditions
set forth in the Change Order Proposal.
ARTICLE 13
Indemnification
13.1 General Indemnification.
13.1.1 Contractor. Subject to the provisions of Section
hereof, Contractor shall fully indemnify, save harmless and defend Owner,
the Financing Parties, and the Independent Engineer, each of their
respective subsidiaries and affiliates, and the directors, officers,
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agents, partners, employees, successors and assigns of each of them (the
"Indemnified Parties"), from and against any and all suits, judgments,
expenses, losses, costs, damages, injuries, liabilities, claims, demands,
interest and causes of action, including without limitation reasonable
attorneys' fees (collectively, the "Damages"), arising out of, resulting
from or related to third-party claims associated with the design,
procurement or construction of the Project, including without limitation
any damage to or destruction of property of, or death of or bodily injury
to, any Person (whether such Person is an employee of any Indemnified
Party, Contractor or any Subcontractor, or is a Person unaffiliated with
the Overall Project), to the extent caused or contributed to by
Contractor's intentional tort, negligence or strict liability in the
performance of the Work, or by any breach by Contractor of the Contract
Documents if such claim or cause of action arises during the term of this
Agreement. Contractor's aforesaid indemnity is for the exclusive benefit
of the Indemnified Parties and in no event shall inure to the benefit of
any other party.
13.1.2 Owner. Owner shall fully indemnify, save harmless and
defend Contractor, Rust, each of their respective subsidiaries and
affiliates, and the directors, officers, agents, employees, successors and
assigns of each of them, (the "Contractor Indemnified Parties"), from and
against any and all Damages arising out of, resulting from or related to
third-party claims associated with the performance by Owner of its
obligations hereunder, including without limitation any damage to or
destruction of property of, or death of or bodily injury to, any Person, to
the extent caused by or contributed to by Owner's intentional tort,
negligence or strict liability in the performance of Owner's obligations
hereunder or by any breach by Owner of its obligations hereunder if such
claim or cause of action arises during the term of this Agreement. Owner's
aforesaid indemnity is for the exclusive benefit of the Contractor
Indemnified Parties and in no event shall inure to the benefit of any other
party.
13.2 Additional Indemnification.
13.2.1 Taxes. Contractor shall fully indemnify, save harmless
and defend the Indemnified Parties from and against any and all Damages in
favor of any Person with respect to: (a) payments of Taxes relating to
Contractor's income or other Taxes required to be paid by Contractor
without reimbursement hereunder, or (b) nonpayment of amounts due as a
result of furnishing materials or services to Contractor or any
Subcontractor which are payable by Contractor or any Subcontractor in
connection with the Work to the extent that Owner has paid Contractor all
amounts hereunder then due and payable from Owner to Contractor. Owner
shall fully indemnify, save harmless and defend the Contractor Indemnified
Parties from and against any and all Damages in favor of any Person with
respect to: (a) payments of Taxes relating to Owner's income or other Taxes
required to be paid or reimbursed by Owner or (b) nonpayment of amounts
payable by Owner or any Owner Contractor in connection with the Overall
Project.
13.2.2 Environmental Matters. Owner agrees to assume and
shall be responsible to timely perform any and all environmental
investigations and remedial or response actions or corrective actions that
may be required by any governmental body pursuant to any environmental
Applicable Laws with respect to any Environmental Condition as hereinafter
defined. Owner further agrees that it shall indemnify, defend and hold
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harmless the Contractor Indemnified Parties from and against all Damages
arising out of or resulting from (i) Environmental Conditions or (ii) the
failure (to the extent not caused by the negligence of Contractor or its
Subcontractors) of any aboveground or belowground storage tank at the
Project Site. For purposes of this Section and Section hereof,
"Environmental Condition" shall mean any aboveground storage tank,
underground storage tank, subsurface structure, and associated piping,
which is present at the Project Site on the Commencement Date; any
petroleum products or Hazardous Materials present in soil and/or
groundwater at the Project Site on the Commencement Date or caused to be so
present by Owner, Owner Contractors or any other Person other than
Contractor and Subcontractors; any release or threatened release of
petroleum products or a Hazardous Material existing at the Project Site on
the Commencement Date or caused by Owner or Owner Contractors or any other
Person other than Contractor and Subcontractors; and the disposal of any
petroleum products or Hazardous Materials on the Project Site by Owner or
Owner Contractors or any other Person other than Contractor or
Subcontractors.
13.3 Patent and Copyright Indemnification.
13.3.1 Contractor's Indemnity. Contractor shall fully
indemnify, save harmless and defend the Indemnified Parties from and
against any and all Damages which the Indemnified Parties may hereafter
suffer or pay by reason of any claims, suits or proceedings arising out of
allegations of infringement of any domestic or foreign patent rights,
copyrights or other intellectual property, proprietary or confidentiality
rights, with respect to materials and information designed, procured or
recommended by Contractor or by any Subcontractor in performing the Work or
in carrying on operations under the Contract Documents.
13.3.2 Action in Case of Injunction. If, in any claim, suit
or proceeding identified in Section hereof, a temporary restraining order
or preliminary injunction is granted, Contractor shall make every
reasonable effort, by giving a satisfactory bond or otherwise, to secure
the suspension of the injunction or restraining order. If, in any such
claim, suit or proceeding, the Project or any part, combination or process
thereof is held to constitute an infringement and its use is permanently
enjoined, Contractor shall at its own expense and without impairing
performance requirements, either replace the infringing Work or part,
combination or process thereof with non-infringing components or parts or
modify the same so that they become non-infringing. If Contractor is unable
to do so within a reasonable time, Contractor shall promptly make every
reasonable effort to secure for Owner a license, at no cost to Owner,
authorizing continued use of the infringing Work.
13.4 Notice and Legal Defenses. Promptly after receipt by an
Indemnified Party or Contractor Indemnified Party of any claim or notice of
the commencement of any action, administrative or legal proceeding, or
investigation as to which the indemnity in favor of the Indemnified Parties
or Contractor Indemnified Party provided for in Section , or hereof is
applicable, the Indemnified Party or Contractor Indemnified Party, as the
case may be, shall notify the indemnitor thereof in writing. The
indemnitor shall assume on behalf of the Indemnified Party or Contractor
Indemnified Party and conduct with due diligence and in good faith the
defense thereof with counsel reasonably satisfactory to the Indemnified
Party or Contractor Indemnified Party, as applicable; provided, however,
that (a) the Indemnified Party or Contractor Indemnified Party, as the case
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may be, shall have the right to be represented therein by advisory counsel
of its own selection and at its own expense, and (b) if the defendants in
any such action include both Contractor and the Indemnified Party or both
Owner and Contractor Indemnified Party, as the case may be, and the
Indemnified Party or the Contractor Indemnified Party, as the case may be,
shall have reasonably concluded that there may be legal defenses available
to it which are different from, additional to or inconsistent with those
available to the indemnitor, the Indemnified Party or Contractor
Indemnified Party shall have the right to select separate counsel
reasonably acceptable to the indemnitor to participate in the defense of
such action on its own behalf at the expense of the indemnitor (in lieu of
any counsel required to be retained pursuant to the portion of this
sentence preceding this proviso).
13.5 Failure to Defend Action. If any claim, action, proceeding or
investigation arises as to which the indemnity in favor of the Indemnified
Parties or Contractors Indemnified Parties provided for in Section , or
hereof may apply, and the indemnitor fails to assume the defense of such
claim, action, proceeding or investigation, then the Indemnified Party or
Contractor Indemnified Party, as the case may be, may at Contractor's or
Owner's expense, as applicable, contest (or, with the prior written consent
of Contractor or Owner, as applicable, settle) such claim; provided, that
no such contest need be made and settlement or full payment of any such
claim, action, proceeding or investigation may be made without Contractor's
consent (with Contractor remaining obligated to indemnify the Indemnified
Party under Section , and hereof) or, if applicable, without Owner's
consent (with Owner remaining so obligated to indemnify the Contractor
Indemnified Party) if, in the written opinion of the Indemnified Party's
counsel or Contractor Indemnified Party's counsel, as applicable, such
claim is meritorious.
13.6 Survival. The provisions of this Article shall survive Project
Acceptance and the termination of this Agreement.
ARTICLE 14
Insurance
14.1 Contractor-Provided Insurance. From the Commencement Date,
Contractor shall provide and maintain the following insurance with the
indicated limits, with insurance carriers and in form reasonably
satisfactory to Owner and the Financing Parties and, unless indicated to
the contrary below, shall maintain such insurance in full force and effect
until Project Acceptance; provided, however, that Contractor shall provide
all types of liability insurance coverage required under this Article and
workers' compensation coverage for all periods during which Contractor or
any of its agents or employees enters onto the Project Site; and provided,
further, that such liability insurance coverage and workers' compensation
coverage shall continue in full force and effect during the General
Warranty Period and the Design Warranty Period:
(i) Workers' compensation insurance in compliance with any
applicable federal law; with statutory limits in compliance with the
workers' compensation laws applicable in the state in which the Work is
being performed. Coverage will include a Broad Form All States
Endorsement.
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(ii) Employers' liability insurance with a limit of $5,000,000
per accident and $5,000,000 annual aggregate, $5,000,000 disease per
employee and $5,000,000 disease policy limit.
(iii) Automobile liability insurance including, but not limited
to, coverage for owned, non-owned and hired, leased or rented motor
vehicles, licensed or unlicensed with a $5,000,000 combined single limit
per accident. All automobiles will be required to maintain Michigan No
Fault Coverage as required by state statute.
(iv) Comprehensive or commercial general liability insurance
written on an occurrence basis with a combined single limit of liability
for bodily injury, including death, personal injury and property damage of
$5,000,000 per occurrence and $10,000,000 in the aggregate. Such coverage
shall include premises/operations, explosion, blasting (if any),
excavation, collapse and underground hazards, broad form property damage,
blanket contractual liability, independent contractors, products/completed
operations liability, and personal injury.
(v) Excess liability insurance in connection with the employers'
liability coverage, the automobile liability coverage, the comprehensive or
commercial general liability coverage, and with a combined single limit of
$10,000,000 per occurrence and $10,000,000 annual aggregate. Such
insurance shall drop down to provide primary coverage in the event the
underlying policy aggregate is exhausted by payment of claims.
(vi) If applicable, all-risk marine transit insurance with
"replacement value" and "warehouse to warehouse" coverage insuring the
goods until delivered to the Project Site. Coverage shall include delay in
opening consistent with the terms and limits specified in Section (viii)
hereof. Transit risks may, with Owner's approval, be written with lesser
limits (sub-limits) commensurate with the respective values at risk.
(vii) All-risk builder's risk insurance, for the benefit of
Owner, Contractor, the Subcontractors and Owner Contractors covering
physical loss or damage to the Project including, fire and extended perils,
expediting expense, collapse, earthquake, flood and comprehensive boiler
and machinery (including electrical malfunction and mechanical breakdown).
Such insurance shall cover all property during the start-up and testing as
well as any and all materials, equipment and machinery intended for the
Project during offsite storage and inland transit. Coverage shall be
written on a replacement cost basis and the policy shall contain a valid
agreed amount endorsement waiving any coinsurance penalty. There shall be
no exclusion for resultant damage caused by faulty workmanship, design or
materials. Flood and earthquake coverage shall be provided at maximum
limits commercially available at a reasonable cost. Offsite storage and
transit risks may, with Owner's approval, be written with lesser limits
(sub-limits) commensurate with the respective values at risk. Deductibles
shall not exceed $250,000.
(viii) Delay in opening and business interruption coverage, as
an endorsement to the all-risk builders risk insurance policy or as a
separate policy in an amount at least equal to the maximum amount of annual
debt service on the Bonds. The endorsement or policy shall include
coverage for delays resulting from (i) damage to the Project, (ii) damage
to equipment during inland transit or (iii) damage to equipment while in
storage away from the Project Site, provided that in no event will
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Contractor or Subcontractors be responsible for delays in start-up or
business interruptions except as provided in Article hereof (it being
understood that nothing in the foregoing is intended to release Contractor
from, or impose on Contractor, any liability under Article otherwise borne
or not borne, as the case may be, by Contractor). The endorsement or
policy shall have a deductible not to exceed thirty (30) days waiting
period and shall include, but not be limited to, such items as: operation
and maintenance, labor, repair and maintenance, utilities, general and
administrative, insurance, property taxes, interest expense and debt
service.
14.2 Owner-Provided Insurance. Owner shall provide and maintain the
following insurance with the indicated limits, with insurance carriers and
in form reasonably satisfactory to Contractor and, unless indicated to the
contrary below, shall maintain such insurance in full force and effect from
the Commencement Date until Project Acceptance:
(i) Workers' Compensation insurance written in compliance with
any applicable federal law; with statutory limits in compliance with
workers' compensation laws applicable in the state in which the Work is
being performed. Coverage will include broad form All States endorsement.
(ii) Employers' liability insurance with a limit of $1,000,000
per accident and $1,000,000 annual aggregate, $1,000,000 disease per
employee and $1,000,000 disease policy limit.
(iii) Comprehensive or commercial general liability insurance
written on an occurrence basis with a combined single limit of liability
for bodily injury, including death, personal injury and property damage of
$1,000,000 per occurrence. Such coverage shall include
premises/operations, explosion, blasting (if any), excavation, collapse and
underground hazards, broad form property damage, blanket contractual
liability, independent contractors, products/completed operations
liability, and personal injury. If the policy is written on a commercial
general liability form, the general aggregate and products/completed
operations aggregate shall be no less than $1,000,000, respectively.
(iv) Automobile liability insurance, including, but not limited
to, coverage for all owned, non-owned, hired, leased or rented motor
vehicles, licensed or unlicensed. Such insurance shall provide coverage
having a combined single limit per accident of $1,000,000. All automobiles
will maintain Michigan no-fault coverage as required by State statute.
(v) Excess liability coverage in connection with the employers'
liability coverage, the automobile liability coverage and the commercial
general liability coverage, with a combined single limit of $9,000,000 per
occurrence and in the aggregate. Such insurance shall drop down to provide
primary coverage in the event the underlying policy aggregates are
exhausted by payment of claims.
14.3 Certificates. Contractor shall furnish to Owner, the Independent
Engineer and the Trustee and their respective permitted assigns and
successors, and Owner shall furnish to Contractor and to Rust, in each
case, upon request, certificates of insurance required hereunder in the
applicable forms set forth in Schedule hereto, or, with respect to the
policies of insurance required to be maintained by Contractor in Section
(vi), (vii) and (viii), a copy of the insurance policy. All such
certificates or policies shall state that ninety (90) days' prior written
notice shall be given to each such party in the event of cancellation or
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non-renewal of or material change in the relevant policy. In the case of
insurance provided by Contractor, renewal certificates shall be provided to
the Trustee and otherwise upon request.
14.4 Responsibility for Deductibles. Deductibles under the policies
of insurance required to be maintained by Contractor by Section (i), (ii),
(iii), (iv) and (v) shall be borne by Contractor. Deductibles under the
policies of insurance required to be maintained by Contractor by Section
14.1 (vi), (vii) and (viii) hereof shall be for Owner's account. In no
event shall Contractor or Subcontractors be required to compensate Owner
for property insurance deductibles or for loss incurred during or after the
waiting period under the delay in opening or business interruption
endorsements or under the policies described in Section (vi), (vii) and
(viii) hereof, whether during the Construction Period or otherwise.
14.5 Waivers of Subrogation. All insurance policies supplied by
Contractor under this Article (except those supplied under Section (i)
relating to workers' compensation insurance) shall include a waiver of any
right of subrogation of the insurers thereunder against Owner, the
Financing Parties, the Independent Engineer and, in the case of the
insurance policies described under Section (vii) and (viii), K&K
Warehousing, a general partnership. All insurance policies supplied by
Owner under this Article 14 (except those supplied under Section (i)
relating to workers' compensation insurance) shall include a waiver of any
right of subrogation of the insurers thereunder against Contractor and
Subcontractors.
14.6 Failure to Procure Insurance. If Contractor or Owner fails to
procure and maintain the required insurance, or any portion thereof, the
other party or the Trustee shall have the right, but not the obligation, to
procure and maintain the required insurance for and in the name of such
party, and such party shall promptly pay the cost thereof and shall furnish
all information necessary to acquire and maintain such insurance. Neither
party shall violate or knowingly permit any violation of any conditions or
terms of the policies of insurance carried hereunder.
14.7 Contractor's or Rented Equipment. All construction equipment,
supplies and materials belonging to Contractor or any Subcontractor and
used by or on behalf of Contractor or any Subcontractor for its performance
hereunder shall be brought to and kept at the Project Site at the sole
cost, risk and expense of Contractor or such Subcontractor and Owner shall
not be liable for loss or damage thereto, and any insurance policies
carried by Contractor, any Subcontractor, or any third party on said
equipment, supplies and materials shall provide for a waiver of the
underwriters' right to subrogation against Owner and the Financing Parties.
Contractor shall obtain adequate insurance to cover any construction tools
and equipment leased from third parties.
14.8 Unemployment and Other Insurance Benefits. Contractor agrees to
and does hereby accept full and exclusive responsibility and liability for
the withholding and payment of any and all Taxes and contributions levied
or assessed against Contractor for Unemployment Insurance and for Old Age
Retirement Benefits, and for pensions and annuities now imposed, or
hereafter imposed, by the federal, state or local governments with respect
to, assessed against or measured by wages, salaries or other remuneration
paid to persons employed by Contractor in connection with the Work
hereunder. Contractor further agrees to indemnify and hold harmless the
Indemnified Parties from any and all liability therefor.
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14.9 Descriptions Not Limitations. The coverages referred to in this
Article are set forth in full in the respective policy forms, and the
descriptions of such policies in this Agreement are not intended to be
complete, nor to alter or amend any provision of the actual policies and in
matters, if any, in which the said descriptions may be conflicting with
such instruments, the provisions of the policies of insurance shall govern;
provided, however, that neither the content of any insurance policy or
certificate nor Owner's approval thereof shall relieve Contractor of any of
its obligations under the Contract Documents.
14.10 Additional Insureds, etc.. All insurance policies furnished
by Contractor pursuant to Section (ii), (iii), (iv) and (v) hereof shall
name Owner, the Independent Engineer and the Trustee as additional insureds
to the extent of Contractor's indemnity obligations in Section hereof.
All insurance policies furnished by Contractor pursuant to Section (vi),
(vii) and (viii) hereof shall name Owner and the Trustee as additional
named insureds and the Trustee as the loss payee and, in the case of the
insurance policies described under Section (vii) and (viii) hereof, K&K
Warehousing, a general partnership, as an additional insured.
14.11 No Limitation of Liability. The required coverages referred
to and set forth in this Article shall in no way affect, nor are they
intended as a limitation of, Contractor's liability with respect to its
performance of the Work hereunder except as otherwise specifically stated.
14.12 Insurance Primary. All policies of insurance provided by
Contractor pursuant to this Article shall be written as primary policies,
not contributing with, and not in excess of, the coverage that Owner, the
Independent Engineer, the Financing Parties, and their respective permitted
assigns, successors, parent companies, subsidiaries and affiliates may
carry against the same hazards.
14.13 Certain Terms. Terms used in this Article and not
otherwise defined in this Agreement shall have the respective meanings
generally ascribed to them in the commercial insurance industry in the
United States.
14.14 Owner Property Damage Waiver. Owner waives all rights and
any subrogation rights such as it or its insurers may have against
Contractor and its Subcontractors for any losses or damages to the Overall
Project or any other property in which Owner has an interest, including
without limitation the property to be insured under this Article 14,
resulting from any and all risks and losses, however and whenever arising,
including without limitation the risks and losses to be insured under this
Article 14; provided, however, that this Section shall not relieve
Contractor from its obligations, or affect Owner's rights, under Article 10
or under Article 13 hereof.
ARTICLE 15
Termination
15.1 Termination For Cause. Owner, by written notice to Contractor,
may elect, at Owner's sole option, to terminate this Agreement or the
retention of Contractor to perform the Work if any of the following events
shall occur: (i) Contractor makes a general assignment for the benefit of
its creditors, is generally unable to pay its debts as they become due, or
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becomes the subject of any voluntary or involuntary bankruptcy, insolvency,
arrangement, reorganization or other debtor relief proceeding under any
Applicable Law, now in existence or hereafter becoming effective, and, in
the case of any such involuntary proceeding, it is not dismissed or stayed
within forty-five (45) days after it is commenced; (ii) Contractor
intentionally or negligently disregards Applicable Laws and such failure
continues for sixty (60) days after written notice from Owner; or
(iii) Contractor fails to perform any of its material obligations under the
Contract Documents, unless the remedy for the breach of any such obligation
is payment of Delay Payments or Performance Guarantee Payments or the
performance by Contractor of its obligations under Section and Section
hereof, and either (x) such failure continues for thirty (30) days after
written notice from Owner, or (y) if such default cannot be cured after
reasonable diligence by Contractor within such thirty (30) days, such
failure continues for an unreasonable period of time or Contractor ceases
to diligently attempt to cure such default. With respect to any
termination by Owner pursuant to this Section (a "Termination For Cause"),
Owner shall have any or all of the following rights and remedies, in
addition to those rights and remedies that may be available to Owner under
this Agreement or at law or in equity, and Contractor shall have the
following obligations:
(a) Owner, without prejudice to any of its other rights and
remedies, and at Owner's option, may terminate this Agreement immediately
by delivery to Contractor of a notice of termination ("Notice of
Termination"), in which event Contractor shall be relieved from any
obligation to complete any unfinished portion of the Work, but shall not be
relieved from its liabilities, warranties or obligations otherwise provided
for hereunder in respect of any portion of the Work for which the
Contractor has been paid hereunder. All such warranties for which
Contractor is liable hereunder shall commence on the date, if any, on which
the Project shall have achieved a state of completion equivalent to
Mechanical Completion.
(b) Owner, without incurring any liability to Contractor,
shall have the right, either with the use or without the use of
Contractor's materials, equipment, tools, and instruments, to have the Work
completed (directly or through a new contractor) to an extent deemed
appropriate by Owner, or to decide not to complete the Work.
(c) If Owner shall decide to complete the Work, the measure
of Damages shall be (i) the net additional cost (if any) to Owner to fully
complete the Work to a point equivalent to Project Acceptance (i.e., the
amount by which the sum of the cost of causing a replacement contractor to
complete the Work plus any amounts previously paid to Contractor to perform
the Work under this Contract exceeds the Contract Sum), including any
additional reasonable legal, consulting and other out of pocket expenses
incurred in connection with such Work ("Fee Expenses") plus (ii) Net Bond
Interest (as defined below) payable as a result of any additional time
required to complete the Work that is attributable to Contractor's default,
less (iii) any amounts paid by Contractor for Delay Payments or Performance
Guarantee Payments. The amount payable hereunder shall not exceed the
Contract Sum, and not more than twelve (12) months' Net Bond Interest shall
be payable under this clause (c).
(d) If Owner determines not to complete the Work, then
Owner shall be entitled to all damages available at law, including the
payment by Contractor of the cost of Accrued Bond Interest, less the
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interest or other investment earnings, if any, earned on any such amounts
in respect of Accrued Bond Interest in the Project Reserve Fund (as defined
in the Indenture) and in the Capitalized Interest Account (as defined in
the Indenture) (to the extent such investment earnings represent any excess
in the Capitalized Interest Account over that earned under the Master
Repurchase Agreement dated December 30, 1994 for such Account) ("Net Bond
Interest"), but otherwise subject to Section 9.2 hereof, and in any event,
not more than twelve (12) months' Net Bond Interest shall be payable under
this clause (d).
(e) Any amount owed by Owner to Contractor for the month
and level of completion of the Work shall be retained by Owner until after
completion of the Work and applied by Owner to pay any amounts and damages
owed by Contractor pursuant to this Section hereof or otherwise. Any such
amount shall be remitted to Contractor within sixty (60) days after Project
Acceptance as defined in Section has occurred.
15.2 Termination by Contractor. If (a) Owner fails to pay to
Contractor any required payment which is not in dispute and such failure
continues for fifteen (15) days after written notice has been given by
Contractor to Owner or (b) as a result of the occurrence of a Force Majeure
Event, Work has been suspended for one hundred twenty (120) days or longer,
then Contractor may terminate this Agreement upon written notice to Owner.
In the event of any such termination by Contractor, Contractor shall be
entitled to recover damages from Owner to the extent allowed under law.
Unless Contractor terminates this Agreement pursuant to the foregoing,
Contractor shall not suspend or delay performance of the Work because of
any default by Owner. Contractor shall continue performance of the Work
during any dispute over payment as provided under Section hereof.
15.3 Requirements Following Termination. Upon termination of this
Agreement by Owner, except as otherwise provided in Section hereof, Owner
shall be immediately released from any and all obligations to Contractor
(except for Owner's obligation to pay any amount specified in Section
hereof) and upon termination of this Agreement by Contractor, except as
otherwise provided in Section hereof, Contractor shall be immediately
released from any and all obligations hereunder. In event of termination
by Contractor or Owner, Contractor shall, except as provided in the
penultimate sentence of this Section , immediately discontinue the Work and
remove its personnel and construction equipment from the Project Site, and
Owner shall be entitled to take exclusive possession of the Overall Project
and all or any part of the equipment and materials delivered or en route to
the Overall Project, to the extent that Owner has paid Contractor all
undisputed amounts hereunder then due and payable from Owner to Contractor,
and in the case of any termination by Contractor under Section , Owner
shall also pay to Contractor Contractor's reasonable demobilization costs
(including amounts owed to Subcontractors). If requested by Owner,
Contractor will make every reasonable effort to cancel any existing
Subcontracts upon terms satisfactory to Owner. Contractor shall also, upon
request by Owner, (i) deliver and assign to Owner (but in no event shall
Owner be liable for any action or default of Contractor occurring prior to
such delivery and assignment except to the extent such action or default
was caused by Owner, and each Subcontract shall so provide) any and all
Subcontracts, purchase orders, bonds and options made by Contractor in
performance of the Work, and (ii) deliver to Owner originals of all
Contract Documents for which Owner has paid and, if the termination occurs
at a time when the design of the Project is incomplete, originals of all
Design Documents in process (except that Contractor may keep for its
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records copies and, if sufficient originals exist, an original set, of the
Agreement and other Contract Documents executed by Owner), all other
materials relating to the Work which belong to Owner, and all papers and
documents relating to Permits, orders placed, bills and invoices, lien
releases and financial management under this Agreement. All deliveries
hereunder shall be made free and clear of any liens, security interests or
encumbrances, except such as may be created by Owner. Except as provided
herein, no action taken by Owner or Contractor after the termination of
this Agreement shall prejudice any other rights or remedies of Owner or
Contractor provided by the Contract Documents or otherwise upon such
termination.
15.4 Surviving Obligations. Termination of this Agreement (a) shall
not relieve Contractor or Owner of any obligation hereunder that expressly
or by implication survives termination hereof, and (b) except as otherwise
provided in any provision of this Agreement expressly limiting the
liability of either Party, shall not relieve either Owner or Contractor of
any obligations or liabilities for loss or damage to the other Party
arising out of or caused by acts or omissions of such Party prior to the
effectiveness of such termination or arising out of such termination, and
shall not relieve Contractor of its warranty or other obligations as to
portions of the Work or other services hereunder already performed or of
obligations of Contractor arising prior to the date of termination;
provided, however, that in no event shall Contractor be liable for Delay
Payments or Performance Guarantee Payments for which liability has not
arisen prior to such termination.
15.5 Cancellation Prior to Commencement Date. Notwithstanding any
provision of this Agreement to the contrary, including without limitation
Article hereof, Owner may cancel this Agreement at any time prior to the
Commencement Date without liability or obligation to Contractor other than
to reimburse Contractor for (i) any direct, out-of-pocket charges incurred
by Contractor to satisfy obligations of Owner to Subcontractors, which
obligations were assumed by Contractor concurrently with the execution of
this Agreement, (ii) any other documented costs incurred by Contractor in
connection with performing the Work prior to the date of cancellation, plus
Contractor's demobilization costs, if any and (iii) such other
reimbursement or payment as Contractor and Owner may agree to from time to
time in writing prior to the Commencement Date. Cancellation of this
Agreement pursuant to this Section shall be effective upon Contractor's
receipt of written notice thereof from Owner.
ARTICLE 16
Assignments
16.1 Consent Required. It is expressly understood and agreed that
this Agreement is personal to Contractor and Owner, and that Contractor and
Owner shall have no right, power or authority to assign or delegate this
Agreement or any portion hereof, either voluntarily or involuntarily, or by
operation of law. Notwithstanding the foregoing, Owner may assign this
Agreement or any of its duties arising hereunder to another party, provided
it first obtains the prior written consent of Contractor, which consent
will not be unreasonably withheld if Owner provides evidence to Contractor
that the assignee has the financial strength and expertise to perform
Owner's obligations and duties to the level anticipated of Owner. Any such
assignment by Owner shall not release Owner from any of its obligations
hereunder. Notwithstanding the foregoing, Contractor hereby consents to
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the collateral assignment of this Agreement to the Financing Parties and
agrees to provide such acknowledgments and consents in respect of such
collateral assignment as the Financing Parties or their counsel may from
time to time reasonably require. In the event of such collateral
assignment, Contractor hereby consents to the exercise of the Financing
Parties' rights under such collateral assignment and replacement of Owner
with a new owner hereunder, provided, that such new owner has the financial
strength and expertise to perform Owner's obligations and duties to the
level anticipated of Owner. Upon request of Owner or any permitted
assignee, Contractor will further evidence its consent by execution of an
assignment or other instrument reasonably acceptable to Contractor and the
permitted assignee.
16.2 Performance in Favor of Financing Parties. Subject to all
defenses and rights Contractor may have against Owner, Contractor agrees
that in the event of a default by Owner under the terms and conditions of
any agreement between Owner and any Financing Party, the Financing Parties
shall be entitled to use and enforce this Agreement, as the same may be
amended or supplemented before or after such default, all without
additional cost to the Financing Parties. In the event any Financing Party
notifies Contractor in writing that Owner has defaulted under any agreement
between Owner and the Financing Parties and requests Contractor to continue
performance under this Agreement, Contractor shall thereafter perform
hereunder in accordance with the terms and provisions hereof, so long as
Contractor shall be paid in accordance with this Agreement for the Work
performed hereunder, including payment of any sums due to Contractor for
Work performed to and including the date of Owner's default and so long as
such Financing Parties agree in writing to continue to pay Contractor for
Work performed in accordance with this Agreement.
16.3 Successors and Assigns. All of the rights, benefits, duties,
liabilities and obligations of the Parties hereto shall inure to the
benefit of and be binding upon their respective successors and permitted
assigns.
16.4 Assignment to Contractor Affiliates. Notwithstanding anything to
the contrary in this Agreement, Contractor may subcontract or assign all or
any portion of its rights and obligations under this Agreement to an
affiliated or associated company of Contractor but shall in all events
remain liable for the performance of Contractor's obligations hereunder.
If Contractor makes any such subcontract or assignment, all liability
protections, releases, and disclaimers for the benefit of Contractor under
this Agreement shall also be for the benefit of said affiliated or
associated company. Owner acknowledges and agrees that the obligations and
liabilities of Contractor, as well as the limitations thereon, all as set
forth in this Agreement, shall be applicable to Contractor's associated or
affiliated companies to the same extent as if such associated or affiliated
companies were a signatory to this Agreement.
ARTICLE 17
Design Documents
17.1 Owner Review. Neither (a) the review by Owner of any information
or calculations nor (b) Owner's certification of Mechanical Completion, IPT
No. 1 Success, IPT No. 2 Success, IPT No. 3 Success or Project Acceptance
nor (c) Owner's payment of the Deferrable Portion shall constitute a waiver
of, or release Contractor from, any liability hereunder for errors or
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omissions contained in any designs or calculations by Contractor or by any
Subcontractor, including any errors or omissions contained in the Final
Drawings and Documentation. Notwithstanding anything to the contrary herein
contained, Owner shall not be liable for and makes no representation with
respect to any designs and specifications for the Overall Project,
including any designs and specifications prepared by Contractor and
reviewed or accepted by Owner, and including any designs and specifications
set forth in the Contract Documents. With respect to all aspects of Project
design, Contractor must create designs and solutions that comply with
Applicable Laws and the other requirements of this Agreement. Owner's
acceptance of the Overall Project shall not relieve Contractor of its
obligation for such compliance. Notwithstanding the above, Owner agrees
that its review and approvals or rejection shall be within the times
specified therefor in the Contract Documents or, if no time is specified, a
reasonable time, and if not performed within such times, the item subject
to such review and approval or rejection shall be deemed approved.
17.2 Final Drawings and Documentation. Within ninety (90) days after
achievement of Project Acceptance, Contractor shall furnish to Owner CAD
disks and reproducible mylars of the Final Drawings and Documentation.
Without limiting the requirements otherwise applicable to the Final
Drawings and Documentation hereunder, the Final Drawings and Documentation
shall completely and accurately, in all material respects, show and
describe all electrical power, control and protection systems and all wired
instrumentation and monitoring control systems within the Project.
Contractor shall incorporate into the Final Drawings and Documentation all
material changes or corrections to the Work made at the Project Site prior
to Project Acceptance so as to represent the completed Project completely
and accurately in all material respects. Contractor shall establish such
systems and retain such personnel as are necessary to maintain full quality
control and quality assurance with respect to the Final Drawings and
Documentation.
17.3 Ownership. Contractor agrees that all Design Documents, the
Final Drawings and Documentation, and other documents prepared by
Contractor and used in the performance of the Work hereunder shall be the
sole and exclusive property of Owner and shall not be used by Contractor in
connection with any other project without Owner's prior written consent.
Contractor agrees that all such documents, as well as any drawings,
tracings, specifications, calculations, memoranda, data, notes and other
materials that are supplied by Owner and come into the possession of
Contractor, shall be delivered to Owner at the earlier of Project
Acceptance or termination of the Work hereunder if not previously delivered
hereunder, except to the extent Owner shall instruct Contractor not to
deliver such materials. Owner may not without Contractor's prior written
consent copy or disseminate such materials in connection with any project
other than the Overall Project; provided that in any event Contractor shall
have no liability for the use of such material for any project other than
the Overall Project.
17.4 Use of Documents by Contractor. Contractor shall be entitled to
retain and use solely and specifically in connection with the Work
hereunder and for enhancement of its engineering files a reproducible set
of all Design Documents, the Final Drawings and Documentation, and other
documents delivered to Owner by Contractor in accordance with this Article
.
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ARTICLE 18
Inspection
18.1 Project Inspection. Contractor acknowledges, subject to the
provisions of Articles and and Sections , and hereof, that prior to the
execution of this Agreement Contractor (a) has made a complete and careful
examination of the Project Site and the surrounding areas and the drawings
and specifications and other information set forth in the Contract
Documents, (b) has made a complete and careful examination to determine the
difficulties and hazards incident to the performance of the Work hereunder,
including without limitation (i) the location of the Project, (ii) the
condition of the Project Site and the surrounding areas, (iii) the
proximity of the Project to adjacent facilities and structures, (iv) the
nature and character of the soil, terrain, and subsurface conditions of the
Project Site, (v) the conditions of the roads, waterways and railroads in
the vicinity of the Project Site, including the conditions affecting
shipping and transportation, access, disposal, handling and storage of
materials, (vi) the labor conditions in the region of the Project Site,
(vii) Applicable Laws, Applicable Permits and the Real Estate Rights and
(viii) the local weather conditions based upon previous weather data, and
(c) has determined to Contractor's satisfaction the nature and extent of
such difficulties and hazards.
ARTICLE 19
Dispute Resolution
19.1 Arbitration. Any claim or controversy between Owner and
Contractor not exceeding Five Hundred Thousand Dollars ($500,000) in
claimed value shall be submitted to binding arbitration upon the written
notice of either Party delivered to the other of such Party's intention to
arbitrate, the nature of the dispute, the amount claimed and the decision
sought. Such arbitration shall be conducted in accordance with the
Construction Industry Arbitration Rules of the American Arbitration
Association and Expedited Procedures thereunder and the Federal Arbitration
Act, 9 U.S.C. Section 1 et. seq. The notice of intent to arbitrate also
shall specify the name and address of an arbitrator selected by the Party
requesting arbitration. The other Party shall within ten (10) Business
Days of receipt of the arbitration notice select its arbitrator; provided
that if it fails to do so, the arbitrator appointed by the Party requesting
arbitration shall serve as the sole arbitrator of the dispute. However, if
both parties name an arbitrator, the two arbitrators thus selected shall
within ten (10) Business Days of the selection of the second arbitrator
select the third arbitrator. All arbitrators shall be qualified,
independent and neutral. The decision of any two of the three arbitrators
on any issue shall be final. Unless the parties otherwise agree, all
arbitration proceedings shall be held in Milwaukee, Wisconsin. Owner and
Contractor shall proceed with any arbitration expeditiously. All
conclusions and decisions of the arbitrators shall be made consistent with
applicable legal principles and the arbitrators' good faith interpretation
of the terms and provisions of this Agreement. The award of the
arbitrators will be final and binding on both parties and may be enforced
in any court having jurisdiction over the Party against which enforcement
is sought. Each Party shall bear its own expenses, including but not
limited to counsel fees and witness fees. If the arbitrators determine
that the claim or defense of either Party was frivolous (i.e., without
justifiable merit), they may require that the Party at fault pay or
reimburse the other Party for costs of the arbitration in whole or in part,
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except that all expenses of the arbitration shall be apportioned in the
award of the arbitrators based upon the respective merit of the positions
of the parties. Notwithstanding the foregoing, equitable remedies,
including injunction and specific performance, shall be available to the
parties by judicial proceedings at any time and, for this purpose and for
the purpose of enforcing any arbitral award or decision, the parties hereby
submit to the exclusive jurisdiction and venue of the federal courts in
Milwaukee, Wisconsin. The parties also submit to the exclusive
jurisdiction and venue of the federal and state courts in Milwaukee,
Wisconsin, regarding any dispute between the parties where the claimed
amount in controversy exceeds Five Hundred Thousand Dollars ($500,000).
The provisions of this Section shall survive the termination or expiration
of this Agreement.
Owner and Contractor agree that any arbitration or litigation between
Owner and Contractor may include by consolidation, joinder or any other
manner, parties other than Owner and Contractor, including but not limited
to Rust, substantially involved in a common question of fact or law. If
Rust shall be brought into any such arbitration proceeding Rust shall be
entitled to select the third arbitrator in lieu of Contractor's and Owner's
selected arbitrators choosing the third arbitrator.
Owner and Contractor agree that any arbitration or litigation between
Contractor and Rust may include, by consolidation, joinder or any other
manner, Owner, and Owner agrees to become a party to any such proceeding if
such proceeding includes a common question of fact or law relating to Owner
or the Work. If Owner shall be brought into any such arbitration
proceeding Owner shall be entitled to select the third arbitrator in lieu
of Contractor's and Rust's selected arbitrators choosing the third
arbitrator.
Any party in an arbitration proceeding under this Section 19.1 may
serve upon any other party a request for the production of documents and
things and for entry upon land for inspection and other purposes as
permitted by and in accordance with the procedure set forth in Rule 34 of
the Federal Rules of Civil Procedure in effect at the time the request is
made. The enforcement of and objections to such request shall be made to
the arbitrators and the arbitrators only shall issue such orders as they
deem necessary on objections and on requests for enforcement of production
both prior to and after the commencement of the hearing.
In the event of any court proceeding between Owner and Contractor
relating to the Work or this Agreement, neither party may claim the right
to a trial by jury, and both parties waive any right they may have under
Applicable Law or otherwise to a right to a trial by a jury.
19.2 Continuation of Work. Contractor shall continue its performance
of the Work on a timely basis in accordance with the Project Schedule and
Owner shall continue to make payments on a timely basis in accordance with
the terms of this Agreement during any dispute which may arise between
Owner and Contractor concerning the Overall Project.
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ARTICLE 20
Cost Records
20.1 GAAP. Owner and Contractor shall maintain their respective
fiscal records and books of account pertaining to the Overall Project in
accordance with generally accepted accounting principles as applied in the
United States consistently applied.
20.2 Inspection of Contractor's Books and Records.
Contractor covenants and agrees to keep and maintain full, complete and
detailed records of all of its costs and allowances pertaining to Scope
Changes. Contractor authorizes Owner and independent third parties
designated by Owner to inspect and audit during business hours, all of its
records and books of account pertaining to the Overall Project to the
extent reasonably necessary to (i) establish or verify the amounts of
cost-plus Scope Change Orders, (ii) assemble data required to be submitted
to federal, state or other governmental agencies and (iii) calculate
income, ad valorem or other taxes, prepare returns in connection therewith
or obtain exemptions therefrom. Such records, books and accounts shall be
preserved by Contractor for a period of three (3) years after Project
Acceptance, at no additional cost to Owner, and subject to such Owner
inspection and audit during such period. All expenses of an audit by Owner
shall be paid by Owner.
20.3 Inspection of Owner's Books and Records. Owner authorizes
Contractor and independent third parties designated by Contractor to
inspect and audit during business hours, all of its records and books of
account pertaining to the Overall Project to the extent reasonably
necessary to establish or verify the amounts of Price-Adjusted Project Cash
Flow and Available Cash. Such records, books and accounts shall be
preserved by Owner for so long as Contractor may have contingent rights to
the payment of the Deferrable Portion pursuant to Section hereof or any
bonuses pursuant to Section hereof, at no additional cost to Contractor,
and subject to Contractor inspection and audit during such period. All
expenses of an audit by Contractor shall be paid by Contractor.
ARTICLE 21
Independent Contractor
21.1 Contractor as Independent Contractor. Contractor shall be an
independent contractor with respect to the Project, each part thereof, and
the Work hereunder, and neither Contractor, nor its Subcontractors, nor the
employees of any of them shall be deemed to be agents, representatives,
employees or servants of Owner in the performance of the Work or any other
services dealt with herein. Owner shall not have the right to control the
methods or means by which Contractor or any agent, representative,
Subcontractor, or employee of Contractor or any Subcontractor conducts its
independent business operations. Owner and Contractor covenant and agree
that in the performance of the Work by Contractor, Contractor shall not
perform any act or make any representation to any Person to the effect that
Contractor or any of its agents, representatives or Subcontractors is the
agent of Owner.
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ARTICLE 22
Representations and Warranties
22.1 Representations and Warranties of Contractor. Contractor
represents and warrants to Owner that as of the date of this Agreement:
22.1.1 Organization and Qualification. Contractor is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has the lawful power to engage in the
business it presently conducts and contemplates conducting. Contractor is
duly licensed or qualified in each jurisdiction wherein the nature of the
business transacted by them makes such licensing or qualification
necessary.
22.1.2 Power and Authority. Contractor has the requisite
power to make and carry out this Agreement and to perform its obligations
hereunder and all such actions have been duly authorized by all necessary
partnership action.
22.1.3 No Conflict. The execution, delivery and performance
of this Agreement by Contractor (assuming issuance of Applicable Permits in
due course upon application therefor) will not conflict with Contractor's
governing documents, any Applicable Laws or any covenant, agreement,
understanding, decree or order to which Contractor is a party or by which
Contractor is bound or affected.
22.1.4 Validity and Binding Effect. This Agreement has been
duly and validly executed and delivered by Contractor. This Agreement
constitutes a legal, valid and binding obligation of Contractor,
enforceable in accordance with its terms. No authorization, approval,
exemption or consent by any governmental or public body or authority (other
than the Applicable Permits) is required in connection with the
authorization, execution, delivery and carrying out by Contractor of the
terms of this Agreement.
22.1.5 Litigation. There are no actions, suits, proceedings
or investigations pending or, to the knowledge of Contractor, threatened
against Contractor at law or in equity before any court or before any
federal, state, municipal or other governmental department, commission,
board, agency or instrumentality, whether or not covered by insurance,
which individually or in the aggregate are reasonably likely to have a
materially adverse effect on the business, properties or assets or the
condition, financial or otherwise, of Contractor or to result in any
material impairment of Contractor's ability to perform its obligations
under this Agreement. Contractor has no knowledge of any violation or
default with respect to any order, writ, injunction or decree of any court
or any federal, state, municipal or other governmental department,
commission, board, agency or instrumentality which is reasonably likely to
have such a materially adverse effect or to result in such material
impairment.
22.1.6 Patents; Licenses; Franchises. Subject to the
provisions of Section hereof, Contractor owns or possesses or intends to
obtain necessary rights in all the patents, trademarks, service marks,
trade names, copyrights, licenses, franchises, permits and rights with
respect to the foregoing necessary to perform the Work.
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22.1.7 Compliance with Laws. Contractor has complied with all
Applicable Laws such that Contractor is not subject to any fines,
penalties, injunctive relief or criminal liabilities which in the aggregate
have materially affected or are reasonably likely to have a materially
adverse effect upon the business operations or financial condition of
Contractor or Contractor's ability to perform the Work or other services
hereunder.
22.1.8 Surety Performance. No surety of Contractor has been
called upon to perform any Work required to be performed by Contractor.
22.1.9 Disclosure. No representation or warranty by
Contractor contained herein or in any other document furnished by
Contractor to Owner contains or will contain any untrue statement of
material fact or omits or will omit to state a material fact necessary to
make such representation or warranty not misleading in light of the
circumstances under which it was made. All financial and other information
furnished by Contractor to Owner is true and correct in all material
respects.
22.2 Representations and Warranties of Owner. Owner represents and
warrants to Owner that as of the date of this Agreement:
22.2.1 Organization and Qualification. Owner is duly formed,
validly existing and in good standing under the laws of the State of
Delaware and has the lawful power to engage in the business it presently
conducts and contemplates conducting. Owner is duly licensed or qualified
in each jurisdiction wherein the nature of the business transacted by them
makes such licensing or qualification necessary.
22.2.2 Power and Authority. Owner has the partnership power
to make and carry out this Agreement and to perform its obligations
hereunder and all such actions have been duly authorized by all necessary
partnership action.
22.2.3 No Conflict. The execution, delivery and performance
of this Agreement by Owner (assuming issuance of Applicable Permits in due
course upon application therefor) will not conflict with Owner's governing
documents, any Applicable Laws or any covenant, agreement, understanding,
decree or order to which Owner is a party or by which Owner is bound or
affected.
22.2.4 Validity and Binding Effect. This Agreement has been
duly and validly executed and delivered by Owner. This Agreement
constitutes a legal, valid and binding obligation of Owner, enforceable in
accordance with its terms. No authorization, approval, exemption or
consent by any governmental or public body or authority (other than the
Applicable Permits) is required in connection with the authorization,
execution, delivery and carrying out by Owner of the terms of this
Agreement.
22.2.5 Litigation. There are no actions, suits, proceedings
or investigations pending or, to the knowledge of Owner, threatened against
Owner at law or in equity before any court or before any federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality, whether or not covered by insurance, which individually or
in the aggregate are reasonably likely to have a materially adverse effect
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on the business, properties or assets or the condition, financial or
otherwise, of Owner or to result in any impairment of Owner's ability to
perform its obligations under this Agreement. Owner has no knowledge of
any violation or default with respect to any order, writ, injunction or
decree of any court or any federal, state, municipal or other governmental
department, commission, board, agency or instrumentality which is
reasonably likely to have such a materially adverse effect or to result in
such impairment.
22.2.6 Patents; Licenses; Franchises. Owner owns or possesses
all the patents, trademarks, service marks, trade names, copyrights,
licenses, franchises, permits and rights with respect to the foregoing
necessary to carry on its business as presently conducted and presently
planned to be conducted without conflict with the rights of others.
22.2.7 Compliance with Laws. Owner has complied with all
Applicable Laws such that Owner is not subject to any fines, penalties,
injunctive relief or criminal liabilities which in the aggregate have
materially affected or are reasonably likely to have a materially adverse
effect upon the business operations or financial condition of Owner.
22.2.8 Disclosure. No representation or warranty by Owner
contained herein or in any other document furnished by Owner to Contractor
contains or will contain any untrue statement of material fact or omits or
will omit to state a material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it was
made. All financial and other information furnished by Owner to Contractor
is true and correct in all material respects.
ARTICLE 23
Miscellaneous
23.1 Confidentiality. Prior to the execution of this Agreement,
Contractor has executed a confidentiality agreement, substantially in the
form attached hereto as Schedule , with Owner, providing for the
confidentiality of information pertaining to the Overall Project (the
"Confidentiality Agreement"). The Confidentiality Agreement shall continue
in full force and effect in accordance with its terms, and shall survive
any termination of this Agreement.
23.2 Publicity Releases; Information. Contractor shall not, and shall
not permit any Subcontractor to, issue any press or publicity release or
any advertisement (other than for labor for the Project), or publish,
release or disclose any photograph concerning this Agreement or the Overall
Project except in accordance with the Confidentiality Agreement or with the
consent of the Owner, such consent not to be unreasonably withheld. Other
than information disclosed in connection with the offering and sale of the
Bonds, other indebtedness and equity interests of Owner or delivered to any
Financing Parties, Owner shall not issue any press or publicity release or
any advertisement, or publish, release or disclose any photograph or other
information, concerning this Agreement or the Overall Project except in
accordance with the Confidentiality Agreement. Each of Contractor and
Owner shall give prior notice to the other of any information contained in
documents filed with public authorities or any other public disclosure that
could result in the dissemination of confidential information; provided,
however, that disclosures made pursuant to any federal or state securities
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laws or regulations or pursuant to the rules of any securities exchange may
be made by either party without the consent of the other.
23.3 Estoppel Certificate. Contractor shall at any time and from time
to time furnish promptly upon request by Owner, or any Financing Party a
written statement in such form as may be reasonably required by the
requesting party and reasonably acceptable to Contractor stating that this
Agreement is a valid and binding obligation of Contractor, enforceable
against Contractor in accordance with its terms; that this Agreement has
not been released, subordinated or modified; and that there are no offsets
or defenses against the enforcement of this Agreement against Contractor;
or if any of the foregoing statements are untrue, specifying the reasons
therefor.
23.4 Waivers. No failure to exercise, and no delay in exercising, any
right, power or remedy under the Contract Documents shall impair any right,
power or remedy that any party hereto may have, nor shall such failure or
delay be construed to be a waiver of any such rights, powers or remedies or
an acquiescence in any breach or default under the Contract Documents, nor
shall any waiver of any breach or default be deemed a waiver of any default
or breach subsequently occurring under the Contract Documents.
23.5 Choice of Law. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE
PARTIES HEREUNDER AND/OR ARISING FROM OR RELATING IN ANY WAY TO THE
TRANSACTIONS EVIDENCED BY THE CONTRACT DOCUMENTS SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, INCLUDING
ALL MATTERS OF INTERPRETATION, VALIDITY AND PERFORMANCE, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW RULES THEREOF THAT MAY DIRECT THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION.
23.6 Severability. In the event that any of the provisions, or
portions or applications thereof or of any of the Contract Documents is
held to be unenforceable or invalid by any court of competent jurisdiction,
Owner and Contractor shall negotiate an equitable adjustment in the
affected provisions of the Contract Documents with a view toward effecting
the purpose of this Agreement, and the validity and enforceability of the
remaining provisions, or portions or applications hereof, shall not be
affected thereby.
23.7 Notice. Unless otherwise expressly required or permitted by the
Contract Documents, any notice required or permitted to be given by
Contractor to Owner hereunder shall be in writing and shall be addressed to
Owner c/o Great Lakes Pulp & Fibre, Inc. at:
P.O. Box 277
701 Fourth Avenue
Menominee, Michigan 49858
Attention: Thomas Kuber/Ronald A. Beyer
Telephone: (906) 863-8137
Telecopy: (906) 863-7488
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and any notice required or permitted to be given by Owner to Contractor
hereunder shall be in writing and shall be addressed to Contractor at:
Fiberprep, Inc.
25 Constitution Drive
Tauton, MA 02780
Attention: Ed Healy, President
Telephone: (508) 823-3358
Telecopy: (508) 823-4155
with a copy to
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254-9046
Attention: Treasurer
Telephone: (617) 622-1150
Telecopy Number: (617) 622-1207
Unless otherwise expressly required or permitted by the Contract
Documents, all notices shall be by writing and delivered (a) in person to
the party above mentioned, (b) via certified mail with a return receipt
requested in a securely sealed envelope and postage prepaid, (c) by
expedited delivery service with proof of delivery, or (d) by prepaid
telegram, telex or telecopy. A notice shall be deemed delivered either at
the time of personal delivery or, in the case of delivery service or mail,
as the date of first attempted delivery at the address provided herein, or
in the case of telegram, telex or telecopy, upon receipt. Each Party, by
notice to the other Party, may designate, from time to time, another
address or office to which notices may be given pursuant to this Agreement.
23.8 Headings. The Article and Section headings herein have been
inserted for convenience of reference only and shall not in any manner
affect the construction, meaning or effect of the provisions herein
contained nor govern the rights and liabilities of the parties hereto.
23.9 Entire Agreement. The Contract Documents contain the entire
agreement between Owner and Contractor with respect to the Overall Project,
and supersede any and all prior and contemporaneous written and oral
agreements, proposals, negotiations, understandings and representations
pertaining to the Overall Project.
23.10 Amendments. No amendments or modifications of the Contract
Documents shall be valid unless evidenced by a Scope Change Order or by a
written instrument signed by a duly authorized representative of the party
against whom enforcement is sought.
23.11 Conflicting Provisions. Within the Design Documents,
large-scaled drawings shall control over smaller-scaled drawings, figured
dimensions on the drawings shall control over scaled dimensions and noted
materials shall control over graphic representations. Subject to the
provisions of Section hereof, where an irreconcilable conflict exists
among Applicable Laws, this Agreement, the drawings included in the Design
Documents and the specifications in the Design Documents, the earliest item
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mentioned in this sentence involving a conflict shall control over any
later mentioned item or items subject to such conflict.
23.12 No Third-Party Rights. The Contract Documents and all
rights thereunder are intended for the sole benefit of Owner and Contractor
and (to the extent provided in Article hereof) for the benefit of the
Financing Parties and (to the extent provided in Article hereof) the
Indemnified Parties and Contractor Indemnified Parties and (to the extent
provided in Section hereof) the Partners and shall not under any
circumstances imply or create any rights on the part of, or obligations to,
or any undertakings of any nature whatsoever for the benefit of, any other
Person or any other rights on the part of, or other obligations to, or any
undertakings of any nature whatsoever for benefit of, the Financing
Parties, the Indemnified Parties and the Contractor Indemnified Parties
beyond the rights and obligations expressly set forth in such provisions.
23.13 Survival of Provisions. All provisions of the Contract
Documents which are expressly or by implication to come into or continue in
force and effect after the expiration or termination of this Agreement
shall remain in effect and be enforceable following such expiration or
termination.
23.14 Title to the Project. Title to all materials, supplies,
equipment and machinery used in connection with the Work and purchased
directly by Contractor or Subcontractors in their names which become a
permanent part of the Project shall vest in Owner upon the earlier of (i)
full payment therefor by Contractor and payment to Contractor of the
Scheduled Payment related thereto, or (ii) full payment therefor by Owner.
Title to water, soil, rock, gravel, sand, minerals, timber and any other
resources developed or obtained in the excavation or the performance by
Contractor of the Work and the right to use said items or dispose of the
same is hereby expressly vested in and reserved by Owner. Contractor shall
not have any right, title or interest in said resources.
23.15 Schedules. All schedules attached to this Agreement are
made a part hereof for all purposes.
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IN WITNESS WHEREOF, Owner and Contractor, intending to be legally
bound, have caused this Agreement to be executed by their duly authorized
representatives as of the date indicated below and to be effective as of
the day and year first above written.
OWNER:
GREAT LAKES PULP PARTNERS I, L.P.
BY: GREAT LAKES MANAGEMENT
COMPANY, LLC.
its general partner
BY:GREAT LAKES PULP & FIBRE, INC.
its Member
By: Thomas J. Kuber
---------------------------
Thomas J. Kuber
President
CONTRACTOR:
THERMO ELECTRON CORPORATION
By: William A. Rainville
----------------------------
Name: William A. Rainville
Title: Senior Vice President
<PAGE>
Exhibit 10.25
THERMO ELECTRON CORPORATION
DIRECTORS STOCK OPTION PLAN
(As amended and restated effective as of January 1, 1995)
1. Purpose
The purpose of this Directors Stock Option Plan (the "Plan") of Thermo
Electron Corporation (the "Company") is to encourage ownership in the
Company and its publicly-traded majority-owned subsidiaries by
non-management directors of the Company whose services are considered
essential to the Company's growth and progress and to provide them with a
further incentive to become directors and to continue as directors of the
Company. The Plan is intended to be a nonstatutory stock option plan.
2. Administration
The Board of Directors, or a Committee (the "Committee") consisting of
two or more directors of the Company appointed by the Board of Directors,
shall supervise and administer the Plan. Grants of stock options under the
Plan and the amount and nature of the options to be granted shall be
automatic in accordance with Section 5. Within such constraint, the
Committee shall have full power to interpret and administer the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan or
any stock options granted under it, determine the terms and conditions of
stock options (including terms and conditions relating to events of merger,
consolidation, dissolution and liquidation, change of control, vesting and
forfeiture), any term or condition of an option, cancel an existing grant
in whole or in part with the consent of an optionee, accelerate the vesting
or lapse of restrictions and adopt the form of instruments evidencing
options granted under the Plan and change such forms from time to time.
All questions of interpretation of the Plan or of any stock options granted
under it shall be determined by the Board of Directors or the Committee and
such determination shall be final and binding upon all persons having an
interest in the Plan.
3. Participation in the Plan
Directors of the Company who are not employees of the Company or any
subsidiary or parent of the Company shall be eligible to participate in the
Plan. Directors who receive grants of stock options in accordance with
this Plan are sometimes referred to herein as "Optionees."
4. Stock Subject to the Plan
The maximum number of shares which may be issued under the Plan shall
be two hundred thousand (200,000) shares of the Company's $1.00 par value
Common Stock (the "Company Common Stock"), and one hundred thousand
(100,000) shares of each of the Corporation's majority-owned subsidiaries,
whether presently existing or formed in the future ("Subsidiary Common
Stock"; Company Common Stock and Subsidiary Common Stock (are collectively
referred to herein as "Common Stock") subject to adjustment as provided in
Section 9 of the Plan. Shares of Company Common Stock to be issued upon
the exercise of options granted under the Plan may be either authorized but
unissued shares or shares held by the Company in its treasury. Shares of
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Subsidiary Common Stock to be issued upon the exercise of options granted
under the Plan shall be shares beneficially owned by the Company. If any
option expires or terminates for any reason without having been exercised
in full, the unpurchased shares subject thereto shall again be available
for options thereafter to be granted.
5. Terms and Conditions
A. Company Stock Option Grants
Each Director of the Company who meets the requirements of Section 3
and who is holding office immediately following the Annual Meeting of
Stockholders shall be granted an option to purchase 1,000 shares of Company
Common Stock at the close of business on the date of such Annual Meeting.
Options granted under this Subsection A shall be exercisable as to 100% of
the shares subject to the option as set forth in Section 5(C), but shares
acquired upon exercise are subject to repurchase by the Company at the
exercise price if the Director ceases to serve as a Director of the Company
or any of its majority-owned subsidiaries prior to the first anniversary of
the grant date, for any reason other than death.
B. Subsidiary Stock Option Grants
Each Director of the Company who meets the requirements of
Section 3 and who is holding office immediately following the Annual
Meeting of Stockholders shall be granted an option to purchase that number
of shares of the Common Stock of each majority-owned subsidiary of the
Corporation, the common stock of which shall have become publicly traded or
a portion of which shall have been sold primarily to third parties in a
private placement or other arms-length transaction (such transaction being
referred to herein as a "Spinout Transaction", and such subsidiary being
referred to herein as a "Spinout Subsidiary") set forth below in accordance
with the following schedule at the close of business on the date of the
Annual Meeting occurring in the following years:
Year of Annual Meeting Subsidiary in which options granted
1993 and 1998 Thermo Fibertek Inc.
ThermoTrex Corporation
1994 and 1999 Thermedics Inc.
Thermo Power Corporation
Thermo Remediation Inc.
1995 and 2000 Thermo Instrument Systems Inc.
Thermo Voltek Corp.
ThermoLase Corporation
Thermo Ecotek Corporation
1996 and 2001 Thermo Process Systems Inc.
1997 and 2002 Thermo Cardiosystems Inc.
In the event a majority-owned subsidiary of the Corporation shall
become a "Spinout Subsidiary" following the adoption of this Plan, then the
subsidiary shall be added to the foregoing schedule and options to purchase
its common stock shall be granted at the first Annual Meeting of
Stockholders of the Company next following the date of such subsidiary's
"Spinout Transaction".
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The number of shares to be granted under this subsection B shall be
determined in accordance with the following formula: (a) if the Spinout
Subsidiary is a majority-owned subsidiary of Thermo Electron directly or
through a wholly-owned subsidiary, then the number of shares to be granted
subject to option shall be 1,500 shares; and (b) if the Spinout Subsidiary
is a majority-owned subsidiary of Thermo Electron indirectly through one or
more majority-owned subsidiaries, then the number of shares to be granted
subject to option shall be 1,000 shares.
Options granted under this Section 5(B) shall vest and be exercisable
as to 100% of the shares of common stock subject to the option on the
fourth anniversary of the grant date of the option, unless, prior to such
anniversary, the underlying common stock shall have been registered under
Section 12 of the Securities and Exchange Act of 1934, as amended (referred
to herein as "Section 12 Registration"). From and after 90 days after the
effective date of Section 12 Registration, options granted hereunder shall
be immediately exercisable as to 100% of the shares subject to the option,
subject to the right of the Company to repurchase the shares at the
exercise price in the event the Optionee ceases to serve as a director of
the Company, or any subsidiary of the Company or Thermo Election during the
option term. The right of the Company to so repurchase the shares shall
lapse as to one-fourth of the shares granted on each of the first, second,
third and fourth anniversaries of the grant date of the option, provided
the Optionee has remained continuously a director of the Company, Thermo
Electron or any subsidiary of Thermo Electron since the grant date. In all
other respects, the option shall be subject to the general terms and
conditions applicable to all option grants as set forth below in Section
5(C), including the determination of the exercise price of such option.
No Director, who is otherwise eligible under Section 3, shall be
eligible under this subsection B to receive grants of stock options in
subsidiaries on which he or she is then serving as a Director.
C. General Terms and Conditions Applicable to All Grants
1. The option shall be exercisable at any time from and after the
later of the date that is the six-month anniversary of the grant
date and prior to the date which is the earliest of:
(a) three years after the grant date for options granted under
Section 5(A) and five years after the grant date for options
granted under Section 5(B), (b) three months after the date the
Optionee ceases to be a Director of the Company or any subsidiary
or parent corporation of the Company (six months in the event the
Optionee ceases to meet these requirements by reason of his
death), or (c) the date of dissolution or liquidation of the
Company.
2. The exercise price at which Options are granted hereunder shall
be the average of the closing prices reported by the national
securities exchange on which the Common Stock subject to option
is principally traded for the five trading days immediately
preceding and including the date the option is granted or, if
such security is not traded on an exchange, the average last
reported sale price for the five-day period on the NASDAQ
National Market List, or the average of the closing bid prices
for the five-day period last quoted by an established quotation
service for over-the-counter securities, or if none of the above
PAGE
<PAGE>
shall apply, the last price paid for shares of the common stock
by independent investors in a private placement; provided,
however, that such exercise price per share shall not be lower
than the par value per share or less than 50% of the fair market
value of the Common Stock until such time as the Company elects
to be subject to Rule 16b-3 as amended by SEC Rel. No. 33-28869.
3. All options shall be evidenced by a written agreement
substantially in such form as shall be approved by the Board of
Directors or Committee, containing terms and conditions
consistent with the provisions of this Plan.
6. Exercise of Options
A. Exercise/Consideration
An option may be exercised in accordance with its terms by
written notice of intent to exercise the option, specifying the number of
shares of Common Stock with respect to which the option is then being
exercised. The notice shall be accompanied by payment in the form of cash
or shares of the applicable Common Stock (the "Tendered Shares") with a
then current market value equal to the exercise price of the shares to be
purchased; provided, however, that such Tendered Shares shall have been
acquired by the Optionee more than six months prior to the date of exercise
(unless such requirement is waived in writing by the Company). Against
such payment the Company shall deliver or cause to be delivered to the
Optionee a certificate for the number of shares then being purchased,
registered in the name of the Optionee or other person exercising the
option. If any law or applicable regulation of the Securities and Exchange
Commission or other body having jurisdiction in the premises shall require
the Company or the Director to take any action in connection with shares
being purchased upon exercise of the option, exercise of the option and
delivery of the certificate or certificates for such shares shall be
postponed until completion of the necessary action, which shall be taken at
the Company's expense.
B. Tax Withholding
The Company shall have the right to deduct from payments of any kind
otherwise due to the Optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
Optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the Optionee. The shares so
delivered or withheld shall have a fair market value equal to such
withholding obligation. The fair market value of the shares used to
satisfy such withholding obligation shall be determined by the Company as
of the date that the amount of tax to be withheld is to be determined.
Notwithstanding the foregoing, no election to use shares for the payment of
withholding taxes shall be effective unless made in compliance with any
applicable requirements of Rule 16b-3.
PAGE
<PAGE>
7. Transferability
Options shall not be transferable, otherwise than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations
order as defined in the Internal Revenue Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder (a "Qualified
Domestic Relations Order"). Options may be exercised during the life of
the Optionee only by the Optionee or a transferee pursuant to a Qualified
Domestic Relations Order.
8. Limitation of Rights to Continue as a Director
Neither the Plan, nor the quantity of shares subject to options
granted under the Plan, nor any other action taken pursuant to the Plan,
shall constitute or be evidence of any agreement or understanding, express
or implied, that the Company or any subsidiary or parent of the Company
will retain a Director for any period of time, or at any particular rate of
compensation.
9. Changes in Common Stock
If the outstanding shares of Common Stock subject to an option are
increased, decreased or exchanged for a different number or kind of shares
or other securities, or if additional shares or new or different shares or
other securities are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, sale of all or
substantially all of the assets of the Company or applicable subsidiary,
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other distribution with respect to such
shares of Common Stock, or other securities, an appropriate proportionate
adjustment shall be made (i) in the maximum number or kind of shares
reserved for issuance under the Plan and (ii) in the number and kind of
shares or securities subject to options then outstanding or subsequently
granted, and in any exercise price relating to outstanding options. No
fractional shares will be issued under the Plan on account of any such
adjustments.
10. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in respect of
shares as to which their options shall not have been exercised,
certificates issued and delivered and payment as herein provided made in
full, and shall have no rights with respect to such shares not expressly
conferred by this Plan or the written agreement evidencing options granted
hereunder.
11. Stock Reserved
The Company shall at all times during the term of the options reserve
and keep available such number of shares of Common Stock as will be
sufficient to permit the exercise in full of all options granted under this
Plan and shall pay all other fees and expenses necessarily incurred by the
Company in connection therewith.
PAGE
<PAGE>
12. Securities Laws Restrictions
A. Investment Representations
The Company may require any person to whom an option is granted, as a
condition of exercising such option, to give written assurances in
substance and form satisfactory to the Company to the effect that such
person is acquiring the common stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company
deems necessary or appropriate in order to comply with federal and
applicable state securities laws.
B. Compliance With Securities Laws
Each option shall be subject to the requirement that if, at any time,
counsel to the Company shall determine that the listing, registration or
qualification of the shares subject to such option upon any securities
exchange or under any state or federal law, or the consent or approval of
any governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless
such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
13. Change in Control
13.1 Impact of Event
In the event of a "Change in Control" as defined in Section 13.2, the
following provisions shall apply, unless the agreement evidencing the Award
otherwise provides:
(a) Any stock options awarded under the Plan that were not previously
exercisable and vested shall become fully exercisable and vested.
(b) Shares purchased upon the exercise of options subject to
restrictions and to the extent not fully vested, shall become fully
vested and all such restrictions shall lapse so that shares issued
pursuant to such options shall be free of restrictions.
13.2 Definition of "Change in Control"
"Change in Control" means any one of the following events: (i) when,
any Person is or becomes the beneficial owner (as defined in Section 13(d)
of the Exchange Act and the Rules and Regulations thereunder), together
with all Affiliates and Associates (as such terms are used in Rule 12b-2 of
the General Rules and Regulations of the Exchange Act) of such Person,
directly or indirectly, of 25% or more of the outstanding Common Stock of
the Company without the prior approval of the Prior Directors of the
Company, (ii) the failure of the Prior Directors to constitute a majority
of the Board of the Company at any time within two years following any
Electoral Event, or (iii) any other event that the Prior Directors shall
determine constitutes an effective change in the control of the Company.
PAGE
<PAGE>
As used in the preceding sentence, the following capitalized terms shall
have the respective meanings set forth below:
(a) "Person" shall include any natural person, any entity, any
"affiliate" of any such natural person or entity as such term is
defined in Rule 405 under the Securities Act of 1933 and any "group"
(within the meaning of such term in Rule 13d-5 under the Exchange
Act);
(b) "Prior Directors" shall mean the persons sitting on the Company's
Board of Directors immediately prior to any Electoral Event (or, if
there has been no Electoral Event, those persons sitting on the
applicable Board of Directors on the date of this Agreement) and any
future director of the Company who has been nominated or elected by a
majority of the Prior Directors who are then members of the Board of
Directors of the Company; and
(c) "Electoral Event" shall mean any contested election of Directors,
or any tender or exchange offer for the Company's Common Stock, not
approved by the Prior Directors, by any Person other than the Company
or a subsidiary of the Company.
14. Amendment of the Plan
The provisions of Sections 3 and 5 of the Plan shall not be amended
more than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, or the rules
thereunder. Subject to the foregoing, the Board of Directors may at any
time, and from time to time, modify or amend the Plan in any respect,
except that if at any time the approval of the Stockholders of the Company
is required as to such modification or amendment under Rule 16b-3, the
Board of Directors may not effect such modification or amendment without
such approval.
The termination or any modification or amendment of the Plan shall
not, without the consent of an Optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the Optionees
affected, the Board of Directors may amend outstanding option agreements in
a manner not inconsistent with the Plan. The Board of Directors shall have
the right to amend or modify the terms and provisions of the Plan and of
any outstanding option to the extent necessary to ensure the qualification
of the Plan under Rule 16b-3.
15. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of Directors
and the stockholders of the Company, but no option granted under the Plan
shall become exercisable until six months after the Plan is approved by the
Stockholders of the Company.
16. Notice
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Secretary of the Company and shall
become effective when it is received.
PAGE
<PAGE>
17. Governing Law
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
<PAGE>
Exhibit 11
Thermo Electron Corporation
Computation of Earnings per Share
1994 1993 1992
------------ ----------- -----------
Computation of Fully Diluted
Earnings per Share Before
Cumulative Effect of Change
in Accounting Principle:
Income:
Income per primary computation $103,410,000 $ 76,633,000 $ 60,594,000
Add: Convertible debt
interest, net of tax 15,934,000 10,273,000 6,010,000
------------ ------------ ------------
Income applicable to common
stock assuming full
dilution (a) $119,344,000 $ 86,906,000 $ 66,604,000
------------ ------------ ------------
Shares:
Weighted average shares
outstanding 49,245,072 43,779,422 40,049,444
Add: Shares issuable from
assumed conversion of
convertible debentures 14,912,570 11,256,368 6,483,917
Shares issuable from
assumed exercise of
options (as determined
by the application of
the treasury stock
method) 522,364 483,718 629,911
------------ ------------ ------------
Weighted average shares
outstanding, as
adjusted (b) 64,680,006 55,519,508 47,163,272
------------ ------------ ------------
Fully Diluted Earnings Per
Share Before Cumulative Effect
of Change in Accounting
Principle (a) / (b) $ 1.85 $ 1.57 $ 1.41
============ ============ ============
PAGE
<PAGE>
Exhibit 11
Thermo Electron Corporation
Computation of Earnings per Share (continued)
1994 1993 1992
------------ ----------- -----------
Computation of Fully Diluted
Earnings per Share:
Income:
Income per primary computation $103,410,000 $ 76,633,000 $ 59,156,000
Add: Convertible debt
interest, net of tax 15,934,000 10,273,000 6,010,000
------------ ------------ ------------
Income applicable to common
stock assuming full
dilution (c) $119,344,000 $ 86,906,000 $ 65,166,000
------------ ------------ ------------
Shares:
Weighted average shares
outstanding 49,245,072 43,779,422 40,049,444
Add: Shares issuable from
assumed conversion of
convertible debentures 14,912,570 11,256,368 6,483,917
Shares issuable from
assumed exercise of
options (as determined
by the application of the
treasury stock method) 522,364 483,718 629,911
------------ ------------ ------------
Weighted average shares
outstanding, as
adjusted (d) 64,680,006 55,519,508 47,163,272
------------ ------------ ------------
Fully Diluted Earnings Per
Share (c) / (d) $ 1.85 $ 1.57 $ 1.38
============ ============ ============
<PAGE>
Exhibit 13
THERMO ELECTRON CORPORATION
1994 Financial Statements
PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Income
(In thousands except per
share amounts) 1994 1993 1992
--------------------------------------------------------------------------
Revenues:
Product revenues $1,418,306 $1,103,558 $ 808,928
Service revenues 141,438 121,987 114,268
Research and development contract
revenues 25,604 24,173 25,776
---------- ---------- ----------
1,585,348 1,249,718 948,972
---------- ---------- ----------
Costs and Expenses:
Cost of products 824,845 664,201 521,668
Cost of services 103,800 91,292 87,307
Expenses for research and development
and new lines of business (a) 103,676 87,027 62,343
Selling, general and administrative
expenses 373,247 281,849 207,660
Costs associated with divisional and
product restructuring (Note 12) 650 6,616 -
---------- ---------- ----------
1,406,218 1,130,985 878,978
---------- ---------- ----------
Operating Income 179,130 118,733 69,994
Gain on Issuance of Stock by
Subsidiaries (Note 10) 25,283 39,863 30,212
Other Income (Expense), Net (Note 11) (810) (27,477) 1,764
---------- ----------- ----------
Income Before Income Taxes, Minority
Interest, and Cumulative Effect of
Change in Accounting Principle 203,603 131,119 101,970
Provision for Income Taxes (Note 9) 69,231 33,400 27,474
Minority Interest Expense 30,962 21,086 13,902
---------- ---------- ----------
Income Before Cumulative Effect of
Change in Accounting Principle 103,410 76,633 60,594
Cumulative Effect of Change in
Accounting Principle, Net of
Tax (Note 8) - - 1,438
---------- ---------- ----------
Net Income $ 103,410 $ 76,633 $ 59,156
========== ========== ==========
Before Cumulative Effect of Change in
Accounting Principle:
Primary earnings per share $ 2.10 $ 1.75 $ 1.51
========== ========== ==========
Fully diluted earnings per share $ 1.85 $ 1.57 $ 1.41
========== ========== ==========
Primary Earnings per Share $ 2.10 $ 1.75 $ 1.48
========== ========== ==========
Fully Diluted Earnings per Share $ 1.85 $ 1.57 $ 1.38
========== ========== ==========
Primary Weighted Average Shares 49,245 43,779 40,049
========== ========== ==========
Fully Diluted Weighted Average Shares 64,680 55,520 47,163
========== ========== ==========
2PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Income (continued)
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
(a) Includes costs of:
Research and development contracts $ 20,925 $ 20,435 $ 19,426
Internally funded research and
development 78,852 58,943 38,675
Other expenses for new lines of
business 3,899 7,649 4,242
---------- ---------- ----------
$ 103,676 $ 87,027 $ 62,343
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Balance Sheet
(In thousands) 1994 1993
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 382,797 $ 325,744
Short-term available-for-sale investments,
at quoted market value (amortized cost
of $617,837) (Note 2) 614,915 -
Short-term investments, at cost (quoted
market value of $377,183) - 374,450
Accounts receivable, less allowances
of $21,619 and $14,129 332,668 267,377
Unbilled contract costs and fees 42,113 32,574
Inventories:
Raw materials and supplies 128,876 110,437
Work in process 44,711 38,055
Finished goods 59,795 44,330
Prepaid income taxes (Note 9) 62,488 39,258
Prepaid expenses 14,321 12,318
---------- ----------
1,682,684 1,244,543
---------- ----------
Assets Related to Projects Under Construction:
Restricted funds, at quoted market value - 34,100
Facilities under construction - 128,040
---------- ----------
- 162,140
---------- ----------
Property, Plant and Equipment, at Cost:
Land 43,990 40,570
Buildings 143,727 116,895
Alternative-energy and waste-recycling
facilities 335,064 199,800
Machinery, equipment and leasehold improvements 270,386 224,629
---------- ----------
793,167 581,894
Less: Accumulated depreciation and amortization 179,215 134,423
---------- ----------
613,952 447,471
---------- ----------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of $65,218)
(Note 2) 62,451 -
---------- ----------
Long-term Marketable Securities, at Cost
(quoted market value of $45,125) - 43,630
---------- ----------
Other Assets 85,338 102,347
---------- ----------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 575,524 473,579
---------- ----------
$3,019,949 $2,473,710
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
<PAGE>
Consolidated Balance Sheet (continued)
Thermo Electron Corporation
(In thousands except share amounts) 1994 1993
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturities of
long-term obligations (Note 6) $ 82,997 $ 64,686
Accounts payable 112,245 85,278
Accrued payroll and employee benefits 71,835 49,029
Accrued income taxes 35,845 7,713
Accrued installation and warranty costs 33,442 26,049
Other accrued expenses (Note 3) 200,136 183,491
---------- ----------
536,500 416,246
---------- ----------
Deferred Income Taxes (Note 9) 57,899 48,387
---------- ----------
Other Deferred Items 57,723 58,152
---------- ----------
Liabilities Related to Projects Under
Construction (Note 6):
Payables and accrued expenses - 10,680
Tax-exempt obligations - 142,069
---------- ----------
- 152,749
---------- ----------
Long-term Obligations (Note 6):
Senior convertible obligations 620,000 275,000
Subordinated convertible obligations 186,661 238,386
Tax-exempt obligations 130,985 -
Nonrecourse tax-exempt obligations 95,300 108,800
Other 16,807 25,275
---------- ----------
1,049,753 647,461
---------- ----------
Minority Interest 327,734 277,681
---------- ----------
Commitments and Contingencies (Note 7)
Common Stock of Subsidiary Subject to
Redemption ($15,390 redemption value) - 14,511
---------- ----------
Shareholders' Investment (Notes 4 and 5):
Preferred stock, $100 par value, 50,000
shares authorized; none issued
Common stock, $1 par value, 175,000,000
shares authorized; 51,025,340 and
47,950,580 shares issued 51,025 47,951
Capital in excess of par value 485,293 467,076
Retained earnings 465,548 362,138
Treasury stock at cost, 38,318 and 31,898
shares (1,631) (1,212)
Cumulative translation adjustment (3,557) (13,591)
Deferred compensation (Note 8) (2,657) (3,839)
5PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1994 1993
------------------------------------------------------------------------
Net unrealized loss on available-for-sale
investments (Note 2) (3,681) -
---------- ----------
990,340 858,523
---------- ----------
$3,019,949 $2,473,710
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
6PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Cash Flows
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Operating Activities:
Net income $ 103,410 $ 76,633 $ 59,156
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of change in
accounting principle (Note 8) - - 1,438
Depreciation and amortization 62,322 42,356 29,228
Costs associated with divisional
and product restructuring
(Note 12) 650 6,616 -
Equity in losses of unconsolidated
subsidiaries 4,019 22,721 3,948
Provision for losses on accounts
receivable 4,255 2,675 2,021
Increase in deferred income taxes 9,403 13,888 12,273
Gain on sale of property, plant
and equipment (15,025) (198) (175)
Gain on sale of investments (4,851) (2,469) (4,968)
Gain on issuance of stock by
subsidiaries (Note 10) (25,283) (39,863) (30,212)
Minority interest expense 30,962 21,086 13,902
Other noncash expenses 9,809 7,850 11,549
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (7,626) (43,171) (10,763)
Inventories 10,017 (6,525) (4,753)
Other current assets (5,415) (230) (9,860)
Accounts payable 1,155 10,014 (2,479)
Other current liabilities 26,443 15,355 (15,363)
--------- --------- ---------
Net cash provided by operating
activities 204,245 126,738 54,942
--------- --------- ---------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (173,764) (142,962) (251,738)
Purchases of available-for-sale
investments (748,879) - -
Proceeds from sale and maturities of
available-for-sale investments 495,361 - -
Purchases of property, plant and
equipment (60,156) (56,580) (60,007)
Proceeds from sale of property,
plant and equipment 21,371 5,224 1,575
Purchases of long-term investments - (20,573) (70,340)
Proceeds from sale of long-term
investments - 16,651 35,899
(Increase) decrease in short-term
investments - (193,894) 68,260
Increase in assets related to
construction projects - (3,781) (132,971)
7PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Cash Flows (continued)
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Decrease in net restricted funds 23,420 - -
Other (7,397) (3,376) (1,262)
--------- --------- ---------
Net cash used in investing
activities (450,044) (399,291) (410,584)
--------- --------- ---------
Financing Activities:
Proceeds from issuance of long-term
obligations 368,592 102,151 389,230
Repayment and repurchase of long-term
obligations (27,114) (11,732) (27,415)
Proceeds from issuance of Company
and subsidiary common stock 60,601 378,790 100,749
Purchases of Company and subsidiary
common stock (101,481) (57,198) (45,334)
Other 339 (941) 485
--------- --------- ---------
Net cash provided by financing
activities 300,937 411,070 417,715
--------- --------- ---------
Exchange Rate Effect on Cash 1,915 (3,374) (2,424)
--------- --------- ---------
Increase in Cash and Cash Equivalents 57,053 135,143 59,649
Cash and Cash Equivalents at
Beginning of Year 325,744 190,601 130,952
--------- --------- ---------
Cash and Cash Equivalents at End
of Year $ 382,797 $ 325,744 $ 190,601
========= ========= =========
See Note 13 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial
statements.
8PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Shareholders' Investment
Common Capital
Stock, in Excess
$1 Par of Par Retained
(In thousands) Value Value Earnings
-------------------------------------------------------------------------
Balance December 28, 1991 $ 25,858 $230,251 $226,349
Net income - - 59,156
Purchases of Company common
stock - - -
Private placement of Company
common stock 800 33,455 -
Issuance of stock under
employees' and directors'
stock plans 358 4,241 -
Tax benefit related to
employees' and directors'
stock plans - 4,773 -
Conversion of convertible
obligations 84 2,894 -
Effect of majority-owned
subsidiaries' equity
transactions - (18,509) -
Cumulative translation
adjustment - - -
Amortization of deferred
compensation - - -
--------- --------- --------
Balance January 2, 1993 27,100 257,105 285,505
Net income - - 76,633
Public offering of Company
common stock (Note 4) 4,500 241,505 -
Issuance of stock under
employees' and directors'
stock plans 216 763 -
Conversion of convertible
obligations 285 6,619 -
Effect of majority-owned
subsidiaries' equity
transactions - (23,066) -
Effect of three-for-two
stock split 15,850 (15,850) -
Cumulative translation
adjustment - - -
Amortization of deferred
compensation - - -
-------- -------- --------
Balance January 1, 1994 47,951 467,076 362,138
Net income - - 103,410
Issuance of stock under
employees' and directors'
stock plans 153 2,429 -
Conversion of convertible
obligations 2,921 63,013 -
9PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Shareholders' Investment (continued)
Common Capital
Stock, in Excess
$1 Par of Par Retained
(In thousands) Value Value Earnings
-------------------------------------------------------------------------
Effect of majority-owned
subsidiaries' equity
transactions - (47,225) -
Cumulative translation
adjustment - - -
Amortization of deferred
compensation - - -
Effect of change in accounting
principle (Note 2) - - -
Change in net unrealized loss
on available-for-sale
investments (Note 2) - - -
-------- -------- --------
Balance December 31, 1994 $ 51,025 $485,293 $465,548
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
10PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Shareholders' Investment (continued)
Net Un-
Cumulative realized
Transla- Loss on
tion Deferred Available-
Treasury Adjust- Compensa- for-sale
(In thousands) Stock ment tion Investments
---------------------------------------------------------------------------
Balance December 28, 1991 $ (1,038) $ 5,532 $ (6,010) $ -
Net income - - - -
Purchases of Company common
stock (6,214) - - -
Private placement of Company
common stock - - - -
Issuance of stock under
employees' and directors'
stock plans 3,442 - - -
Tax benefit related to
employees' and directors'
stock plans - - - -
Conversion of convertible
obligations - - - -
Effect of majority-owned
subsidiaries' equity
transactions - - - -
Cumulative translation
adjustment - (13,481) - -
Amortization of deferred
compensation - - 960 -
-------- -------- -------- --------
Balance January 2, 1993 (3,810) (7,949) (5,050) -
Net income - - - -
Public offering of Company
common stock (Note 4) - - - -
Issuance of stock under
employees' and directors'
stock plans 2,598 - - -
Conversion of convertible
obligations - - - -
Effect of majority-owned
subsidiaries' equity
transactions - - - -
Effect of three-for-two
stock split - - - -
Cumulative translation
adjustment - (5,642) - -
Amortization of deferred
compensation - - 1,211 -
-------- -------- -------- --------
Balance January 1, 1994 (1,212) (13,591) (3,839) -
Net income - - - -
Issuance of stock under
employees' and directors'
stock plans (419) - - -
Conversion of convertible
obligations - - - -
11PAGE
<PAGE>
Thermo Electron Corporation
Consolidated Statement of Shareholders' Investment (continued)
Net Un-
Cumulative realized
Transla- Loss on
tion Deferred Available-
Treasury Adjust- Compensa- for-sale
(In thousands) Stock ment tion Investments
---------------------------------------------------------------------------
Effect of majority-owned
subsidiaries' equity
transactions - - - -
Cumulative translation
adjustment - 10,034 - -
Amortization of deferred
compensation - - 1,182 -
Effect of change in accounting
principle (Note 2) - - - 2,868
Change in net unrealized loss
on available-for-sale
investments (Note 2) - - - (6,549)
-------- -------- -------- --------
Balance December 31, 1994 $ (1,631) $ (3,557) $ (2,657) $ (3,681)
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
12PAGE
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Thermo Electron Corporation
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
--------------------------------------------------------------------------
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Thermo Electron Corporation and its majority- and wholly owned subsidiaries
(the Company). All material intercompany accounts and transactions have
been eliminated. Majority-owned public subsidiaries include Thermedics
Inc., Thermo Instrument Systems Inc., Thermo Process Systems Inc., Thermo
Power Corporation, ThermoTrex Corporation, Thermo Fibertek Inc., and Thermo
Ecotek Corporation (formerly Thermo Energy Systems Corporation) (Note 15).
Thermo Cardiosystems Inc. and Thermo Voltek Corp. are majority-owned public
subsidiaries of Thermedics. Thermo Remediation Inc. is a majority-owned
public subsidiary of Thermo Process. ThermoLase Corporation is a
majority-owned public subsidiary of ThermoTrex. ThermoSpectra Corporation
is a majority-owned, privately held subsidiary of Thermo Instrument. The
Company accounts for investments in businesses in which it owns between 20%
and 50% using the equity method.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1994, 1993, and 1992 are for the fiscal years ended
December 31, 1994, January 1, 1994, and January 2, 1993, respectively.
Fiscal years 1994 and 1993 each included 52 weeks; 1992 included 53 weeks.
Revenue Recognition
For the majority of its operations, the Company recognizes revenues upon
shipment of its products or upon completion of services it renders. The
Company provides a reserve for its estimate of warranty and installation
costs at the time of shipment. Revenues and profits on substantially all
contracts are recognized using the percentage-of-completion method.
Revenues recorded under the percentage-of-completion method were
$175,926,000 in 1994, $176,627,000 in 1993, and $186,407,000 in 1992. The
percentage of completion is determined by relating either the actual costs
or actual labor incurred to date to management's estimate of total costs or
total labor, respectively, to be incurred on each contract. If a loss is
indicated on any contract in process, a provision is made currently for the
entire loss. The Company's contracts generally provide for billing of
customers upon the attainment of certain milestones specified in each
contract. Revenues earned on contracts in process in excess of billings are
classified as "Unbilled contract costs and fees" in the accompanying
balance sheet. There are no significant amounts included in the
accompanying balance sheet that are not expected to be recovered from
existing contracts at current contract values, or that are not expected to
be collected within one year, including amounts that are billed but not
paid under retainage provisions.
In August 1993, the Company agreed, in exchange for a cash settlement,
to terminate a power sales agreement between a subsidiary of the Company
and a utility. The power sales agreement required the utility to purchase
output of a cogeneration facility that had been under development. Under
the termination agreement, the Company received $12.6 million through 1994,
with subsequent payments of $5.4 million to be made through 1997. The
Company will be obligated to return $8.2 million of this settlement if the
Company elects to proceed with the facility and it achieves commercial
operation before January 1, 2000. Accordingly, the Company has deferred
recognition of $8.2 million of revenues, pending final determination of the
project's status. During 1993, the Company recorded revenues of $9.8
13PAGE
<PAGE>
Thermo Electron Corporation
million and segment income of $5.4 million from the termination of the
power sales agreement.
Gain on Issuance of Stock by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not
engaged principally in research and development, the Company records the
increase as a gain.
If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased by the subsidiary or
by the Company, gain recognition does not occur on issuances subsequent to
the date of a repurchase until such time as shares have been issued in an
amount equivalent to the number of repurchased shares. Such transactions
are reflected as equity transactions and the net effect of these
transactions is reflected in the accompanying statement of shareholders'
investment as "Effect of majority-owned subsidiaries' equity transactions."
Income Taxes
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income
taxes based on the expected future tax consequences of differences between
the financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Primary earnings per share have been computed based on the weighted average
number of common shares outstanding during the year. Because the effect of
common stock equivalents was not material, they have been excluded from the
primary earnings per share calculation. Fully diluted earnings per share
assumes the exercise of stock options and the conversion of the Company's
dilutive convertible obligations and elimination of the related interest
expense.
Stock Split
All share and per share information was restated in 1993 to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
that was distributed in October 1993.
Cash and Cash Equivalents
Cash equivalents consist principally of U.S. government agency securities,
bank time deposits, and commercial paper purchased with an original
maturity of three months or less. These investments are carried at cost,
which approximates market value.
Available-for-sale Investments
Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company's short- and long-term debt and marketable
equity securities are accounted for at market value (Note 2). Prior to
1994, these investments were carried at the lower of cost or market value.
The fair market value of short- and long-term investments is determined
based on quoted market prices for those investments.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor, and
manufacturing overhead.
14PAGE
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Thermo Electron Corporation
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: buildings and
improvements -- 5 to 40 years, alternative-energy and waste-recycling
facilities -- 24 to 25 years, machinery and equipment -- 3 to 20 years, and
leasehold improvements -- the shorter of the term of the lease or the life
of the asset.
Assets Related to Projects Under Construction
"Facilities under construction" in the accompanying 1993 balance sheet
included a waste-recycling facility that was under construction in San
Diego County, California. Construction costs for this facility were
capitalized as incurred. Construction was completed in early 1994. This
facility is included in "Alternative-energy and waste-recycling facilities"
in the accompanying 1994 balance sheet.
"Restricted funds" in the accompanying 1993 balance sheet represented
unexpended proceeds from the issuance of tax-exempt obligations (Note 6),
which were invested principally in U.S. government agency securities and
municipal tax-exempt obligations. These investments were carried at cost,
which equaled market value at year-end 1993.
Other Assets
"Other assets" in the accompanying balance sheet includes the cost of
acquired trademarks, patents, and other specifically identifiable
intangible assets, as well as capitalized costs associated with the
Company's operation of certain alternative-energy facilities. These assets
are being amortized using the straight-line method over their estimated
useful lives, which range from 5 to 20 years. These assets were $39,731,000
and $41,252,000, net of accumulated amortization of $21,741,000 and
$16,699,000, at year-end 1994 and 1993, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired businesses
is amortized using the straight-line method principally over 40 years.
Accumulated amortization was $46,668,000 and $32,439,000 at year-end 1994
and 1993, respectively. The Company assesses the future useful life of this
asset whenever events or changes in circumstances indicate that the current
useful life has diminished. The Company considers the future undiscounted
cash flows of the acquired businesses in assessing the recoverability of
this asset.
Common Stock of Subsidiary Subject to Redemption
In March 1993, ThermoLase sold 3,078,000 units at $5.00 per unit, each unit
consisting of one share of ThermoLase common stock and one redemption
right. In accordance with their terms, the redemption rights expired in
November 1994 and, as a result, the Company transferred $14,765,000 of
"Common stock of subsidiary subject to redemption" to "Minority interest"
and "Capital in excess of par value."
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains and
15PAGE
<PAGE>
Thermo Electron Corporation
losses are included in the accompanying statement of income and are not
material for the three years presented.
Presentation
Certain amounts in 1993 and 1992 have been reclassified to conform to the
1994 financial statement presentation.
2. Available-for-sale Investments
--------------------------------------------------------------------------
Effective January 2, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." In accordance with
SFAS No. 115, the Company's debt and marketable equity securities are
considered "Available-for-sale investments" in the accompanying balance
sheet and are carried at market value, with the difference between cost and
market value, net of related tax effects, recorded currently as a component
of shareholders' investment titled "Net unrealized loss on available-for-
sale investments." "Effect of change in accounting principle" in the
accompanying statement of shareholders' investment represents the
unrealized gain, net of related tax effects, pertaining to available-for-
sale investments held by the Company on January 2, 1994.
The aggregate market value, cost basis, and gross unrealized gains and
losses of short- and long-term available-for-sale investments by major
security type, as of December 31, 1994, are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
---------------------------------------------------------------------------
Government agency securities $287,418 $291,342 $ - $ 3,924
Corporate bonds 298,799 301,103 74 2,378
Tax-exempt securities 33,588 33,882 - 294
Other 57,561 56,728 2,783 1,950
-------- -------- -------- --------
$677,366 $683,055 $ 2,857 $ 8,546
======== ======== ======== ========
Short- and long-term available-for-sale investments in the
accompanying 1994 balance sheet include $348,613,000 with contractual
maturities of one year or less, $289,293,000 with contractual maturities of
more than one year through five years, and $39,460,000 with contractual
maturities of more than five years. Actual maturities may differ from
contractual maturities as a result of the Company's intent to sell these
securities prior to maturity and as a result of put and call options that
enable either the Company and/or the issuer to redeem these securities at
an earlier date.
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded
in the accompanying statement of income. Gain on sale of investments in
1994 resulted from gross realized gains of $6,666,000 and gross realized
losses of $1,815,000 relating to the sale of available-for-sale
investments.
16PAGE
<PAGE>
Thermo Electron Corporation
3. Acquisitions
--------------------------------------------------------------------------
In 1994, the Company's majority-owned subsidiaries made several
acquisitions for $174.3 million in cash. In 1993, the Company's majority-
owned subsidiaries made several acquisitions for $143.8 million in cash.
These acquisitions have been accounted for using the purchase method
of accounting, and the acquired companies' results of operations have been
included in the accompanying financial statements from their respective
dates of acquisition. The aggregate cost of these acquisitions exceeded the
estimated fair value of the acquired net assets by $232 million, which is
being amortized principally over 40 years. Allocation of the purchase price
for these acquisitions was based on estimates of the fair value of the net
assets acquired and, for acquisitions completed in fiscal 1994, is subject
to adjustment. Pro forma data is not presented since the acquisitions were
not material to the Company's results of operations.
"Other accrued expenses" in the accompanying balance sheet includes
approximately $26 million and $41 million at year-end 1994 and 1993,
respectively, for estimated severance, relocation, and other reserves
associated with acquisitions.
4. Common Stock
--------------------------------------------------------------------------
In 1993, the Company sold 6,750,000 shares of its common stock in a public
offering for net proceeds of $246.0 million.
At December 31, 1994, the Company had reserved 23,454,166 unissued
shares of its common stock for possible issuance under stock-based
compensation plans, for possible conversion of the Company's convertible
debentures, and for possible exchange of subsidiaries' convertible
obligations into common stock of the Company. The subsidiaries' obligations
are convertible into common stock of the Company in the event of a change
in control, as defined in the related fiscal agency agreement, that has not
been approved by the Company's Board of Directors (Note 6). The conversion
price would be equal to 50% of the price of the Company's common stock
prior to the change in control.
5. Stock-based Compensation Plans
--------------------------------------------------------------------------
The Company has several stock-based compensation plans for its key
employees, directors, and others, which permit the award of stock-based
incentives in the stock of the Company and its majority-owned subsidiaries.
The Company has a nonqualified stock option plan, adopted in 1974, and an
incentive stock option plan, adopted in 1981, which permit the award of
stock options to key employees. The incentive stock option plan expired in
1991 and no grants were made after that date. An equity incentive plan,
adopted in 1989, permits the grant of a variety of stock and stock-based
awards as determined by the human resources committee of the Company's
Board of Directors (the Board Committee), including restricted stock, stock
options, stock bonus shares or performance-based shares. To date, only
nonqualified stock options have been awarded under this plan. The option
recipients and the terms of options granted under these plans are
determined by the Board Committee. Generally, options presently outstanding
under these plans are exercisable immediately, but are subject to certain
transfer restrictions and the right of the Company to repurchase shares
issued upon exercise of the options at the exercise price, upon certain
events. The restrictions and repurchase rights generally lapse ratably over
periods ranging from three to ten years after the first anniversary of the
17PAGE
<PAGE>
Thermo Electron Corporation
grant date, depending on the term of the option, which may range from five
to twelve years. In addition, under certain options, shares acquired upon
exercise are restricted from resale until retirement or other events.
Nonqualified options may be granted at any price determined by the Board
Committee, while incentive stock options must be granted at not less than
fair market value of the Company's stock on the date of grant. Generally,
stock options have been granted at fair market value. The Company also has
a directors' stock option plan, adopted in 1993, that provides for the
annual grant of stock options of the Company and its majority-owned
subsidiaries to nonemployee directors pursuant to a formula approved by the
Company's shareholders. Options awarded under this plan are exercisable six
months after the date of grant and expire three or seven years after the
date of grant. In addition to the Company's stock-based compensation plans,
certain officers and key employees may also participate in stock-based
compensation plans of the Company's majority-owned subsidiaries.
No accounting recognition is given to options granted at fair market
value until they are exercised. Upon exercise, net proceeds, including tax
benefits realized, are credited to equity.
A summary of the Company's stock option information is as follows:
1994 1993 1992
---------------- ---------------- ---------------
Range Range Range
of of of
Option Option Option
Number Prices Number Prices Number Prices
(In thousands except of per of per of per
per share amounts) Shares Share Shares Share Shares Share
--------------------------------------------------------------------------
Options outstanding, $ 7.27- $ 7.27- $ 7.27-
beginning of year 2,961 $42.32 2,074 $31.30 1,965 $29.02
38.68- 39.23-
Granted 729 45.10 1,225 42.32 634 31.30
9.22- 7.27- 7.27-
Exercised (140) 31.30 (317) 29.02 (480) 25.75
11.53- 10.73- 10.73-
Lapsed or canceled (49) 41.38 (21) 37.07 (45) 31.30
----- ----- -----
Options outstanding, $ 7.27- $ 7.27- $ 7.27-
end of year 3,501 $45.10 2,961 $42.32 2,074 $31.30
===== ===== =====
$ 7.27- $ 7.27- $ 7.27-
Options exercisable 3,501 $45.10 2,961 $42.32 2,067 $31.30
===== ===== =====
Options available
for grant 1,612 292 1,195
===== ===== =====
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Thermo Electron Corporation
6. Long-term Obligations and Other Financing Arrangements
--------------------------------------------------------------------------
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1994 1993
-------------------------------------------------------------------------
5% Senior convertible debentures,
due 2001, convertible at $47.25 per share $ 345,000 $ -
4 5/8% Senior convertible debentures,
due 1997, convertible at $32.25 per share 205,000 205,000
4 7/8% Subordinated convertible debentures,
due 1997, convertible at $32.25 per share 55,000 55,000
6 3/4% Subordinated convertible debentures,
due 2001, convertible at $23.00 per share - 67,173
3 3/4% Senior convertible debentures,
due 2000, convertible into shares of
Thermo Instrument at $31.75 per share 70,000 70,000
6 5/8% Subordinated convertible debentures,
due 2001, convertible into shares of
Thermo Instrument at $17.58 per share 36,862 49,569
6 1/2% Subordinated convertible debentures,
due 1998, convertible into shares of
Thermedics at $10.42 per share 10,252 12,997
6 1/2% Subordinated convertible debentures,
due 1997, convertible into shares of
Thermo Process at $10.33 per share 16,597 18,547
Noninterest-bearing subordinated convertible
debentures, due 1997, convertible into shares
of Thermo Cardiosystems at $21.74 per share 33,000 -
5 1/2% Subordinated convertible notes,
due 2002, convertible into shares of
Thermo Cardiosystems at $9.88 per share 450 600
3 3/4% Subordinated convertible debentures,
due 2000, convertible into shares of Thermo
Voltek at $11.75 per share 34,500 34,500
8.1% Nonrecourse tax-exempt obligation, payable
in semi-annual installments commencing 1995,
with final payment in 2000 62,500 62,500
6.0% Nonrecourse tax-exempt obligation, payable
in semi-annual installments, with final
payment in 2000 49,700 57,500
Tax-exempt obligations, payable in semi-annual
installments commencing 1995, with final
payment in 2017 133,670 -
10.23% Mortgage loan secured by property with a
net book value of $16,564, payable in monthly
installments, with a final payment in 2004 10,855 11,535
Other 8,338 21,375
---------- ----------
1,071,724 666,296
Less: Current maturities of long-term
obligations 21,971 18,835
---------- ----------
$1,049,753 $ 647,461
========== ==========
19PAGE
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Thermo Electron Corporation
The debentures that are convertible into subsidiary common stock have
been issued by the respective subsidiaries and are guaranteed by the
Company.
In the event of a change in control of the Company, as defined in the
related fiscal agency agreement, that has not been approved by the
Company's Board of Directors, each holder of the 5%, 4 5/8%, and 4 7/8%
convertible debentures issued by the Company will have the right to require
the Company to buy all or part of the holders' debentures, at par value
plus accrued interest, within 50 calendar days after the date of expiration
of a specified approval period. In addition, the obligations convertible
into subsidiary common stock become convertible into common stock of the
Company at a conversion price equal to 50% of the price of the Company's
common stock prior to the change in control.
"Nonrecourse tax-exempt obligations" represent obligations issued by
the California Pollution Control Financing Authority (CPCFA), the proceeds
of which were used to finance two alternative-energy facilities (Delano I
and Delano II) located in Delano, California. Delano I was previously
leased to a subsidiary of Thermo Ecotek by a third-party owner/lessor and
was purchased by Thermo Ecotek in 1993. Construction of Delano II was
completed in 1993. The obligations are payable only by a subsidiary of
Thermo Ecotek and are not guaranteed by the Company, except under limited
circumstances. As required by the financing bank group, Thermo Ecotek
entered into interest rate swap agreements that effectively convert these
obligations from floating rates to the fixed rates described above. These
swaps have terms expiring in 2000, commensurate with the final maturity of
the debt. The interest rate swap agreements are with a different
counterparty than the holders of the underlying debt. The Company believes,
however, that the credit risks associated with these swaps are minimal
since the agreements are with a large, reputable bank. The notional amount
of debt subject to the swap agreements is $110.0 million at December 31,
1994.
"Tax-exempt obligations" represent obligations issued by the CPCFA in
January 1992, the proceeds of which were loaned to the Company to finance
the construction of a waste-recycling facility in San Diego County,
California. Construction of this facility was completed in 1994 and the
debt was reclassified from "Liabilities related to projects under
construction" to "Long-term obligations" in the accompanying balance sheet.
Of these tax-exempt obligations, $95 million carry fixed rates of interest
ranging from 6.75% to 8.2%, and $39 million carry a floating rate of
interest, which varies weekly based on short-term, tax-exempt markets. The
interest rate ranged from 3.1% to 7.2% in 1994 and 4.25% to 6.85% in 1993.
"Tax-exempt obligations" in the accompanying 1993 balance sheet also
includes $8.5 million of tax-exempt obligations issued by the CPCFA in
October 1991, the proceeds of which were loaned to the Company to finance
the construction of the Delano II alternative-energy facility. These
tax-exempt obligations were repaid in February 1994. Prior to the
repayment, these obligations carried a floating rate of interest, which
varied daily based on short-term, tax-exempt markets. The interest rate
ranged from 2.45% to 5.55% in 1994 and 2.5% to 6.1% in 1993.
The Company capitalized interest expense, net of interest income,
incurred in connection with the construction of the Delano II and San Diego
County facilities discussed above. These amounts were $2.1 million and $8.4
million in 1994 and 1993, respectively.
20PAGE
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Thermo Electron Corporation
The annual requirements for long-term obligations are as follows:
(In thousands)
--------------------------------------------------------
1995 $ 21,971
1996 21,713
1997 333,165
1998 36,599
1999 26,597
2000 and thereafter 631,679
----------
$1,071,724
==========
Certain of the Company's obligations include requirements to maintain
predetermined financial ratios. At December 31, 1994, the Company was in
compliance with these requirements.
Based on quoted market prices and on borrowing rates currently
available to the Company for debt of the same remaining maturities, the
fair market value of the Company's long-term obligations, excluding
interest rate swap agreements, was approximately $1.24 billion and $1.03
billion at December 31, 1994 and January 1, 1994, respectively. The fair
market value of interest rate swap agreements entered into in connection
with the nonrecourse tax-exempt obligations was a net receivable of
approximately $2.1 million and a net payable of approximately $6.1 million
at December 31, 1994 and January 1, 1994, respectively. During 1994, the
average variable rate received under the interest rate swap agreements was
4.9%.
"Notes payable and current maturities of long-term obligations" in the
accompanying balance sheet include $61.0 million and $45.9 million in 1994
and 1993, respectively, of short-term bank borrowings at several of the
Company's foreign subsidiaries. The weighted average interest rates for
these borrowings were 6.2% at both year-end 1994 and 1993.
7. Commitments and Contingencies
--------------------------------------------------------------------------
Litigation
The Company participates in the operation of the Dade County Downtown
Government Center cogeneration facility in Miami, Florida, through a 50/50
joint venture of subsidiaries of the Company and Rolls-Royce, Inc. Because
the demand for power and chilled water at the Dade County Downtown
Government Center complex has been substantially less than anticipated
since the plant's startup in 1987, and because the plant has had difficulty
disposing of the rest of its output, the joint venture has experienced
continuing losses.
The joint venture sells electricity to Dade County pursuant to an
energy purchase contract signed in 1983. The joint venture historically has
sold more than half of its actual output to Dade County and the balance to
Florida Power and Light (FPL), the local utility. In 1992, the joint
venture sued Dade County in Florida state court, alleging that Dade County
was in breach of the energy purchase contract and had misrepresented its
demand for electrical power. Dade County asserted counterclaims against the
joint venture, the Company, and Rolls-Royce, alleging, among other things,
failure to properly maintain and operate the facility and to use its best
efforts to maximize use of the facility's output. In May 1993, Dade County
filed a petition with the Florida Public Service Commission (FPSC),
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Thermo Electron Corporation
asserting that the joint venture was engaged in the retail sale of
electricity without complying with rules governing public utilities. If
FPSC determines that the joint venture was engaged in illegal retail sales
of electricity, it could impose refund or other liabilities on the joint
venture and/or enjoin future sales.
In May 1993, Dade County also brought a parallel proceeding before the
Federal Energy Regulatory Commission (FERC) seeking to terminate the
project's qualifying facility status under the Public Utility Regulatory
Policies Act of 1978 (PURPA) for failure to meet certain required
efficiency standards at various times from 1987 to the present. (PURPA
generally obligates utilities, such as FPL, to purchase electricity from
qualifying facilities at the utilities' avoided cost and exempts qualifying
facilities from various federal and state regulations, such as the Federal
Power Act (FPA).) The Company believes the project currently meets the
efficiency standards and therefore currently has qualifying facility
status. However, on October 21, 1993, FERC issued an order finding that,
although the project met the efficiency standards for 1992, the project did
not meet such standards from 1987 through 1991. FERC denied the joint
venture's request for a waiver of the efficiency standards for that period
and also directed the joint venture to show cause why FERC should not find
that the joint venture was a public utility for FPA purposes during that
period. If the joint venture is retroactively deemed a public utility under
FPA, FERC could impose refund liabilities and other penalties to the extent
FERC does not find either that the joint venture complied with relevant
FERC regulations or that the regulations should be waived. The joint
venture has been granted a rehearing of the FERC decision and has asserted
various grounds for reversal. The joint venture is also entitled to appeal
FERC's final decision, if necessary. In the rehearing, the County and FPL
have argued before FERC that the project did not meet the efficiency
standards for 1992.
In 1994, the joint venture's lawsuit against Dade County, including
counterclaims by Dade County, was dismissed with prejudice by agreement of
the parties. The terms of the dismissal included: (a) payment by Dade
County, net of amounts paid by the joint venture, of $1,500,000, (b) a
joint request that FERC terminate its proceedings and vacate its previous
order, and (c) a joint request that FPSC dismiss the petition brought
before it by Dade County. FERC has not acted upon the request made to it by
the joint venture. FPSC granted the request for dismissal. Since the
settlement with the County, FPL has filed (a) a motion at FERC opposing the
request made to FERC by the joint venture, and (b) a motion at FPSC,
similar to one previously filed at FPSC by Dade County, seeking a
declaration that the joint venture was engaged in the retail sale of
electricity without complying with the rules governing public utilities.
The joint venture also is pursuing an antitrust lawsuit against FPL.
The joint venture leases its generating equipment from Florida Energy
Partners Limited Partnership (FEP). If the energy purchase contract were to
be held illegal, FEP could declare a default by the joint venture under the
lease with FEP, and Dade County could be released from its obligation to
buy electricity from the joint venture. In the lease, the joint venture
also covenanted that the project would maintain PURPA qualifying facility
status. If the joint venture is deemed to have breached this covenant, FEP
could declare a default under the lease. In the event of a default, among
other things, FEP could seek to sell or re-lease the equipment and the
Company generally would be liable for one-half of any deficiency between
(a) in the event of a sale, approximately $45 million and the amount
realized from the sale or (b) in the case of re-lease, the present value of
future rentals and prepayment penalty under the lease (approximately $31
22PAGE
<PAGE>
Thermo Electron Corporation
million) and the present value of a fair rental value to be collected from
a new tenant.
The joint venture's revenues for the year ended December 31, 1994 and
the cumulative period from 1987 through 1991 were $3.4 million and $26.3
million, respectively. The Company reports its interest in the joint
venture's results of operations using the equity method of accounting.
Under this method, the Company records 50% of the joint venture's loss, but
does not report as revenues any of the joint venture's revenues.
The Company is contingently liable with respect to other lawsuits and
matters. In the opinion of management, these contingencies will not have a
material adverse effect on the financial condition of the Company.
Operating Leases
The Company leases portions of its office and operating facilities under
various noncancelable operating lease arrangements. The accompanying
statement of income includes expenses from operating leases of $19,615,000
in 1994, $14,718,000 in 1993, and $11,231,000 in 1992. Minimum rental
commitments under noncancelable operating leases at December 31, 1994, are
as follows:
(In thousands)
-----------------------------------------------------
1995 $17,197
1996 13,717
1997 10,406
1998 7,076
1999 4,520
2000 and thereafter 16,695
-------
$69,611
=======
8. Employee Benefit Plans
--------------------------------------------------------------------------
401(k) Savings Plan
The Company's 401(k) savings plan covers the majority of the Company's
eligible full-time U.S. employees. Contributions to the plan are made by
both the employee and the Company. Company contributions are based on the
level of employee contributions. For this plan, the Company contributed and
charged to expense $6,450,000, $4,517,000, and $3,460,000 in 1994, 1993,
and 1992, respectively.
Employee Stock Ownership Plan
The Company's Employee Stock Ownership Plan (ESOP) covers eligible
full-time U.S. employees. The Company borrowed funds from a financial
institution and then loaned these funds to the ESOP to purchase shares of
common stock of the Company and its majority-owned subsidiaries. The loan
balance between the Company and the financial institution was paid off in
1992. The loan between the Company and the ESOP is still outstanding. The
shares purchased are reported as "Deferred compensation" in the
accompanying balance sheet. The Company makes annual contributions to the
ESOP and shares are allocated to plan participants based on employee
compensation. For this plan, the Company charged to expense $1,123,000,
$1,125,000, and $1,103,000 in 1994, 1993, and 1992, respectively. The 1992
amount includes interest expense of $228,000.
23PAGE
<PAGE>
Thermo Electron Corporation
Employee Stock Purchase Plan
Substantially all of the Company's full-time U.S. employees are eligible to
participate in employee stock purchase plans sponsored by the Company or by
the Company's majority-owned public subsidiaries. Under these plans, shares
of the Company's common stock may be purchased at the end of a 12-month
plan year at 85% of the fair market value at the beginning of the plan
year, and the shares purchased are subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. Participants of employee
stock purchase plans sponsored by the Company's majority-owned public
subsidiaries may also elect to purchase shares of the common stock of the
subsidiary by which they are employed. During 1994, 1993, and 1992, the
Company issued 97,224 shares, 125,268 shares, and 85,300 shares of its
common stock, respectively, under these plans.
Postretirement Benefits
Two of the Company's subsidiaries provide postretirement medical benefits
for employees who meet certain age and length-of-service requirements. As
of the beginning of fiscal 1992, the Company adopted SFAS No. 106,
"Accounting for Postretirement Benefits Other Than Pensions," which
required the Company to change to the accrual method of accounting for
postretirement medical benefits.
The Company elected to recognize the cumulative effect of its
accumulated postretirement benefit obligation in 1992, which resulted in a
charge of $1,438,000, net of tax benefits of $844,000. The annual expense
incurred under SFAS No. 106 and the related obligations required under this
statement are not material to the Company's financial statements.
Postemployment Benefits
The Company provides certain postemployment benefits to former and inactive
employees. Effective January 2, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires
the recognition of the cost of postemployment benefits if certain criteria
are met and the amount of benefits can be reasonably estimated. The
adoption of this statement did not have a material impact on the Company's
financial statements.
9. Income Taxes
--------------------------------------------------------------------------
The components of income before income taxes, minority interest, and
cumulative effect of change in accounting principle are as follows:
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Domestic $162,988 $113,152 $ 83,943
Foreign 40,615 17,967 18,027
-------- -------- --------
$203,603 $131,119 $101,970
======== ======== ========
24PAGE
<PAGE>
Thermo Electron Corporation
The components of the provision for income taxes are as follows:
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Currently payable:
Federal $ 30,089 $ 10,270 $ 12,280
Foreign 16,343 8,643 7,058
State 9,672 5,320 3,923
-------- -------- --------
56,104 24,233 23,261
-------- -------- --------
Deferred (prepaid), net:
Federal 10,096 6,821 4,018
Foreign (243) 931 1,010
State 3,274 1,415 (815)
-------- -------- --------
13,127 9,167 4,213
-------- -------- --------
$ 69,231 $ 33,400 $ 27,474
======== ======== ========
The provision for income taxes that is currently payable does not
reflect $3,531,000, $3,354,000, and $7,579,000 of tax benefits of the
Company and its public subsidiaries allocated to "Capital in excess of par
value" or $112,000, $2,280,000, and $3,137,000 of tax benefits used to
reduce "Cost in excess of net assets of acquired companies" in 1994, 1993,
and 1992, respectively.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal
income tax rate of 35% in 1994 and 1993 and 34% in 1992 to income before
income taxes, minority interest, and cumulative effect of change in
accounting principle due to the following:
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Provision for income taxes at statutory rate $ 71,261 $ 45,892 $ 34,670
Increases (decreases) resulting from:
Gain on issuance of stock by
subsidiaries (8,849) (13,770) (10,272)
State income taxes, net of federal tax 8,178 4,299 2,051
Tax-exempt and tax-preferred investment
income (465) (1,207) (251)
Investment and research and development
tax credits (2,786) (6,625) -
Foreign tax rate and tax law differential 1,422 3,969 1,916
Tax benefit of foreign sales corporation (2,411) (1,366) (989)
Minority interest in partnership losses (1,454) (1,057) (1,157)
Amortization of cost in excess of net
assets of acquired companies 3,450 3,400 1,674
Nondeductible expenses 907 1,008 198
Other, net (22) (1,143) (366)
-------- -------- --------
$ 69,231 $ 33,400 $ 27,474
======== ======== ========
25PAGE
<PAGE>
Thermo Electron Corporation
Deferred and short- and long-term prepaid income taxes in the
accompanying balance sheet consist of the following:
(In thousands) 1994 1993
----------------------------------------------------------------
Deferred income taxes:
Depreciation $ 48,962 $ 38,108
Intangible assets 7,373 8,214
Other 1,564 2,065
-------- --------
$ 57,899 $ 48,387
======== ========
Prepaid income taxes:
Other reserves and accruals $ 36,033 $ 29,855
Inventory basis difference 16,756 10,801
Capitalized costs and joint venture equity 3,727 7,071
Accrued compensation 8,599 7,653
Allowance for doubtful accounts 5,470 4,108
Net operating loss carryforwards 6,182 5,200
Federal tax credit carryforwards 7,869 3,193
Available-for-sale investments 1,025 -
Other, net 6,185 7,270
-------- --------
91,846 75,151
Less: Valuation allowance 29,358 20,402
-------- --------
$ 62,488 $ 54,749
======== ========
The valuation allowance relates to the uncertainty surrounding the
realization of tax loss and credit carryforwards and the realization of tax
benefits attributable to purchase accounting reserves and certain other tax
assets of the Company and certain subsidiaries. Of the year-end 1994
valuation allowance, $8.6 million will be used to reduce "Cost in excess of
net assets of acquired companies" when any portion of the related deferred
tax asset is recognized and $7.5 million will increase "Capital in excess
of par value" when previously unrealized stock option benefits are
recognized.
The increase in the valuation allowance is primarily attributable to
the establishment of valuation allowances for tax loss and credit
carryforwards, net of utilization of previously unbenefited tax attributes.
The Company has not recognized a deferred tax liability for the
undistributed earnings of its domestic subsidiaries because the Company
does not expect these earnings to be remitted and become subject to tax.
The Company believes it can implement certain tax strategies to recover its
share of all undistributed earnings of its domestic subsidiaries tax-free.
A provision has not been made for U.S. or additional foreign taxes on
$109 million of undistributed earnings of foreign subsidiaries that could
be subject to taxation if remitted to the U.S. because the Company plans to
keep these amounts permanently reinvested overseas. The Company believes
that any additional U.S. tax liability due upon remittance of such earnings
would be immaterial due to available U.S. foreign tax credits.
26PAGE
<PAGE>
Thermo Electron Corporation
10. Transactions in Stock of Subsidiaries
--------------------------------------------------------------------------
"Gain on issuance of stock by subsidiaries" in the accompanying statement
of income results primarily from the following transactions:
1994
----
Public offering of 1,610,000 shares of ThermoTrex common stock at
$15.375 per share for net proceeds of $23,034,000 resulted in a gain of
$7,906,000.
Initial public offering of 2,674,786 shares of ThermoLase common stock
at $6.00 per share for net proceeds of $14,784,000 resulted in a gain of
$8,609,000.
Private placements of 1,505,000 shares of ThermoSpectra common stock
at $10.00 per share for net proceeds of $13,993,000 resulted in a gain of
$6,469,000.
Conversion of $3,725,000 of Thermedics 6 1/2% subordinated convertible
debentures convertible at $10.42 per share into 357,597 shares of
Thermedics common stock resulted in a gain of $992,000.
1993
----
Public offering of 3,225,000 shares of Thermedics common stock at
$10.00 per share for net proceeds of $29,980,000 resulted in a gain of
$10,707,000.
Public offering of 4,312,500 shares of Thermo Power common stock at
$9.00 per share for net proceeds of $35,998,000 resulted in a gain of
$10,578,000.
Private placements of 2,062,500 shares of ThermoTrex common stock at
$11.17 and $14.50 per share for net proceeds of $27,463,000 resulted in a
gain of $11,400,000.
Private placement of 200,000 shares and initial public offering of
1,100,000 shares of Thermo Remediation common stock at $9.89 and $12.50 per
share, respectively, for net proceeds of $14,554,000 resulted in a gain of
$4,239,000.
Conversion of $7,270,000 of Thermedics 6 1/2% subordinated convertible
debentures convertible at $10.42 per share into 697,919 shares of
Thermedics common stock resulted in a gain of $2,506,000.
1992
----
Private placement of 2,709,356 shares and initial public offering of
3,000,000 shares of Thermo Fibertek common stock at $6.70 to $8.00 per
share for net proceeds of $39,748,000 resulted in a gain of $23,303,000.
Issuance of 1,566,480 restricted shares of ThermoTrex common stock
valued at $6.17 per share, or $9,673,000, to acquire Lorad Corporation
resulted in a gain of $3,081,000.
Private placement of 375,000 shares of ThermoTrex common stock at
$10.67 per share for net proceeds of $3,556,000 resulted in a gain of
$1,745,000.
The Company's ownership percentage in these subsidiaries changed
primarily as a result of the transactions listed above, as well as the
Company's purchases of shares of its majority-owned subsidiaries' stock,
the subsidiaries' purchases of their own stock, the issuance of
subsidiaries' stock by the Company or by the subsidiaries under stock-based
compensation plans or in other transactions, and the conversion of
27PAGE
<PAGE>
Thermo Electron Corporation
convertible obligations held by the Company, its subsidiaries, or by third
parties.
The Company's ownership percentages at year-end were as follows:
1994 1993 1992
---- ---- ----
Thermo Instrument 83% 81% 81%
Thermo Fibertek 81% 80% 80%
Thermedics 51% 52% 59%
Thermo Ecotek (Note 15) 97% 88% 87%
Thermo Power 60% 52% 81%
ThermoTrex 50% 55% 62%
Thermo Process 80% 72% 71%
Thermo Cardiosystems (a) 58% 57% 58%
Thermo Voltek (a) 71% 67% 57%
Thermo Remediation (b) 65% 67% 85%
ThermoLase (c) 69% 81% 100%
ThermoSpectra (d) 86% 100% 100%
(a) Reflects combined ownership by Thermo Electron and Thermedics.
(b) Reflects ownership by Thermo Process.
(c) Reflects ownership by ThermoTrex.
(d) Reflects ownership by Thermo Instrument.
11. Other Income (Expense), Net
--------------------------------------------------------------------------
The components of "Other income (expense), net" in the accompanying
statement of income are as follows:
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------
Interest income $ 43,165 $ 23,883 $ 24,624
Interest expense (59,550) (31,643) (24,296)
Equity in losses of unconsolidated
subsidiaries (4,019) (22,721) (3,948)
Gain on sale of investments 4,851 2,469 4,968
Other income, net 14,743 535 416
-------- -------- --------
$ (810) $(27,477) $ 1,764
======== ======== ========
12. Costs Associated with Divisional and Product Restructuring
--------------------------------------------------------------------------
"Costs associated with divisional and product restructuring" in the
accompanying 1994 statement of income represents severance costs and, to a
lesser extent, the costs to write-off leasehold improvements at
ThermoTrex's East Coast division.
The 1993 amount primarily represents a $1,900,000 reserve for the
write-off of machinery and equipment and costs to phase out a product line
in the Company's metal-fabrication services business, a $1,200,000 reserve
for restructuring at the Company's steam turbines and compressors business,
and $2,660,000 for the write-off of mobile soil-remediation assets and
other related expenses.
28PAGE
<PAGE>
Thermo Electron Corporation
13. Supplemental Cash Flow Information
--------------------------------------------------------------------------
Supplemental cash flow information is as follows:
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Cash Paid For:
Interest $ 47,451 $ 29,438 $ 18,287
Income taxes $ 27,135 $ 9,699 $ 16,593
Noncash Activities:
Conversions of convertible obligations $ 89,625 $ 50,403 $ 13,863
Purchase of alternative-energy
facility through assumption of debt $ - $ 66,900 $ -
Fair value of assets of acquired
companies $ 250,404 $ 208,193 $ 429,113
Cash paid for acquired companies (174,330) (143,790) (255,340)
Issuance of subsidiary common stock
for acquired business - - (9,673)
--------- --------- ---------
Liabilities assumed of acquired
companies $ 76,074 $ 64,403 $ 164,100
========= ========= =========
14. Business Segment and Geographical Information
--------------------------------------------------------------------------
The Company's business segments include the following:
Instruments: environmental-monitoring, analytical, and process-control
instruments
Alternative-energy Systems: alternative-energy power plants,
waste-recycling facility, industrial refrigeration systems, natural gas
engines, cooling and cogeneration units, turbines and compressors
Process Equipment: paper-recycling equipment, papermaking systems and
accessories, metallurgical processing systems, electroplating equipment
Biomedical Products: biomedical materials, mammography and needle-biopsy
systems, skin-incision devices, blood coagulation-monitoring equipment,
left ventricular-assist systems, neurophysiology monitoring instruments,
personal-care products
Environmental Services: thermal soil-remediation, industrial-fluids
recycling, metallurgical heat treating and fabrication, laboratory
analysis, environmental sciences
Advanced Technologies: process detection systems, security instruments,
electronic test equipment, power-conversion instruments, long-term hair
removal system, development of avionics products and medical systems
29PAGE
<PAGE>
Thermo Electron Corporation
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Revenues:
Instruments $ 650,114 $ 516,712 $ 349,261
Alternative-energy Systems 285,410 242,662 221,877
Process Equipment 189,862 167,524 160,459
Biomedical Products 180,318 127,533 58,167
Environmental Services 141,793 121,987 114,268
Advanced Technologies 142,680 76,304 46,075
Intersegment Sales Elimination (a) (4,829) (3,004) (1,135)
---------- ---------- ----------
$1,585,348 $1,249,718 $ 948,972
========== ========== ==========
Segment Income (b):
Instruments $ 105,440 $ 91,412 $ 59,758
Alternative-energy Systems 34,451 14,434 1,767
Process Equipment 20,730 13,924 13,891
Biomedical Products 17,601 5,758 1,252
Environmental Services 14,853 9,263 8,411
Advanced Technologies 10,261 7,841 1,989
---------- ---------- ----------
Total Segment Income 203,336 142,632 87,068
Equity in Losses of Unconsolidated
Subsidiaries (4,019) (22,721) (3,948)
Corporate (c) 4,286 11,208 18,850
---------- ---------- ----------
Income Before Income Taxes,
Minority Interest, and Cumulative
Effect of Change in Accounting
Principle $ 203,603 $ 131,119 $ 101,970
========== ========== ==========
Identifiable Assets:
Instruments $1,011,916 $ 850,688 $ 531,320
Alternative-energy Systems 577,781 593,247 406,515
Process Equipment 191,846 179,251 172,984
Biomedical Products 348,199 285,715 228,781
Environmental Services 192,523 146,658 129,656
Advanced Technologies 194,557 169,488 81,409
Corporate (d) 503,127 248,663 267,600
---------- ---------- ----------
$3,019,949 $2,473,710 $1,818,265
========== ========== ==========
30PAGE
<PAGE>
Thermo Electron Corporation
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------
Depreciation and Amortization:
Instruments $ 22,070 $ 18,059 $ 10,786
Alternative-energy Systems 16,078 4,982 3,511
Process Equipment 4,780 4,277 3,792
Biomedical Products 6,292 5,328 2,922
Environmental Services 8,382 6,641 5,845
Advanced Technologies 3,487 1,843 1,277
Corporate 1,233 1,226 1,095
---------- ---------- ----------
$ 62,322 $ 42,356 $ 29,228
========== ========== ==========
Capital Expenditures:
Instruments $ 7,574 $ 6,347 $ 4,650
Alternative-energy Systems (e) 31,717 92,862 38,097
Process Equipment 3,231 2,631 3,721
Biomedical Products 7,284 9,042 2,245
Environmental Services 7,559 7,583 8,550
Advanced Technologies 2,650 2,774 1,681
Corporate 141 2,241 1,063
---------- ---------- ----------
$ 60,156 $ 123,480 $ 60,007
========== ========== ==========
Export Sales Included Above (f) $ 262,436 $ 219,631 $ 131,755
========== ========== ==========
Foreign Operations Included Above:
Revenues:
Europe $ 295,203 $ 223,707 $ 198,066
Other 61,586 32,835 22,941
---------- ---------- ----------
$ 356,789 $ 256,542 $ 221,007
========== ========== ==========
Income Before Income Taxes,
Minority Interest, and Cumulative
Effect of Change in Accounting
Principle:
Europe $ 30,490 $ 11,305 $ 17,627
Other 10,125 6,662 400
---------- ---------- ----------
$ 40,615 $ 17,967 $ 18,027
========== ========== ==========
Identifiable Assets:
Europe $ 386,645 $ 299,091 $ 239,431
Other 60,697 41,068 36,877
---------- ---------- ----------
$ 447,342 $ 340,159 $ 276,308
========== ========== ==========
(a) Intersegment sales are accounted for at prices that are representative
of transactions with unaffiliated parties.
(b) Segment income is income before corporate general and administrative
expenses, costs associated with divisional and product restructuring,
other income and expense, minority interest expense, and income taxes.
(c) Includes corporate general and administrative expenses, costs
associated with divisional and product restructuring, other income and
expense, and gain on issuance of stock by subsidiaries.
31PAGE
<PAGE>
Thermo Electron Corporation
(d) Primarily cash and cash equivalents, short- and long-term investments,
and property and equipment at the Company's Waltham, Massachusetts,
headquarters.
(e) Includes $88.4 million in 1993 for the purchase of an alternative-
energy facility in Delano, California, and $30.5 million in 1992 for
the purchase of an alternative-energy facility in Whitefield, New
Hampshire.
(f) In general, export revenues are denominated in U.S. dollars.
15. Subsequent Events
--------------------------------------------------------------------------
Transaction in Stock of Subsidiary
On February 21, 1995, Thermo Ecotek issued 2,333,556 shares of its common
stock in an initial public offering pursuant to a rights offering for net
proceeds of approximately $27.7 million. Following the initial public
offering, the Company owned 83% of Thermo Ecotek's common stock
outstanding.
Acquisitions
On February 8, 1995, the Company entered into a definitive agreement to
acquire Coleman Research Corporation (CRC) in exchange for up to 2,669,158
shares of Company common stock, including approximately 146,900 shares
reserved for issuance upon exercise of stock options. CRC provides systems
integration, systems engineering, and analytical services to government
customers in the fields of information technology, energy and the
environment, software engineering, launch systems, advance radar and
imaging, and health systems. The acquisition is subject to certain
conditions, including the approval of CRC's shareholders, and is expected
to be consummated on or about March 15, 1995. If completed, the acquisition
of CRC will be accounted for using the pooling-of-interests method.
On March 1, 1995, the Company's Thermo Instrument subsidiary entered
into an Asset and Stock Purchase Agreement (the Agreement) with Fisons plc
(Fisons) under which Thermo Instrument agreed to acquire the Scientific
Instruments Division (the Division) of Fisons for 202 million British
pounds sterling. The Division is principally composed of operations that
are involved in the research, development, manufacture, and sale of
analytical instruments to industrial and research laboratories worldwide.
For the fiscal year ended December 31, 1994, the Division had unaudited
revenues of approximately 262 million British pounds sterling and an
unaudited net loss of approximately 19 million British pounds sterling.
Consummation of the acquisition is subject to several conditions, including
the approval of Fisons shareholders, regulatory approvals, consent of
certain third parties, and customary conditions to closing. The purchase
price is subject to a post-closing adjustment based on the net asset value
of the Division as of the closing date.
32PAGE
<PAGE>
Report of Independent Public Accountants
---------------------------------------------------------------------------
To the Shareholders and Board of Directors
of Thermo Electron Corporation:
We have audited the accompanying consolidated balance sheet of Thermo
Electron Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1994 and January 1, 1994, and the related consolidated
statements of income, shareholders' investment, and cash flows for each of
the three years in the period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Thermo Electron Corporation and subsidiaries as of December 31, 1994 and
January 1, 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements,
effective December 29, 1991, the Company changed its method of accounting
for postretirement benefits other than pensions. Also, as discussed in Note
2 to the consolidated financial statements, effective January 2, 1994, the
Company changed its method of accounting for investments in debt and
marketable equity securities.
Arthur Andersen LLP
Boston, Massachusetts
February 10, 1995
(Except with respect to the matters
discussed in Note 15 as to which the
date is March 1, 1995)
33PAGE
<PAGE>
Thermo Electron Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company develops and manufactures a broad range of products that are
sold worldwide. The Company expands the product lines and services it
offers by developing and commercializing its own core technologies and by
making strategic acquisitions of complementary businesses. The majority of
the Company's businesses fall into four broad markets: environmental,
energy, process control, and selected health and safety instrumentation.
An important component of the Company's strategy is to establish
leading positions in its markets through the application of proprietary
technology, whether developed internally or acquired. A key contribution to
the growth of the Company's segment income (as defined in the results of
operations below), particularly over the last three years, has been the
ability to identify attractive acquisition opportunities, complete those
acquisitions, and derive a growing income contribution from the newly
acquired businesses as they are integrated into the Company's business
segments.
The Company seeks to minimize its dependence on any specific product
or market by maintaining and diversifying its portfolio of businesses and
technologies. Similarly, the Company's goal is to maintain a balance in its
businesses between those affected by various regulatory cycles and those
more dependent on the general level of economic activity. Although the
Company is diversified in terms of technology, product offerings, and
geographic markets served, the future financial performance of the Company
as a whole is largely affected by the strength of worldwide economies and
the continued adoption and diligent enforcement of environmental
regulations, among other factors.
The Company believes that maintaining an entrepreneurial atmosphere is
essential to its continued growth and development. In order to preserve
this atmosphere, the Company has adopted a strategy of spinning out certain
of its businesses into separate subsidiaries and having these subsidiaries
sell a minority interest to outside investors. The Company believes that
this strategy provides additional motivation and incentives for the
management of the subsidiaries through the establishment of subsidiary-
level stock option incentive programs, as well as capital to support the
subsidiaries' growth. As a result of the sale of stock by subsidiaries, the
issuance of stock by subsidiaries upon conversion of convertible
debentures, and similar transactions, the Company records gains that
represent the increase in the Company's net investment in the subsidiaries
and are classified as "Gain on issuance of stock by subsidiaries" in the
accompanying statement of income. These gains have represented a
substantial portion of the net income reported by the Company in recent
years. Although the Company expects to continue this strategy in the
future, its goal is to continue increasing segment income over the next few
years so that gains generated by the sale of stock by its subsidiaries will
represent a decreasing portion of total net income. The size and timing of
these transactions are dependent on market and other conditions that are
beyond the Company's control. Accordingly, there can be no assurance that
the Company will be able to generate gains from such transactions in the
future.
34PAGE
<PAGE>
Thermo Electron Corporation
Results of Operations
1994 Compared With 1993
Sales in 1994 were $1,585.3 million, an increase of $335.6 million, or
27%, over 1993. Segment income was $203.3 million, compared with $142.6
million in 1993, an increase of 43%. (Segment income is income before
corporate general and administrative expenses, costs associated with
divisional and product restructuring, other income and expense, minority
interest expense, and income taxes.) Operating income was $179.1 million,
compared with $118.7 million in 1993, an increase of 51%.
Sales from the Instruments segment were $650.1 million in 1994, an
increase of $133.4 million, or 26%, over 1993. Sales increased due to
acquisitions made by Thermo Instrument during 1993 and its acquisition of
several businesses within the EnviroTech Measurements & Controls group of
Baker Hughes Incorporated in March 1994. Segment income margin (segment
income margin is segment income as a percentage of sales) was 16.2%,
compared with 17.7% in 1993. Segment income margin declined principally due
to lower margins at the acquired businesses within the EnviroTech
Measurements & Controls group.
Sales from the Alternative-energy Systems segment were $285.4 million,
an increase of $42.7 million, or 18%, over 1993. Within this segment,
revenues from Thermo Ecotek (formerly Thermo Energy Systems), which consist
of revenues from alternative-energy power plant operations, were $134.3
million, compared with $117.7 million in 1993. This increase results from
an additional plant in operation in 1994 and, to a lesser extent, the
absence of utility-imposed curtailments of power output as well as improved
performance at two California plants and annual contractual energy rate
increases under certain power sales contracts. The 1993 period included
$9.8 million of revenues recorded as a result of the termination of a power
sales contract, and $3.1 million from the one-time sale of gas pipeline
rights. Sales from the Company's wholly owned Energy Systems division
increased $10.7 million as a result of a waste-recycling facility in San
Diego County that commenced operations in the first quarter of 1994. Sales
from Thermo Power increased 19%, to $91.9 million, as a result of the
inclusion of $8.4 million in sales from its NuTemp, Inc. subsidiary, which
was acquired in May 1994, and due to increased demand for refrigeration
packages at its FES division.
Segment income from the Alternative-energy Systems segment was $34.5
million, compared with $14.4 million in 1993. Thermo Ecotek had segment
income of $26.9 million, compared with $13.2 million in 1993. This
improvement results from an additional power plant in operation during
1994, the absence of utility-imposed curtailments of power output and
improved performance at two California plants, and annual contractual
energy rate increases under certain power sales contracts. The utility that
purchases the output of two of the Company's California plants has the
right to curtail the plants' power output up to 1,000 hours per year during
periods of low demand. The utility commonly experiences low demand
following periods of heavy rain or snow, when hydroelectric power is
available. Due to abnormally heavy rainfall during January 1995, utility
curtailment of two of the Company's California plants is likely to reach
the contractually allowable maximum of 1000 hours at each of the plants in
1995. Thermo Ecotek's segment income also improved as a result of lower
lease expense, offset in part by depreciation expense, resulting from the
December 1993 purchase of the Delano I facility in California. The 1993
period included $8.6 million of income from the termination of a power
sales contract and the one-time sale of gas pipeline rights. Segment income
from the Company's Energy Systems division increased $3.4 million as a
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Thermo Electron Corporation
result of the waste-recycling facility that commenced operation in the
first quarter of 1994. Segment income increased at Thermo Power by $2.6
million as a result of increased sales, as well as lower expenses at its
Crusader Engines division.
Certain of Thermo Ecotek's plants have power sales agreements with
utilities under which the rates paid for power will convert from fixed
rates to "avoided cost" rates in the year 2000. Avoided cost rates are
currently substantially less than the fixed rates. Two of these plants have
conditions in their nonrecourse lease agreements that require funding of
"power reserves" in years prior to 2000, based on projections of operating
cash flow shortfalls in the year 2000 and thereafter. The power reserves
represent funds available to make lease payments in the event that revenues
are not sufficient after the plants convert to avoided cost rates. Without
sufficient increases in avoided cost rates or reductions in fuel costs and
other operating expenses by the year 2000, Thermo Ecotek expects to either
renegotiate its nonrecourse lease agreements or forfeit its interests in
the plants. Beginning in 1996, if projected avoided cost rates remain at
current levels, Thermo Ecotek will expense the funding of reserves required
under the nonrecourse lease agreements. As a result, the income from the
two plants is expected to be reduced to approximately breakeven beginning
in 1996. The plants contributed $9.6 million of segment income in 1994.
Sales in the Process Equipment segment were $189.9 million, compared
with $167.5 million in 1993. Within this segment, sales from Thermo
Fibertek increased to $162.6 million from $137.1 million in 1993 due to an
increase of $17.6 million in sales as a result of the acquisition of AES
Engineered Systems in June 1993, an increase of $7.9 million in sales from
the Company's paper-recycling equipment business as a result of three large
contracts received earlier in the year, and an increase of $4.1 million in
sales from the Company's U.S. accessories business due to greater demand.
These increases were offset in part by a decline of $4.4 million in sales
of environmental process systems sold by the Company's U.K. subsidiary, to
$1.3 million in 1994, as a result of changes in U.K. environmental
regulations that required modifications to that subsidiary's equipment.
Thermo Fibertek intends to exit this business during 1995. In December
1994, a wholly owned subsidiary of the Company entered into a $145 million
contract for engineering, procurement, and construction services for an
office wastepaper de-inking facility to be located in Menominee, Michigan.
Construction is expected to take place over approximately two years. Thermo
Fibertek will supply approximately $15 million of equipment and services
for this project over the next two years. Sales of Holcroft heat-treating
systems, which remain depressed, declined $1.5 million in 1994, and sales
of automated electroplating equipment from the Company's wholly owned
Napco, Inc. subsidiary declined $1.5 million due to weak demand. The
Process Equipment segment income margin was 10.9%, compared with 8.3% in
1993. Thermo Fibertek's segment income margin improved to 12.9% from 11.6%
in 1993, primarily due to increased sales and an improved sales mix.
Holcroft operations were just above the breakeven level while Napco
operations resulted in a segment loss of $0.3 million due to lower sales
levels.
Sales in the Biomedical Products segment were $180.3 million, an
increase of $52.8 million, or 41%, over 1993. Sales increased $18.1 million
due to the inclusion for a full year of sales from CBI Laboratories, Inc.,
which was acquired by the Company's ThermoLase subsidiary in December 1993.
Sales of a number of the Company's biomedical products also contributed to
the increase, including ThermoTrex's mammography and needle-biopsy systems,
which increased 45% to $54.4 million; Thermo Cardiosystems' implantable
left ventricular-assist systems, which increased $6.9 million; blood
coagulation-monitoring products and skin incision devices sold by the
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Thermo Electron Corporation
Company's wholly owned International Technidyne Corporation subsidiary,
which increased 18% to $28.6 million; and Thermedics' Scent Seal fragrance
samplers, which increased $3.0 million, due primarily to increased demand.
Segment income margin improved to 9.8% from 4.5% in 1993 as a result of
increased sales and efforts to reduce costs.
Sales in the Environmental Services segment were $141.8 million,
compared with $122.0 million in 1993. Within this segment, sales from
Thermo Remediation increased $8.6 million, to $29.7 million, primarily due
to an increase in the volume of soil processed at its soil-remediation
centers and, to a lesser extent, the inclusion of revenues from businesses
acquired during 1994 and late 1993. Sales of analytical laboratory and
environmental consulting services increased 10.9% to $61.2 million, due to
the inclusion of sales from businesses acquired during 1994 and, to a
lesser extent, the addition of a long-term environmental restoration
contract for the U.S. Department of Energy's Hanford, Washington site.
Sales of metallurgical services increased 9.1%, to $44.8 million, due to
increased demand. Segment income margin improved to 10.5% from 7.6% in
1993, due to increased sales and efforts to reduce costs.
Sales from the Advanced Technologies segment were $142.7 million,
compared with $76.3 million in 1993. Sales increased $54.7 million due to
the inclusion of sales from Ramsey Technology Inc., which was acquired by
Thermedics in March 1994, and Comtest, which was acquired by Thermo Voltek
in August 1993. Sales of Thermedics' EGIS explosives- detection systems
increased $4.1 million, and sales of Thermedics' process detection
instruments, principally to one customer, increased $3.6 million. Revenues
from ThermoTrex's government-sponsored research and development contracts
increased $1.8 million. Segment income margin declined to 7.2% from 10.3%
in 1993 as a result of increased research and development expenses at
ThermoTrex to develop and commercialize new products and, to a lesser
extent, lower margins at newly acquired businesses.
The Company's wholly owned Napco subsidiary is challenging a jury
verdict rendered against it during the third quarter of 1994 for $12.2
million plus prejudgement interest in a contract dispute arising out of an
allegedly defective waste-treatment system installed by Napco in 1984. The
Company believes the verdict is in error and is vigorously pursuing all
available post-trial remedies. These remedies include seeking to have the
verdict set aside or substantially reduced and, if necessary, taking an
appeal. In the third quarter of 1994, the Company increased its reserve for
potential losses from pending litigation by approximately $4.0 million,
which is reflected in Corporate general and administrative expenses.
As a result of the sale of stock by subsidiaries, the issuance of
stock by subsidiaries upon conversion of indebtedness, and similar
transactions, the Company recorded gains of $25.3 million in 1994 and $39.9
million in 1993. Such gains represent the increase in the Company's
proportionate share of the subsidiaries' equity and are classified as "Gain
on issuance of stock by subsidiaries" in the accompanying statement of
income. See Notes 1 and 10 to Consolidated Financial Statements for a more
complete description of these transactions. Minority interest expense
increased to $31.0 million in 1994 from $21.1 million in 1993. Minority
interest expense includes $5.6 million in 1994 and $1.3 million in 1993
relating to gains recorded by the Company's majority-owned subsidiaries as
a result of the sale of stock by their subsidiaries.
"Other income (expense), net" in the accompanying statement of income
includes a gain of $14.7 million resulting from the sale of the Peter
Brotherhood Ltd. facility in the United Kingdom. Peter Brotherhood was
relocated to a new and more efficient facility. Also included is equity in
losses of unconsolidated subsidiaries, which represents the Company's
portion of results from entities in which the Company's ownership is 50% or
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Thermo Electron Corporation
less, primarily the operation of the Dade County cogeneration facility,
and, beginning in 1994, the Company's share of the profit from a 50%-owned
joint venture that is responsible for the operation and maintenance of the
Company's waste-recycling facility in San Diego. The loss associated with
the Dade County facility was $5.2 million in 1994, compared with a loss of
$5.7 million in 1993, excluding the $15.0 million provision recorded in
1993.
Because the demand for power and chilled water at the Dade County
Downtown Government Center complex has been substantially less than
anticipated since the plant's startup in 1987, and because the plant has
had difficulty disposing of the remainder of its output, the joint venture
continues to experience losses. Although the joint venture pursues
alternatives to improve the profitability of this plant, such actions to
date have not been effective, and there is no assurance that this situation
will improve. In September 1994, the joint venture temporarily suspended
operation of this plant for an indefinite period of time although it will
continue to be responsible for lease and other fixed costs. The $15.0
million reserve established in 1993 represents management's estimate,
discounted to present value, of the Company's share of estimated future
negative cash flows of the joint venture. The Company is involved in
regulatory proceedings that could require additional reserves, if the
outcome of one or more of these matters is adverse to the Company (see Note
7 to Consolidated Financial Statements).
A wholly owned subsidiary of the Company owns a waste-recycling
facility in southern California that processes waste for San Diego County
(the County). The subsidiary has contracted the operation and maintenance
of the facility to a 50%-owned joint venture. In February 1995, the
subsidiary was notified by the lead financing bank that the County was not
in compliance with a covenant contained in the financing arrangements for
the tax-exempt obligations issued in connection with construction of the
facility. The financing arrangements are nonrecourse to the Company for
issues relating to County defaults. Were the County to remain out of
compliance, the bank group could declare a default on the tax-exempt
obligations and foreclose on the facility. Such a default would result in
the bank group and the subsidiary having claims against the County for
damages, however, the County's responsibility to pay these damages could be
limited to the funds it has available from the day-to-day operation of the
County's solid waste-disposal system. Accordingly, the ultimate outcome of
this matter could result in an impairment of the subsidiary's investment in
the facility. The subsidiary's investment in the facility, including
unfunded equity commitments of $5.5 million, was approximately $16.5
million at December 31, 1994.
In a lawsuit relating to the waste-recycling facility discussed above,
a third party from whom the Company's subsidiary acquired certain
development rights alleges that fees totaling $7.9 million plus interest
and legal costs are due and payable from the subsidiary in connection with
construction of the facility. The Company contends that no additional fees
are payable because the facility actually built was substantially different
from the one contemplated in the agreement with the third party developer.
A jury trial is expected to commence in 1995. There can be no assurance as
to the outcome of this matter.
1993 Compared With 1992
-----------------------
Sales in 1993 were $1,249.7 million, an increase of $300.7 million, or 32%,
over 1992. Segment income was $142.6 million, compared with $87.1 million
in 1992, an increase of 64%. Operating income was $118.7 million, compared
with $70.0 million in 1993, an increase of 70%.
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Thermo Electron Corporation
Sales from the Instruments segment were $516.7 million, an increase of
$167.5 million, or 48%, over 1992. Sales increased approximately $153
million due to additional revenues from acquired businesses, including
Nicolet Instrument Corporation in August 1992, Gamma-Metrics in January
1993, Spectra-Physics Analytical in February 1993, and divisions of FAG
Kugelfischer Georg Shafer AG in October 1993. The remainder of the increase
was due to increased demand for products from existing businesses. Segment
income margin was 17.7%, compared with 17.1% in 1992. Segment income margin
improved principally due to changes in product mix and continuing efforts
to reduce costs.
Sales from the Alternative-energy Systems segment were $242.7 million,
an increase of $20.8 million, or 9%, over 1992. Sales from Thermo Ecotek
were $117.7 million, compared with $104.8 million in 1992. Included in
Thermo Ecotek's 1993 sales was $9.8 million recorded as a result of the
termination of a power sales contract, and $3.1 million from the one-time
sale of gas pipeline rights. The 1992 period included $2.0 million received
in settlement of a dispute over lost development fees. Excluding the
nonrecurring items from both years, revenues from plant operations
increased 2% as a result of annual contractual energy rate increases under
certain power sales contracts, offset in part by increased utility-imposed
curtailments of power output at two California plants. Construction
revenues from an alternative-energy facility, which was completed in 1993,
were $10.9 million, compared with $35.8 million in 1992. Sales from Thermo
Power were $77.4 million, compared with $43.9 million in 1992. This
increase results principally from the acquisition of FES by Thermo Power in
October 1992, offset in part by slight declines in revenues from its
Crusader Engines and Tecogen divisions. Sales of Peter Brotherhood steam
turbines and compressors were slightly below 1992 levels.
Segment income from the Alternative-energy Systems segment was $14.4
million, compared with $1.8 million in 1992. Thermo Ecotek segment income
was $13.2 million, compared with $5.7 million in 1992. The 1993 period
included $8.6 million of income from the termination of a power sales
contract and the one-time sale of gas pipeline rights. The 1992 period
included $2.0 million received in settlement of a dispute over lost
development fees. Excluding the nonrecurring items in both years, segment
income from Thermo Ecotek was $4.6 million in 1993 and $3.7 million in
1992. This improvement resulted from lower lease expense, offset in part by
depreciation expense, resulting from the September 1992 purchase of the
Whitefield, New Hampshire plant and the December 1993 purchase of the
Delano I facility. In addition, segment income from Thermo Ecotek was
favorably affected by contractual energy rate increases. These improvements
were partially offset by utility-imposed curtailments of power output at
two California plants, and higher maintenance costs in 1993 to implement
equipment modifications at one California plant. Total curtailments of
power output in 1993 were approximately 90% of the maximum allowable
curtailments under the Company's agreements with the utility, compared with
less than 10% in 1992. In 1992, Alternative-energy Systems segment income
reflected the establishment of a reserve of $5.0 million for probable cost
overruns on projects under construction. Segment income at Thermo Power
improved principally as a result of increased revenues at FES and efforts
to reduce costs, offset by a decline at Peter Brotherhood due to lower
sales and increased price competition.
Sales in the Process Equipment segment were $167.5 million, compared
with $160.5 million in 1992. Within this segment, sales from Thermo
Fibertek were $137.1 million, compared with $125.6 million in 1992. Sales
at Thermo Fibertek increased by $18.6 million as a result of the
acquisition of AES in June 1993, by $9.7 million due to the inclusion for a
full year of Vickerys Holdings Limited, which was acquired in September
39PAGE
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Thermo Electron Corporation
1992, and by $4.5 million from the North American accessories,
flotation-dryer, and pollution-control equipment businesses. These
increases were partially offset by a decline in sales of $14.6 million in
Thermo Fibertek's paper-recycling equipment business, which was affected by
the poor financial condition of the paper industry, particularly in Europe,
and by the unfavorable effects of a stronger U.S. dollar upon currency
translation, which decreased sales by approximately $3.7 million. Sales of
Holcroft heat-treating systems, which remain depressed, were $16.1 million,
compared with $15.4 million in 1992. Sales of automated electroplating
equipment from Napco declined to $14.3 million from $19.5 million in 1993,
due to continuing weak demand. The Process Equipment segment income margin
was 8.3%, compared with 8.7% in 1992. Thermo Fibertek's segment income
margin was 11.6%, compared with 12.5% in 1992. This decline was primarily
due to lower sales of paper-recycling equipment and, to a lesser extent,
competitive pricing pressure experienced by foreign paper-recycling
operations. Segment income improved at Holcroft, resulting from reduced
costs, offset by a decline at Napco. Napco incurred a segment loss of $1.5
million, compared with income of $0.6 million in 1992, as a result of lower
sales, pricing pressure, and increased costs to complete jobs.
Sales in the Biomedical Products segment were $127.5 million, compared
with $58.2 million in 1992. Sales increased $59.1 million due to the
inclusion of sales for a full year from Lorad Corporation, a manufacturer
of mammography and needle-biopsy systems acquired by the Company's
ThermoTrex subsidiary in November 1992, and from the acquisition of
Nicolet's biomedical products business as part of the acquisition of
Nicolet in August 1992. Sales also increased $4.2 million from the
introduction of Thermedics' Scent Seal fragrance samplers, which were
developed from the Company's polymer technology, with the balance of the
increase primarily from higher demand for blood coagulation-monitoring
products at International Technidyne. Segment income improved to $5.8
million from $1.3 million in 1992, principally as a result of increased
sales.
Sales in the Environmental Services segment were $122.0 million,
compared with $114.3 million in 1992. Within this segment, sales from
Thermo Remediation increased by $8.9 million, primarily as a result of
higher production at soil-remediation centers. Sales of metallurgical
services declined by $1.3 million due to continuing weakness in aerospace
and defense-related businesses. Sales from analytical laboratory and
environmental consulting services were about the same level as in 1992.
Segment income margin improved to 7.6%, compared with 7.4% in 1992, due to
an improved sales mix and efforts to reduce costs.
Sales from the Advanced Technologies segment were $76.3 million,
compared with $46.1 million in 1992. Sales increased $24.4 million due to
increased demand, principally from one customer, for Thermedics' process
detection instruments. Sales also increased $7.2 million at Thermo Voltek,
due to the inclusion, for a full year, of revenues from KeyTek Instrument,
which was acquired in June 1992, and the inclusion of revenues from
Comtest, which was acquired in August 1993. These increases were offset in
part by a decline in sales from a specific contract at Thermo Voltek's
Universal Voltronics division, which was essentially complete in 1993.
Segment income was $7.8 million, compared with $2.0 million in 1992,
resulting primarily from increased sales.
In 1993, the Company recorded $6.6 million of "Costs associated with
divisional and product restructuring," which is described in Note 12 to
Consolidated Financial Statements. Of the $6.6 million, the Alternative-
energy Systems segment recorded $1.5 million, the Process Equipment segment
recorded $0.5 million, and the Environmental Services segment recorded $4.6
40PAGE
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Thermo Electron Corporation
million. There were no such costs recorded in 1992. Such amounts were not
included in segment income discussed above.
As a result of the sale of stock by subsidiaries, the issuance of
stock by subsidiaries upon conversion of indebtedness, and similar
transactions, the Company recorded gains of $39.9 million in 1993 and $30.2
million in 1992. See Notes 1 and 10 to Consolidated Financial Statements
for a more complete description of these transactions.
"Other income (expense), net" in the accompanying statement of income
includes equity in losses of unconsolidated subsidiaries, which represents
the Company's portion of results from entities in which the Company's
ownership is 50% or less, primarily the operation of the Dade County
cogeneration facility. The loss in 1993 was $22.7 million, compared with a
loss of $3.9 million in 1992, with the Dade County cogeneration facility
accounting for $20.7 million and $3.4 million of these losses,
respectively. The Dade County loss for 1993 includes a provision of $15.0
million which is discussed above in the 1994 results of operations. The
remaining increase resulted from higher fuel costs and legal expenses
pertaining to the legal actions described in Note 7 to Consolidated
Financial Statements.
Financial Condition
Liquidity and Capital Resources
Consolidated working capital was $1,146.2 million at December 31, 1994,
compared with $828.3 million at January 1, 1994. Included in working
capital were cash and short-term investments of $997.7 million at December
31, 1994, compared with $700.2 million at January 1, 1994. In addition, at
December 31, 1994, the Company had $62.5 million of long-term marketable
securities, compared with $43.6 million at January 1, 1994. In April 1994,
the Company issued $345.0 million principal amount of 5% senior convertible
debentures due 2001.
In 1994, the Company expended $174.3 million for acquisitions and
$60.2 million for purchases of property, plant and equipment. The Company
has no material commitments for purchases of property, plant and equipment
and expects that, for 1995, such expenditures will approximate the 1994
level. On March 1, 1995, the Company's Thermo Instrument subsidiary entered
into an agreement to acquire the Scientific Instruments Division of Fisons
plc for 202 million British pounds sterling, subject to the satisfaction of
certain conditions to closing (see Note 15 to Consolidated Financial
Statements).
A substantial percentage of the Company's consolidated cash and
short-term investments is held by subsidiaries that are not wholly owned by
the Company. This percentage may vary significantly over time. Pursuant to
the Thermo Electron Corporate Charter (the Charter), to which each of the
majority-owned subsidiaries of the Company is a party, the combined
financial resources of Thermo Electron Corporation and its subsidiaries
allow the Company to provide banking, credit, and other financial services
to its subsidiaries so that each member of the Thermo Electron group of
companies may benefit from the financial strength of the entire
organization. Toward that end, the Charter states that each member of the
group may be required to provide certain credit support to the consolidated
entity. Nonetheless, the Company's ability to access assets held by its
majority-owned subsidiaries through dividends, loans, or other transactions
is subject in each instance to a fiduciary duty owed to the minority
shareholders of the relevant subsidiary. In addition, dividends received by
Thermo Electron from a subsidiary that does not consolidate with Thermo
41PAGE
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Thermo Electron Corporation
Electron for tax purposes are subject to tax. Therefore, under certain
circumstances, a portion of the Company's consolidated cash and short-term
investments may not be readily available to Thermo Electron or certain of
its subsidiaries.
The Company intends for the foreseeable future to maintain at least
80% ownership of its Thermo Instrument, Thermo Fibertek, and Thermo Ecotek
subsidiaries, which is required in order to continue to file a consolidated
federal income tax return with these subsidiaries. In addition, the Company
intends to maintain greater than 50% ownership of its other majority-owned
subsidiaries so that the Company may continue to consolidate these
subsidiaries for financial reporting purposes. This may require the
purchase by the Company of additional shares or convertible debentures of
these companies from time to time as the number of outstanding shares
issued by these companies increases, either in the open market or directly
from the subsidiaries. See Note 6 to Consolidated Financial Statements for
a description of outstanding convertible debentures issued by Thermo
Instrument. In addition, at December 31, 1994, Thermo Instrument, Thermo
Fibertek, and Thermo Ecotek had outstanding stock options of 2,026,000
shares, 1,681,000 shares, and 1,026,000 shares, respectively, exercisable
at various prices and subject to certain vesting schedules. The Company's
other majority-owned subsidiaries also have outstanding stock options
and/or convertible debentures. If the Company were to lose its ability to
consolidate for tax purposes with Thermo Instrument, the Company would
incur an additional tax liability, which could be substantial.
During 1994, the Company and its majority-owned subsidiaries expended
$101.5 million to purchase common stock of the Company's subsidiaries. The
Company expects that these purchases will continue in 1995.
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Thermo Electron Corporation
Information as to Publicly Owned Businesses (Unaudited)
(In thousands) 1994 1993 1992
----------------------------------------------------------------------
Revenues:
Thermo Instrument Systems Inc. $ 662,187 $ 584,176 $ 423,199
Thermo Fibertek Inc. 162,625 137,088 125,577
Thermedics Inc. (a) 155,111 80,220 45,778
Thermo Ecotek Corporation 134,261 117,691 104,785
Thermo Process Systems Inc. (b) 111,268 53,839 47,082
Thermo Power Corporation 91,873 77,360 43,904
ThermoTrex Corporation (c) 91,052 54,329 19,843
---------- ---------- ----------
1,408,377 1,104,703 810,168
Wholly owned nonpublic companies 176,971 145,015 138,804
---------- ---------- ----------
$1,585,348 $1,249,718 $ 948,972
========== ========== ==========
Segment Income (d):
Thermo Instrument Systems Inc. $ 106,241 $ 96,786 $ 63,373
Thermo Fibertek Inc. 20,948 15,902 15,716
Thermedics Inc. (a) 16,909 8,292 841
Thermo Ecotek Corporation 26,928 13,184 5,735
Thermo Process Systems Inc. (b) 9,219 1,338 371
Thermo Power Corporation 5,263 2,707 715
ThermoTrex Corporation (c) 1,467 485 (1,185)
---------- ---------- ----------
186,975 138,694 85,566
Wholly owned nonpublic companies 16,361 3,938 1,502
---------- ---------- ----------
203,336 142,632 87,068
Equity in Losses of
Unconsolidated Subsidiaries (4,019) (22,721) (3,948)
Corporate 4,286 11,208 18,850
---------- ---------- ----------
Income Before Income Taxes,
Minority Interest, and
Cumulative Effect of Change
in Accounting Principle $ 203,603 $ 131,119 $ 101,970
========== ========== ==========
(a) Includes Thermo Cardiosystems Inc. and Thermo Voltek Corp.
(b) Includes Thermo Remediation Inc.
(c) Includes ThermoLase Corporation.
(d) Segment income is income before corporate general and administrative
expenses, costs associated with divisional and product restructuring,
other income and expense, minority interest expense, and income taxes.
43PAGE
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Thermo Electron Corporation
Quarterly Information (Unaudited)
(In thousands except per share amounts)
1994(a) First Second Third Fourth
-------------------------------------------------------------------------
Revenues $350,476 $394,966 $406,454 $433,452
Gross profit 136,870 156,728 166,575 175,605
Net income 22,541 24,150 27,744 28,975
Earnings per share:
Primary .47 .50 .56 .57
Fully diluted .42 .44 .48 .50
1993(b) First Second Third Fourth
-------------------------------------------------------------------------
Revenues $292,763 $300,449 $318,380 $338,126
Gross profit 104,781 110,071 124,832 134,106
Net income 15,448 17,606 20,923 22,656
Earnings per share:
Primary .38 .43 .45 .48
Fully diluted .34 .39 .40 .43
(a) Results include nontaxable gains of $8,494,000, $229,000, $12,561,000,
and $3,999,000 in the first, second, third, and fourth quarters,
respectively, from the issuance of stock by subsidiaries.
(b) Results include nontaxable gains of $11,101,000, $10,617,000,
$3,461,000, and $14,684,000 in the first, second, third, and fourth
quarters, respectively, from the issuance of stock by subsidiaries.
Common Stock Market Information
--------------------------------------------------------------------------
The following table shows the market range for the Company's common stock
based on reported sales prices on the New York Stock Exchange (symbol TMO)
for 1994 and 1993. Prices were restated in 1993 to reflect a three-for-two
stock split distributed in October 1993.
1994 1993
---------------- ----------------
Quarter High Low High Low
-----------------------------------------------------------------------
First $44 3/8 $38 $38 $31 1/3
Second 41 3/8 36 41 1/6 36 1/3
Third 45 7/8 37 7/8 43 1/4 37 1/4
Fourth 47 7/8 40 3/4 43 38 1/8
The closing market price on the New York Stock Exchange for the
Company's common stock on January 27, 1995 was $44 3/8 per share.
As of January 27, 1995, the Company had 6,666 holders of record of its
common stock. This does not include holdings in street or nominee names.
44PAGE
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Thermo Electron Corporation
Common stock of the following majority-owned public subsidiaries is
traded on the American Stock Exchange: Thermedics Inc. (TMD), Thermo
Instrument Systems Inc. (THI), Thermo Process Systems Inc. (TPI), Thermo
Power Corporation (THP), ThermoTrex Corporation (TKN), Thermo Fibertek Inc.
(TFT), Thermo Ecotek Corporation (TCK), Thermo Cardiosystems Inc. (TCA),
Thermo Voltek Corp. (TVL), Thermo Remediation Inc. (THN), and ThermoLase
Corporation (TLZ).
Transfer Agent and Common Stock Registrar
--------------------------------------------------------------------------
The Bank of Boston is the stock transfer agent and maintains shareholder
activity records. The agent will respond to questions on issuances of stock
certificates, changes of ownership, lost stock certificates, and changes of
address. For these and similar matters, please direct inquiries to:
The Bank of Boston
Post Office Box 644
Mail Stop: 45-02-09
Boston, Massachusetts 02102-0644
(617) 575-3120
Shareholder Services
--------------------------------------------------------------------------
Shareholders of Thermo Electron Corporation who desire information about
the Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046, by letter or telephone at
(617) 622-1111.
A mailing list is maintained to enable shareholders whose stock is
held in street name, and other interested individuals, to receive quarterly
and annual reports as quickly as possible. If you would like your name
added to the list, please notify this office.
Dividend Policy
--------------------------------------------------------------------------
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use
earnings to finance expansion and growth. Payment of dividends will rest
within the discretion of the Board of Directors and will depend upon, among
other factors, the Company's earnings, capital requirements, and financial
condition.
Annual Meeting
--------------------------------------------------------------------------
The annual meeting of shareholders will be held on Tuesday, May 23, 1995 at
5:00 p.m. at the Hyatt Regency Hotel, Hilton Head, South Carolina.
45PAGE
<PAGE>
Thermo Electron Corporation
Form 10-K Report
--------------------------------------------------------------------------
A copy of the Annual Report on Form 10-K for the fiscal year ended December
31, 1994, as filed with the Securities and Exchange Commission, may be
obtained at no charge by writing to John N. Hatsopoulos, Chief Financial
Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046.
Corporate Office
--------------------------------------------------------------------------
Thermo Electron Corporation
81 Wyman Street
Post Office Box 9046
Waltham, Massachusetts 02254-9046
46PAGE
<PAGE>
<TABLE>
Thermo Electron Corporation
Ten Year Financial Summary
(In millions except per share amounts)
<CAPTION>
1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985
-------- -------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,585.3 $1,249.7 $ 949.0 $ 805.5 $720.7 $ 623.0 $ 540.7 $ 419.9 $ 359.1 $ 286.2
-------- -------- ------- ------- ------ ------- ------- ------- ------- -------
Costs and Expenses:
Cost of revenues 928.6 755.5 609.0 532.9 465.1 424.2 359.6 280.3 244.8 194.9
Expenses for R&D
and new lines of
business 103.7 87.0 62.3 52.6 54.0 46.5 43.2 31.4 26.5 21.5
Selling, general
and administra-
tive expenses 373.2 281.9 207.7 175.0 161.1 127.7 112.0 89.6 71.0 55.7
Costs associated
with divisional
and product
restructuring .7 6.6 - 3.7 1.0 2.2 0.9 3.5 7.1 4.3
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
1,406.2 1,131.0 879.0 764.2 681.2 600.6 515.7 404.8 349.4 276.4
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Operating Income 179.1 118.7 70.0 41.3 39.5 22.4 25.0 15.1 9.7 9.8
Gain on Issuance
of Stock by
Subsidiaries 25.3 39.9 30.2 27.4 20.3 16.8 6.0 16.1 15.9 9.1
Other Income
(Expense), Net (.8) (27.5) 1.8 10.5 .1 1.1 2.8 (2.5) (5.0) (5.9)
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Income Before
Income Taxes,
Minority Interest,
and Cumulative
Effect of Change
in Accounting
Principle 203.6 131.1 102.0 79.2 59.9 40.3 33.8 28.7 20.6 13.0
Provision for
Income Taxes 69.2 33.4 27.5 24.8 17.8 10.4 9.0 6.0 4.0 2.5
Minority Interest
Expense 31.0 21.1 13.9 7.3 7.1 3.3 2.0 1.9 0.5 (0.1)
------- -------- ------- ------- ------- ------- ------- ------- ------- -------
47PAGE
<PAGE>
Thermo Electron Corporation
Ten Year Financial Summary (continued)
(In millions except per share amounts)
1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985
-------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Income Before
Cumulative Effect
of Change in
Accounting
Principle 103.4 76.6 60.6 47.1 35.0 26.6 22.8 20.8 16.1 10.6
Cumulative Effect
of Change in
Accounting Prin-
ciple, Net of
Tax (f) - - 1.4 - - - - - - -
-------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income $ 103.4 $ 76.6 $ 59.2 $ 47.1 $ 35.0 $ 26.6 $ 22.8 $ 20.8 $ 16.1 $ 10.6
======== ======== ======= ======= ======= ======= ======= ======= ======= =======
Earnings per
Share Before
Cumulative
Effect of
Change in
Accounting
Principle:
Primary $ 2.10 $ 1.75 $ 1.51 $ 1.31 $ 1.09 $ .86 $ .77 $ .68 $ .55 $ .42
Fully
diluted $ 1.85 $ 1.57 $ 1.41 $ 1.23 $ 1.03 $ .84 $ .75 $ .67 $ .54 $ .41
Earnings per
Share:
Primary $ 2.10 $ 1.75 $ 1.48 $ 1.31 $ 1.09 $ .86 $ .77 $ .68 $ .55 $ .42
Fully
diluted $ 1.85 $ 1.57 $ 1.38 $ 1.23 $ 1.03 $ .84 $ .75 $ .67 $ .54 $ .41
48PAGE
<PAGE>
Thermo Electron Corporation
Ten Year Financial Summary (continued)
(In millions except per share amounts)
1994(a) 1993(b) 1992(c) 1991(d) 1990(e) 1989 1988 1987 1986 1985
-------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Balance Sheet
Data:
Working
capital $1,146.2 $ 828.3 $ 503.4 $ 463.5 $ 241.4 $ 276.0 $ 218.8 $ 210.9 $ 124.3 $ 79.1
Total assets 3,019.9 2,473.7 1,818.3 1,199.5 904.4 664.1 524.4 460.8 332.6 240.9
Net assets
related to
construc-
tion
projects - 9.4 23.8 29.4 - - - - - -
Long-term
obligations 1,049.8 647.5 494.2 255.0 210.0 176.9 152.7 135.7 61.4 49.1
Minority
interest 328.0 277.7 164.3 122.5 83.9 51.8 22.6 25.8 20.1 6.6
Common stock
of subsid-
iaries
subject to
redemption - 14.5 5.5 5.5 8.7 13.1 - - - -
Shareholders'
investment 990.3 858.5 552.9 480.9 310.2 226.4 194.3 173.5 153.1 106.7
<FN>
(a) Reflects the issuance of $345.0 million principal amount of convertible debentures.
(b) Reflects the Company's 1993 public offering of common stock for net proceeds of $246.0 million.
(c) Reflects the August 1992 acquisition of Nicolet Instrument Corporation and the issuance of $260.0
million principal amount of convertible debentures.
(d) Reflects the issuance of $164.0 million principal amount of convertible debentures.
(e) Reflects the May 1990 acquisition of Finnigan Corporation.
(f) Reflects the adoption in fiscal 1992 of Statement of Financial Accounting Standards No. 106,
"Accounting for Post-retirement Benefits Other Than Pensions".
</TABLE>
49<PAGE>
Exhibit 21
Thermo Electron Corporation - Subsidiaries of the Registrant
At March 3, 1995, Thermo Electron Corporation owned the following companies:
STATE OR
JURISDICTION
OF PERCENT OF
NAME INCORPORATION OWNERSHIP
- -------------------------------------------------------------------------------
CRC Acquisition Corp. Delaware 100
Nicolet Biomedical Inc. California 100
Eden Medical Electronics, Inc. Delaware 100
Eden Medizinische Elektronik GmbH Germany 100
Neuroscience Limited United Kingdom 100
Nicolet Biomedical S.A.R.L. France 100
Peter Brotherhood Holdings Ltd. United Kingdom 100
Peter Brotherhood Limited United Kingdom 100
D.S.T. Pattern & Engineering Co. Ltd. United Kingdom 100
FES International Limited United Kingdom 100
Link Control Technology Ltd. United Kingdom 100
Machtech Ltd. United Kingdom 100
Peter Brotherhood Pension Fund Trustees Ltd. United Kingdom 100
Sensonics Ltd. United Kingdom 100
Thermo Electron Realty Limited United Kingdom 100
Turboflex Limited United Kingdom 100
T & A Nash (Penn) Limited United Kingdom 100
Torsiflex Limited United Kingdom 100
(50% of which shares are owned directly
by Peter Brotherhood Limited)
Thermo Holdings Limited United Kingdom 100
Brotherhood Environmental Engineering Services United Kingdom 100
Limited
Termo Electron, S.A. de C.V. Mexico 100
The Thermo Electron Companies Inc. Wisconsin 100
Bay State Wood Energy Company, Inc. Massachusetts 100
Gulf Precision, Inc. Arizona 100
Seeley Enterprises, Inc. New Mexico 100
International Technidyne Corporation Delaware 100
Loftus Furnace Company Pennsylvania 100
Medway Recycling Company, Inc. Massachusetts 100
Metal Treating Inc. Wisconsin 100
Methuen Steam Company, Inc. Massachusetts 100
Met-Therm, Inc. Ohio 100
NAPCO, Inc. Connecticut 100
New Hampshire Wood Energy Co., Inc. New Hampshire 100
Nicolet Biomedical of California Inc. California 100
North Carbondale Minerals, Inc. California 100
North County Recycling, Inc. California 100
Overly, Inc. Wisconsin 100
PB Acquisition Corp. Delaware 100
Perfection Heat Treating Company Michigan 100
Salem Steam Company, Inc. Massachusetts 100
San Marcos Resource Recovery, Inc. California 100
Seminole Energy Company Florida 100
Southern Ocean County Resource Recovery, Inc. New Jersey 100
Staten Island Cogeneration Corporation New York 100
Page 1PAGE
<PAGE>
Thermo Electron Corporation - Subsidiaries of the Registrant
At March 3, 1995, Thermo Electron Corporation owned the following companies:
STATE OR
JURISDICTION
OF PERCENT OF
NAME INCORPORATION OWNERSHIP
- -------------------------------------------------------------------------------
TE Energy Systems, Inc. Massachusetts 100
TE Great Lakes Inc. Michigan 100
TEC Cogeneration Inc. Florida 100
South Florida Cogeneration Associates Florida 50*
TEC Energy Corporation California 100
North County Resource Recovery Associates California 100*
(50% of which is owned directly by
San Marcos Resource Recovery, Inc.)
Tecomet Inc. Massachusetts 100
Thermedics Inc. Massachusetts 50.58**
Corpak Inc. Massachusetts 100
Walpak Company Illinois 100
Ramsey France S.A.R.L. France 100
Ramsey Ingenieros S.A. Spain 100
Ramsey Italia S.R.L. Italy 100
Tecno Europa Elettromeccanica S.R.L. Italy 100
Ramsey Technology Inc. Massachusetts 100
Thermedics Australia Pty. Ltd. Australia 100
Thermedics B.V. Netherlands 100
Thermedics Canada Inc. Canada 100
Thermedics Detection Inc. Massachusetts 100
ThermedeTec Corporation Delaware 100
Thermedics Detection de Argentina S.A. Argentina 100
Thermedics Detection de Mexico, S.A. de Mexico 100
de C.V.
Thermedics Detection GmbH Germany 100
Thermedics Detection Limited United Kingdom 100
Thermedics Detection Scandinavia AS Norway 100
Thermedics F. S. C. Inc. U. S. Virgin 100
Islands
Thermedics GmbH Germany 100
Thermedics Limited United Kingdom 100
Thermedics (South Africa) Pty. Ltd. South Africa 100
TMD Securities Corporation Massachusetts 100
Thermo Cardiosystems Inc. Massachusetts 54.96**
TCA Securities Corporation Massachusetts 100
Thermo Voltek Corp. Delaware 60.05**
Comtest Europe B.V. Netherlands 100
Comtest Instrumentation, B.V. Netherlands 100
Comtest Limited United Kingdom 100
KeyTek FSC, Ltd. U.S. Virgin 100
Islands
UVC Realty Corp. New York 100
Thermo Administrative Services Corporation Delaware 100
Thermo Ecotek Corporation Delaware 97.47**
Caribbean Cogeneration Company, Inc. Massachusetts 100
Coos Biomass Corporation California 100
Page 2PAGE
<PAGE>
Thermo Electron Corporation - Subsidiaries of the Registrant
At March 3, 1995, Thermo Electron Corporation owned the following companies:
STATE OR
JURISDICTION
OF PERCENT OF
NAME INCORPORATION OWNERSHIP
- -------------------------------------------------------------------------------
Delano Energy Company Inc. Delaware 100
Delano Operations Company, Inc. California 100
Gatepeak Corporation Delaware 100
SFS Corporation New Hampshire 100
Tenpeak Corporation Nevada 100
TES Securities Corporation Delaware 100
Thermendota, Inc. California 100
Mendota Biomass Power, Ltd. California 60*
California Agriwaste Corporation California 100
Golden Fuel Company California 50*
MBPL Agriwaste Corporation California 100
Thermo Electron of Maine, Inc. Maine 100
Gorbell/Thermo Electron Power Company Maine 80*
Thermo Electron of New Hampshire, Inc. New Hampshire 100
Hemphill Power and Light Company New Hampshire 66*
Thermo Electron of Whitefield, Inc. New Hampshire 100
Whitefield Power and Light Company New Hampshire 100*
(39% of which is owned
directly by SFS Corporation)
Thermo Fuels Company, Inc. California 100
Woodland Biomass Power, Inc. California 100
Woodland Biomass Power, Ltd. California 99*
Thermo Electron of Conway, Inc. New Hampshire 100
Thermo Electron Foundation, Inc. Massachusetts 100
Thermo Electron Metallurgical Services, Inc. Texas 100
Thermo Fibertek Inc. Delaware 80.51**
AES Equipos y Sistemas S.A. de C.V. Mexico 100
Thermo AES Canada Inc. Canada 100
Thermo Electron Web Systems, Inc. Massachusetts 100
Fiberprep Inc. Delaware 95
(31.05% of which shares are owned
directly by E. & M. Lamort, S.A.)
Fiberprep Securities Corporation Delaware 100
Thermo Electron Wisconsin, Inc. Wisconsin 100
Thermo Fibertek U.K. Limited United Kingdom 100
Vickerys Holdings Limited United Kingdom 100
Vickerys Limited United Kingdom 100
Paperliners Limited New Zealand 100
Vickerys Projects Limited United Kingdom 100
Winterburn Limited United Kingdom 100
TMO Lamort Holdings Inc. Delaware 100
E. & M. Lamort, S.A. France 100
Lamort GmbH Germany 100
Lamort Italia S.R.L. Italy 100
Lamort Paper Services Ltd. United Kingdom 100
Nordiska Lamort Lodding A.B. Sweden 100
Thermo Instrument Systems Inc. Delaware 83.49**
Page 3PAGE
<PAGE>
Thermo Electron Corporation - Subsidiaries of the Registrant
At March 3, 1995, Thermo Electron Corporation owned the following companies:
STATE OR
JURISDICTION
OF PERCENT OF
NAME INCORPORATION OWNERSHIP
- -------------------------------------------------------------------------------
Analytical Instrument Development, Inc. Pennsylvania 100
Bettigole Andrews & Clark, Inc. New York 100
N. H. Bettigole Co., Inc. Delaware 100
N. H. Bettigole, P.A. New Jersey 100
N. H. Bettigole, P.C. New York 100
CIDTEC Acquisition Corp. New York 100
Eberline Analytical Corporation New Mexico 100
Eberline Instrument Company Limited United Kingdom 100
Eberline Instrument Corporation New Mexico 100
Epsilon Industrial Inc. Texas 100
Fellows, Read & Associates, Inc. New Jersey 100
Finnigan Corporation Virginia 100
Finnigan Instruments, Inc. New York 100
Finnigan International Sales, Inc. California 100
Finnigan MAT China, Inc. California 100
Finnigan MAT (Delaware), Inc. Delaware 100
Finnigan MAT Instruments, Inc. Nevada 100
Finnigan MAT International Sales, Inc. California 100
Finnigan MAT (Nevada), Inc. Nevada 100
Finnigan MAT AG Switzerland 100
Finnigan MAT Canada, Ltd. Canada 100
Finnigan MAT GmbH Germany 100
Finnigan MAT Ltd. United Kingdom 100
Finnigan MAT AB Sweden 100
Finnigan MAT S.A.R.L. France 100
Finnigan MAT S.R.L. Italy 100
Thermo Separation Products S.R.L. Italy 100
Thermo Instruments Australia Pty. Limited Australia 100
Finnigan Properties, Inc. California 100
Gamma-Metrics California 100
Gamma-Metrics International F.S.C. Inc. Guam 100
Gas Tech Inc. California 100
Gas Tech Australia, Pty. Ltd. Australia 50
Gas Tech Partnership California 50*
Gastech Instruments Canada Ltd. Canada 100
Houston Atlas Inc. Texas 100
National Nuclear Corporation California 100
Nicolet Instrument Corporation Wisconsin 100
Nicolet Instrument Canada, Inc. Canada 100
Nicolet Instrument Limited United Kingdom 100
Nicolet Instrument S.A.R.L. France 100
Nicolet Japan K.K. Japan 100
Project Phoenix of Madison, Inc. Wisconsin 100
Spectra-Tech, Europe Limited United Kingdom 100
Spectra-Tech, Inc. Wisconsin 100
ThermoSpectra Corporation Delaware 85.67**
Beleggingsmaatschappij Zeis B.V. Netherlands 100
Page 4PAGE
<PAGE>
Thermo Electron Corporation - Subsidiaries of the Registrant
At March 3, 1995, Thermo Electron Corporation owned the following companies:
STATE OR
JURISDICTION
OF PERCENT OF
NAME INCORPORATION OWNERSHIP
- -------------------------------------------------------------------------------
Bakker Electronics Dongen B.V. Netherlands 100
Bakker Electronics Limited United Kingdom 100
Nicolet Instrument Technologies Inc. Wisconsin 100
NORAN Instruments Inc. Wisconsin 100
Normandeau Associates, Inc. New Hampshire 100
Skinner & Sherman, Inc. Massachusetts 100
Skinner & Sherman Laboratories, Inc. Massachusetts 100
Skinner & Sherman Technology, Inc. Massachusetts 100
Spectrace Instruments Inc. California 100
TEV Administrative Services Corporation Delaware 100
Thermo BioAnalysis Corporation` Delaware 100
Thermo Consulting Engineers Inc. Delaware 100
George A. Schock & Associates, Inc. New Jersey 100
Jennison Engineering, Inc. Vermont 100
Thermo Environmental Instruments Inc. California 100
MIE Acquisition, Inc. Massachusetts 100
Thermo Instrument Controls Inc. Delaware 100
Thermo Instrument Systems Japan Holdings, Inc. Delaware 100
Nippon Jarrell-Ash Company, Ltd. Japan 100
Thermo Instruments do Brasil Ltda. Brazil 100
Thermo Instruments F.S.C. Inc. U.S. Virgin 100
Islands
Thermo Jarrell Ash Corporation Massachusetts 100
Baird Analytical Instrr Tech Co. China 100
Beijing Ltd.
Baird DD Brazil Representacoes Ltda. Brazil 100
Scientific Measurement Systems Inc. Colorado 100
Thermo Instrument Systems (F.E.) Limited China 100
Thermo Instruments (Canada) Inc. Canada 100
Eberline Instruments (Canada) Ltd. Canada 100
Thermo Separation Products AG Switzerland 100
Thermo Separation Products Inc. Delaware 100
Thermo Instrument Systems (France) S.A. France 100
Thermo Separation Products S.A. France 100
Thermo Separation Products K.K. Japan 100
TMA/Hanford, Inc. Washington 100
TMA/NORCAL Inc. California 100
TN Technologies Inc. Texas 100
Van Hengel Holding B.V. Netherlands 100
Baird Europe B.V. Netherlands 100
Baird France S.A.R.L. France 100
Thermo Electron Limited United Kingdom 100
Planweld Limited United Kingdom 100
Hilger Analytical Limited United Kingdom 100
Thermo Instrument Systems B.V. Netherlands 100
Hilkomij B.V. Netherlands 100
NORAN Instruments B.V. Netherlands 100
Page 5PAGE
<PAGE>
Thermo Electron Corporation - Subsidiaries of the Registrant
At March 3, 1995, Thermo Electron Corporation owned the following companies:
STATE OR
JURISDICTION
OF PERCENT OF
NAME INCORPORATION OWNERSHIP
- -------------------------------------------------------------------------------
Thermo Automation Services (ThAS) B.V. Netherlands 100
Van Oortmerssen B.V. Netherlands 100
Thermo Instrument Systems GmbH Germany 100
Eberline Instruments GmbH Germany 100
Nicolet Instrument GmbH Germany 100
NORAN Instruments GmbH Germany 100
Thermo Instruments GmbH Germany 100
Thermo Separation Products GmbH Germany 100
Thermo Jarrell Ash (Europe) B.V. Netherlands 100
Thermo Jarrell Ash, S.A. Spain 100
Thermo Separation Products B.V. Netherlands 100
Thermo Separation Products B.V. B.A. Belgium 100
Westronics Inc. Texas 100
Thermo Power Corporation Massachusetts 59.83**
NuTemp, Inc. Illinois 100
Takepine Limited United Kingdom 100
Tecogen Securities Corporation Massachusetts 100
ThermoLyte Corporation Delaware 100
Thermo Process Systems Inc. Delaware 80.47**
Beheersmaatschappij J. Amerika N.V. Netherlands 64.50**
Amerika Tankinstallaties B.V. Netherlands 100
High-Tech Trouble-Shooters B.V. Netherlands 100
Jac. Amerika en Zonen B.V. Netherlands 100
Engineering Technology and Knowledge Delaware 100
Corporation
Elson T. Killam Associates, Inc. New Jersey 100
Duncan, Lagnese and Associates, Pennsylvania 100
Incorporated
E3-Killam, Inc. New York 100
Killam Associates, Inc. Ohio 100
Killam Management and Operational New Jersey 100
Services, Inc.
Holcroft (Canada) Limited Canada 100
Holcroft Corporation Delaware 100
Holcroft GmbH Germany 100
Terra Tech Labs, Inc. Delaware 100
Thermo Terra Tech Massachusetts 100*
(49% of which is owned indirectly
by Thermo Instrument Systems Inc.)
Thermo Incineration Inc. Michigan 100
Thermo Process Services Inc. Delaware 100
Cal-Doran Metallurgical Services, Inc. California 100
Thermo Process Services Midwest Inc. Delaware 100
Metallurgical, Inc. Minnesota 100
Thermo Remediation Inc. Delaware 65.32**
Thermo Fluids Inc. Delaware 100
TPS Technologies Inc. Florida 100
Page 6PAGE
<PAGE>
Thermo Electron Corporation - Subsidiaries of the Registrant
At March 3, 1995, Thermo Electron Corporation owned the following companies:
STATE OR
JURISDICTION
OF PERCENT OF
NAME INCORPORATION OWNERSHIP
- -------------------------------------------------------------------------------
TPST Soil Recyclers of California Inc. California 100
TPST Soil Recyclers of Maryland Inc. Maryland 100
Todds Lane Limited Partnership Maryland 100*
TPST Soil Recyclers of New York Inc. New York 100
TPST Soil Recyclers of Oregon Inc. Oregon 100
TPST Soil Recyclers of South Carolina Inc. Delaware 100
TPST Soil Recyclers of Virginia Inc. Delaware 100
TPST Soil Recyclers of Washington Inc. Washington 100
Thermo Securities Corporation Delaware 100
Thermo Soil Recyclers Inc. Massachusetts 100
Thermo Technology Ventures Inc. Idaho 100
Plasma Quench Investment Limited Partnership Delaware 60*
ThermoTrex Corporation Delaware 50.00**
ThermoLase Corporation Delaware 69.32**
CBI Laboratories, Inc. Texas 100
ThermoTrex East Inc. Massachusetts 100
TMO, Inc. Massachusetts 100
TMOI Inc. Delaware 100
Thermo Electron F. S. C. Inc. U. S. Virgin 100
Islands
Thermo Electron (London) Ltd. United Kingdom 50
Thermo Finance (UK) Ltd. United Kingdom 100
* Joint Venture/Partnership ** As of 12/31/94
Page 7PAGE
<PAGE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 10, 1995 (except with respect to
the matters discussed in Note 15 as to which the date is March 1, 1995)
included in or incorporated by reference into Thermo Electron Corporation's
Annual Report on Form 10-K for the year ended December 31, 1994 into the
Company's previously filed Registration Statement No. 33-00182 on Form S-8,
Registration Statement No. 33-8993 on Form S-8, Registration Statement
No. 33-8973 on Form S-8, Registration Statement No. 33-16460 on Form S-8,
Registration Statement No. 33-16466 on Form S-8, Registration Statement
No. 33-25052 on Form S-8, Registration Statement No. 33-37865 on Form S-8,
Registration Statement No. 33-37867 on Form S-8, Registration Statement
No. 33-36223 on Form S-8, Registration Statement No. 33-52826 on Form S-8,
Registration Statement No. 33-52804 on Form S-8, Registration Statement
No. 33-52806 on Form S-8, Registration Statement No. 33-52800 on Form S-8,
Registration Statement No. 33-37868 on Form S-3, Registration Statement
No. 33-35657 on Form S-3, Registration Statement No. 33-34752 on Form S-3,
Registration Statement No. 33-39434 on Form S-3, Registration Statement
No. 33-12748 on Form S-3, Registration Statement No. 33-39773 on Form S-3,
Registration Statement No. 33-40669 on Form S-3, Registration Statement
No. 33-41256 on Form S-3, Registration Statement No. 33-42694 on Form S-3,
Registration Statement No. 33-43706 on Form S-3, Registration Statement
No. 33-45401 on Form S-3, Registration Statement No. 33-45603 on Form S-3,
Registration Statement No. 33-50924 on Form S-3, Registration Statement No.
33-51187 on Form S-8, Registration Statement No. 33-51189 on Form S-8,
Registration Statement No. 33-54185 on Form S-3, Registration Statement No.
33-54347 on Form S-8, Registration Statement No. 33-54453 on Form S-8,
Registration Statement No. 33-57129 on Form S-4, and Registration Statement
No. 33-59544 on Form S-3.
Arthur Andersen LLP
Boston, Massachusetts
March 7, 1995
<PAGE>
