-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, G4QQ8FtuaSIb4CzlVTqc/I6hd9iqjGGh2fVFANzsEEGPsPiyVzOsMEE8NPEOQOel y0mnEeeQTAnFl03ii5X36A== 0000097745-94-000033.txt : 19940310 0000097745-94-000033.hdr.sgml : 19940310 ACCESSION NUMBER: 0000097745-94-000033 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19940101 FILED AS OF DATE: 19940309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO ELECTRON CORP CENTRAL INDEX KEY: 0000097745 STANDARD INDUSTRIAL CLASSIFICATION: 3829 IRS NUMBER: 042209186 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08002 FILM NUMBER: 94515251 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254 BUSINESS PHONE: 6176221000 10-K 1 THERMO ELECTRON 1993 10-K 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 January 1, 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 28, 1994, was approximately $1,967,000,000. As of January 28, 1994, the Registrant had 47,933,007 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended January 1, 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 24, 1994, are incorporated by reference into Part III. PART I Item 1. Business (a) General Development of Business Thermo Electron Corporation and its subsidiaries develop, manufacture, and market analytical and environmental-monitoring instruments, alternative-energy systems, industrial process equipment, biomedical products, and various devices based on advanced technologies. The Company also provides metallurgical heat-treating, environmental engineering, and analytical laboratory services. The Company conducts 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 analytical and environmental-monitoring instruments, biomass-fueled power plants, paper-recycling equipment, and papermaking accessories. The Company is currently seeking to establish leading market positions in the fields of left ventricular-assist devices, explosives-detection systems, thermal soil-remediation services, and dedicated natural gas engines for vehicles and stationary applications. The Company is developing new products in its Advanced Technologies segment, as well as 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 existing core businesses to leverage the Company's access to new markets. The Company believes that maintaining an entrepreneurial atmosphere is essential to continuing its growth and development. In order to preserve this environment, in 1983 the Company adopted the strategy of having certain subsidiaries sell a minority interest to outside investors. This permits the establishment of more focused management objectives and performance incentives and provides capital to support the subsidiaries' growth. The Company's operating philosophy is to manage both its wholly owned and majority-owned subsidiaries by providing centralized strategic planning, corporate development, administrative, financial and other services that would not be available to many independent companies of similar size. As of year-end 1993, the Company had 12 subsidiaries that have sold minority equity interests, nine of which are publicly traded. Thermo Electron, a Delaware corporation, was incorporated in 1956, 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). Unless the context otherwise requires, "the Registrant" and "the Company" as used herein refer to Thermo Electron Corporation and its subsidiaries. (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, Services, and Advanced Technologies. In some cases, products or services within a particular segment are provided by more than one subsidiary, and certain 2 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 12 to Consolidated Financial Statements in the Registrant's 1993 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. 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; Gas Tech Inc., a leading manufacturer of portable instruments and fixed-site systems for detecting and monitoring toxic and combustible gases, in May 1992; Nicolet Instrument Corporation, a leading manufacturer of instruments for numerous analytical, chemistry, engineering, and other applications, in August 1992; Gamma-Metrics, a manufacturer of analytical and nuclear reactor monitoring instruments, in January 1993; Spectra-Physics Analytical, a manufacturer of high performance liquid chromatography and capillary electrophoresis analytical instruments, in February 1993; and the radiation measurement products and radiometry process control divisions of FAG Kugelfischer Georg Shafer AG, in October 1993. On January 31, 1994, Thermo Instrument announced its intention to acquire, subject to regulatory approvals and the satisfaction of certain conditions to closing, several of the businesses within the EnviroTech Measurements & Controls group of Baker Hughes Incorporated for a cash purchase price of approximately $93 million. The businesses to be acquired manufacture products used for process control, process measurement and laboratory analysis. The Company's instruments employ a variety of advanced technologies including 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 or monitoring 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, and high performance liquid chromatographs. 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 metal alloys. The Company sells these products to a wide range of customers in manufacturing industries, such as producers of aircraft, automobiles and trucks, computers, chemicals, food, 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 both sequential AE spectrometers, in which elements are analyzed one at a time, and simultaneous AE spectrometers, in 3 which many elements can be measured at one 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; in biochemistry; in analysis of foods, chemicals, and petrochemicals; and in health and forensic science. The Company provides both stand-alone spectrometers and combined systems that use chromatographs purchased from other companies. These products span a range of sensitivity, specificity, separation technologies, data-handling capabilities, sizes, and prices. The Company also sells high performance liquid chromatography instruments and related equipment used principally in the production 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, pharmaceutical, and environmental research. In addition, the Company manufactures and markets digital oscilloscopes and multichannel transient recorders, as well as X-ray imaging systems used for quality control 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 and detection of toxic and combustible gases. The Company's nuclear radiation monitoring instruments detect and measure alpha, beta, gamma, neutron, or X-ray radiation emitted by natural sources and by radioactive materials found 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 protection of personnel from nuclear radiation. Nuclear power plants and U.S. Department of Energy facilities purchase approximately 85% of the radiation monitoring instruments sold by the Company. The Company's air-monitoring instruments measure pollutants in ambient or "open" 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 by utility and industrial customers to ensure compliance with environmental regulations, by government agencies to monitor air quality, and by research facilities. The 4 Occupational Safety and Health Administration's recently established safety requirements for protecting workers from toxic or explosive atmospheres in confined spaces are addressed with 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. Also included in the Company's monitoring instruments business is 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. Revenues from instruments products were $516,712,000, $349,261,000, and $283,612,000 in 1993*, 1992, and 1991, respectively. Alternative-energy Systems - -------------------------- The Company's Alternative-energy Systems segment includes the construction, sale, and operation of alternative-energy power plants, the manufacture, sale, and servicing of packaged cooling and cogeneration systems, natural gas and marine engines, industrial refrigeration systems, and steam turbines and compressors and, beginning in early 1994, the operation of a waste-recycling facility. Alternative-energy Power Plants Through a division and its Thermo Energy Systems Corporation subsidiary, the Company develops, constructs, and operates alternative-energy power plants. The power plants, generally designed to burn low-grade fuels and to produce less than 100 megawatts of electric power, 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 are 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 its projects in the future. The Company participates in the operation of the Dade County Downtown Government Center cogeneration plant in Miami, Florida, through a joint venture of subsidiaries of the Company and Rolls-Royce, Inc. Because the demand for power and chilled water at the Downtown Government Center complex has been - -------------------------- * References to 1993, 1992, and 1991 herein are for the fiscal years ended January 1, 1994, January 2, 1993, and December 28, 1991, respectively. 5 substantially less than anticipated since the plant's startup in 1987, and because the Company believes Dade County has breached its contractual obligations with respect to use of power at Dade County facilities outside the Government Center (affecting plant efficiencies), 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). Revenues from alternative-energy power plant operations and construction were $128,558,000, $140,561,000, and $112,527,000 in 1993, 1992, and 1991, 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 Finance Authority of $133.5 million principal amount of bonds (the CPCFA Bonds), which are effectively guaranteed by the Company except under certain circumstances. 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 and reduce the volume of remaining waste for a service fee. The service fee is calculated pursuant to a formula that includes a provision for debt service for the CPCFA Bonds, a passthrough 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 materials generated by the Recycling Facility. 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 will bear most business and legal risks associated with operating the Recycling Facility. Although the Company believes that the Recycling Facility will be able to satisfy all applicable performance requirements, due to the novelty and complexity of the technology and processes involved, there can be no assurance that the Company will not encounter unanticipated operational difficulties. Natural Gas Engines and Refrigeration Systems The Company, through its Thermo Power Corporation subsidiary, designs, develops, manufactures, markets, and services environmentally sensitive and economically efficient power generation, cooling, and related products, many of which are fueled by natural gas. Thermo Power's 1992 acquisition of FES, Inc., a supplier of specialized ammonia-based, fluorocarbon-free refrigeration systems primarily used by the food-processing, pharmaceutical, and petrochemical industries, combined with its Crusader Engines division, a leading manufacturer of inboard marine engines, have expanded Thermo Power from an entity with a research and development focus to an integrated manufacturing operation. Many of Thermo Power's products are powered by its proprietary low-emission natural gas-fueled TecoDrive engines, a family of General Motors Corporation gasoline engines that have been modified by Thermo Power to optimize performance on natural gas. Thermo Power is developing a number of applications for its TecoDrive engines, including driving irrigation pumping systems and other stationary power applications and powering various fleet vehicles. Thermo Power has established a marketing relationship with Blue Bird Corporation, a leading school bus manufacturer in the U.S., to provide TecoDrive engines as a 6 production option for school buses built by Blue Bird. Thermo Power has also supplied TecoDrive engines for use in demonstrations by other fleet operators, including United Parcel Service, the U.S. Postal Service, and several fleets abroad. In addition to conducting research on natural gas engines for vehicles, Thermo Power, through its Tecogen division, has a research and development relationship with Carrier Corporation and the Gas Research Institute to develop natural gas engine-driven cooling systems. The Company's Alternative-energy Systems segment also includes its Peter Brotherhood Ltd. subsidiary, a manufacturer of steam turbines and compressors based in the United Kingdom. Process Equipment - ----------------- The Company designs, manufactures, and sells advanced, custom-engineered processing machinery, including papermaking and paper-recycling equipment, metallurgical thermal-processing systems, and electroplating systems. Papermaking and Paper-recycling Equipment Through its Thermo Fibertek Inc. subsidiary, the Company manufactures and sells processing machinery and accessories for the papermaking and paper-recycling industries worldwide. The Company's principal products in this business include custom-engineered systems and equipment for the preparation of waste paper for conversion into recycled paper, and accessory equipment and related consumables that are of critical importance to the efficient operation of papermaking machines. The Company has developed what it believes is the most 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 what it believes is the most 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 Ltd., a leading Japanese manufacturer of this equipment. Thermo Fibertek also manufactures accessories used in the papermaking industry, and is a leading designer and manufacturer of doctor blades and showers that perform continuous on-line cleaning of rolls and fabrics used to protect papermaking machines from costly damage caused by web breaks. The Company seeks to expand its businesses through the introduction of new products and technologies and through select acquisitions. Thermo Fibertek expanded its existing market position in papermaking accessories through the September 1992 acquisition of Vickerys Holdings Limited, a U.K.-based manufacturer of doctoring systems and environmental process systems, and the June 1993 acquisition of AES, formerly Albany International Corp.'s Engineered Systems Division, a worldwide supplier of showering systems, formation systems, and water-filtration systems for the papermaking process. Revenues from papermaking and paper-recycling equipment were $137,088,000, $125,577,000, and $124,731,000 in 1993, 1992, and 1991, respectively. Metallurgical Thermal-processing Systems The Company, through the Holcroft division of its Thermo Process Systems Inc.'s 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. 7 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 chemicals in a variety of production processes. 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 ventricular-assist devices, 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. 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 produces 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 U.S. 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 a specific area of the breast where a suspicious lesion has been detected, and create a digital image of the lesion on a video monitor. Digital imaging has advantages over traditional X-ray mammography because once the X-ray image has been converted into digital computer code, radiologists can enhance the image quality to scrutinize subtle differences that may go undetected on a film-based X-ray. 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, a manufacturer of high-quality skin-care and other personal-care products sold through salons, spas, and department stores. It is anticipated that CBI will manufacture the lotion that is an integral part of ThermoTrex's laser-based system for long-term hair removal, which is being developed by ThermoLase Inc., a majority-owned subsidiary of ThermoTrex. The Company's Thermedics Inc. subsidiary develops, manufactures, and markets enteral-nutrition delivery systems and solutions and a family of biocompatible polyurethanes, TecoflexR and TecothaneR, which are medical-grade plastics used in medical disposables and industrial applications. Thermedics also manufactures Scent Seal (1) fragrance samplers, which were developed from the Company's polymer technology. Scent Seal fragrance samplers are used in magazines to seal fragrance renditions in perfume advertisements, and offer an alternative to commonly used fragrance strips. - ------------------------------- (1) Scent Seal is a trademark of Scent Seal Inc. 8 The Company, through its Thermo Cardiosystems Inc. subsidiary, is a leader in the research and development of implantable left ventricular-assist devices (LVADs). 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 total artificial heart systems, which require removal of the natural heart, LVADs allow the heart to be left in place, preserving the heart's biological control mechanisms. The Company's devices are currently being used in clinical trials in patients awaiting heart transplants. The current version of the Company's air-driven LVAD has been implanted in more than 190 patients, and its battery-powered LVAD has been implanted in 12 patients. In December 1993, the FDA's Advisory Panel on Circulatory System Devices unanimously recommended commercial approval for the air-driven LVAD, providing that certain labeling conditions are met. The FDA is free to decide whether or not to accept this recommendation and whether to impose additional conditions upon the grant of commercial approval. The FDA may also impose limitations on the indicated uses for the air-driven LVAD and may require that the Company continue to submit clinical data after the product is approved. In any event, prior to the FDA's final decision on commercial approval, the Company must undergo a standard FDA review of product labeling and manufacturing practices. The Company expects that the FDA will not make a final approval decision until mid-1994 at the earliest. There can be no assurances, however, when the FDA's decision will be made or whether the FDA will approve the air-driven LVAD for commercial sale. The Company does not expect that it will file a premarket approval application for its electric LVAD before 1995. Services - -------- The Company provides analytical and environmental services in the fields of laboratory testing, engineering, and waste treatment. Through a network of facilities owned and operated by Thermo Instrument, 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 Process Systems' Thermo Remediation Inc. subsidiary operates a national network of facilities for remediating petroleum-contaminated soil. Thermo Remediation currently operates six soil-recycling centers, one each in Virginia, Florida, California and Oregon, and two in South Carolina. Thermo Remediation recently entered the waste fluids-recycling market through the acquisition of a fluids recovery company based in Arizona. A majority-owned subsidiary of Thermo Process, J. Amerika N.V., provides environmental services from its Netherlands-based operation. In addition, metallurgical heat-treating services are provided for customers in the aerospace, defense, and other industries. The Company also provides metallurgical fabrication services, principally on high-temperature materials, for customers in the aerospace, medical, electronics, and nuclear industries. Advanced Technologies - --------------------- Many of the Company's lines of business resulted from its research and development activities. In 1988, the operations constituting substantially all of the Company's research and development segment were combined into a subsidiary, which is now called ThermoTrex Corporation. ThermoTrex continues to 9 conduct 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 United States government, includes basic and applied research in electro-optical and electro-acoustic systems, advanced laser systems, thermodynamics, heat transfer, materials technology, and advanced parallel and signal processing. This work also includes design, development, and testing of prototype devices and systems. 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 CTTM (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 system, called ThermoLase, for the painless long-term removal of hair. ThermoTrex is also developing a full-breast digital mammography system. These products are at various stages of development and are subject to various 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. Based on technology that has been used to develop instruments sold by the Company for the detection of nitrosamines and other nitrogen-based compounds, the Company, through a subsidiary of Thermedics, develops, manufactures, markets, and sells instruments to detect explosives (the EGISR system) and narcotics (the SentorR system) at airports and other locations. In 1992, Thermedics introduced a high-speed product quality assurance system based on its EGIS technology for use in bottling lines (the AlexusR system). The Company believes that the technology developed from this project may have applications in a range of environments where the ability to screen products during high-speed production, without interruption, will enhance product quality and increase efficiency. The Company's Thermo Voltek Corporation subsidiary designs, develops, and manufactures test instruments that simulate different types of pulsed electromagnetic interference in order to test electronic and electrical systems and components for electromagnetic compatibility (EMC), provides EMC consulting and systems-integration services, distributes a range of EMC-related products and manufactures and markets specialized power supplies for telecommunications equipment. Thermo Voltek also designs, manufactures, and markets high-voltage power conversion systems, modulators, fast-repsonse 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 January 1, 1994, the Company had 12 subsidiaries that have sold minority equity interests, nine of which are publicly traded and three of which are privately held. Thermedics Inc. develops, manufactures, and markets explosives- and drug-detection devices, product quality assurance systems, as well as biomaterials and other biomedical products. Thermedics' products are included in 10 the Company's Biomedical Products and Advanced Technologies segments. On January 31, 1994, Thermedics announced its intention to acquire from Baker Hughes Incorporated two businesses that manufacture precision measurement and inspection equipment, for a cash purchase price of approximately $41 million. Thermo Cardiosystems Inc., a majority-owned subsidiary of Thermedics, performs research and development of implantable left ventricular-assist devices 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' products are included in the Company's Biomedical Products segment. Thermo Voltek Corp., a majority-owned subsidiary of Thermedics, designs, develops, and manufactures instruments and systems that simulate the effects of pulsed electromagnetic interference and power interruptions, provides electromagnetic compatibility consulting and systems services, and designs, manufactures, and markets high-voltage power conversion systems for commercial, medical, defense, and industrial applications. Thermo Voltek's products are included in the Company's Advanced Technologies segment. Thermo Instrument Systems Inc. develops, manufactures, and markets analytical and monitoring instruments used to detect and measure air pollution, nuclear radioactivity, toxic substances, chemical compounds, and trace quantities of metals, and other elements, in a wide variety of materials. Thermo Instrument also performs analytical laboratory services for the management of hazardous wastes and radioactive materials, and environmental science and engineering services. Thermo Instrument's products and services are included in the Company's Instruments and Services segments. Thermo Process Systems Inc. designs, manufactures, and installs custom-engineered thermal-processing systems for treating primary metals and metal parts. The Company also provides a range of metallurgical processing services. Thermo Process' products and services are included in the Company's Process Equipment and Services segments. Thermo Remediation Inc., a majority-owned subsidiary of Thermo Process, operates a network of soil-recycling centers in the U.S. and provides waste fluids-recycling services. Thermo Remediation's services are included in the Company's 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 Services segment. Thermo Power Corporation manufactures, markets, and services industrial refrigeration equipment; natural gas engines for vehicles and stationary applications; natural gas-fueled cooling and cogeneration systems; and marine engines; and conducts research and development on low-emission engines and advanced systems for clean-coal combustion. Thermo Power's products are included in the Company's Alternative-energy Systems segment. ThermoTrex Corporation manufactures and markets mammography and biopsy systems for the early detection of breast cancer, and conducts advanced-technology research and product development, which it is incorporating into commercial products for the medical imaging and avionics industries. ThermoTrex's products are included in the Company's Advanced Technologies and Biomedical Products segments. 11 ThermoLase Inc., a majority-owned, privately held subsidiary of ThermoTrex, is developing a laser-based system for the long-term removal of hair, and manufactures high-quality skin-care products sold through salons, spas, and department stores. ThermoLase's hair-removal system is included in the Advanced Technologies segment and ThermoLase's skin-care products are included in the Company's Biomedical Products segment. Thermo Fibertek Inc. develops, markets, and manufactures a range of equipment and accessory products for the domestic and international paper industry, including de-inking and stock-preparation equipment for paper recycling. Thermo Fibertek's products are included in the Company's Process Equipment segment. Thermo Energy Systems Corporation, a majority-owned, privately held subsidiary, develops and operates alternative-energy 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 joint ventures or partnerships in which the Company has ownership interests. Thermo Energy Systems' operations are included in the Company's Alternative-energy Systems segment. 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. (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 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, except as described below. The Company's Thermedics subsidiary relies upon a number of sole-source suppliers of chemical components used in the manufacture of two polyurethanes. In addition, Thermedics' Thermo Cardiosystems subsidiary relies upon a number of custom-designed components and materials supplied by other companies to manufacture its LVADs. 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 the existing premarket approval application for Thermo Cardiosystems air-driven LVADs will not be affected by the discontinuation of these materials, any new materials used in the LVAD systems will require approval by the FDA. The Company's goal is to obtain FDA approval for alternative materials before Thermo Cardiosystems' existing supplies are depleted. The cost to the Company to evaluate and test alternative materials and the time necessary to obtain FDA approval for these materials are inherently difficult to determine because both time and cost are dependent on at least two factors: the similarity of the alternative material to the original material, and the amount of third-party testing that may have already been completed on alternative materials. There can be no assurance, 12 however, that Thermo Cardiosystems' existing supplies will not be depleted prior to the receipt of FDA approval. (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, utilizes trademarks with its products. It also enters into license agreements with others to grant and/or receive rights to patents and know-how. (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) Dependence 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 23% of its revenues in 1993 from contracts with various agencies of the U.S. government and approximately 45% of its revenues in 1993 from one customer for a high-speed product quality assurance system. In connection with the development of alternative-energy 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 1993 and 1992 was as follows: (In thousands) 1993 1992 ----------------------------------------------------------------- Instruments $115,600 $ 93,000 Alternative-energy Systems 370,600 375,800 Process Equipment 36,200 40,900 Biomedical Products 26,800 13,300 Services 39,700 47,400 Advanced Technologies 29,100 25,900 -------- -------- $618,000 $596,300 ======== ======== 13 Alternative-energy Systems segment backlog includes $281 million at year-end 1993 and 1992 for revenues to be earned over 24 years from the operation of the San Diego County waste-recycling facility, construction of which was completed in early 1994 (see "Alternative-energy Systems" under section (c), "Description of Business"). The Advanced Technologies segment backlog includes government contract orders that are firm but not yet funded. Such orders were $11.4 million and $11.7 million at year-end 1993 and 1992, respectively. 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 95% of the 1993 backlog, excluding backlog relating to the waste-recycling facility in San Diego County, will be filled during fiscal 1994. The Company believes that approximately $12 million of the backlog relating to the waste-recycling facility in San Diego County will be filled in fiscal 1994. (ix) Government Contracts Approximately 3% of the Company's total revenues in fiscal 1993 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 and technologies in most of its product lines and its relative position in certain markets cannot be determined due to insufficient data. The Company believes it is the leading supplier of mass spectrometers, FT-IR spectrometers, FT-IR and FT-Raman microscopes, and optical plasma-emission spectrometers, and a major supplier of atomic absorption spectrometers. In liquid chromatography, the Company believes its competitors include several larger 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. Alternative-energy Systems Alternative-energy power plants are individually designed to meet customer specifications. Most customers solicit proposals from several companies and make a selection based upon engineering design capability, adherence to 14 specifications, and previous experience with the supplier, as well as price and service. 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 utility 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. 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. The Company anticipates that competition in the developing alternative-fuel engine market, specifically natural gas engines for vehicles, will be intense, and potential competitors may include major automotive and natural gas companies and other companies that have 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. The Company's sale of industrial refrigeration systems is subject to intense competition. The industrial refrigeration market is mature, highly fragmented, and extremely dependent on close customer contacts. Major industrial refrigeration companies, of which FES 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. Process Equipment The Company faces significant competition in the markets for both paper-recycling and web process 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. Services The Company competes in the emerging and highly fragmented market for soil-remediation services on its ability to offer customers superior protection from environmental liabilities from a national network of cleanup facilities. However, the Company faces competition in local markets from landfills and other remediation technologies as well as from companies competing with similar technologies, that limits the prices that can be charged by the Company. Pricing is therefore a major competitive factor to the Company. The Company's metallurgical services business competes in specialty machining 15 services. Competition is based principally on quality, service, price, and the ability to respond rapidly to customer requirements. Hundreds of independent analytical testing laboratories and engineering 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. 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. The Company is aware of one other company that is performing clinical trials in humans of a long-term LVAD and a portable electric LVAD. 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 LVADs is a significant barrier to entry into that market. Consequently, the first companies to receive market approval from the FDA will have a significant competitive advantage. Sales of Lorad X-ray mammography equipment are primarily limited to the U.S. 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. CBI competes with a number of small manufacturers and divisions of larger companies primarily on the basis of reputation, product quality, diversity of products and price. 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 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 commercialization, competition is expected to intensify. 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. Competition in this area is primarily based on performance and, to a lesser extent, price. Since use of the Company's explosives-detection instruments has not been mandated by the U.S. Federal Aviation Administration (FAA), most of the Company's sales of explosives-detection equipment are overseas. The Company believes that the manufacturers, if any, whose devices are required to be used by the FAA will have a substantial competitive advantage in the United States. The Company's product quality assurance systems compete with chemical-detection systems manufactured by several companies and with other technologies and processes for quality assurance. Competition in the markets for all of the Company's detection 16 products is based primarily on performance and, to a lesser extent, price. The Company estimates that there are between 10 and 20 companies that compete in each of the markets for pulsed electromagnetic interference test equipment, component reliability test equipment, and high-voltage power conversion systems of the general type manufactured and marketed by the Company. Competition is principally on the basis of reputation, technical expertise, and product performance. (xi) Research and Development During 1993, 1992, and 1991, the Company expended $79,378,000, $58,101,000, and $47,367,000, respectively, on research and development. Of these amounts, $20,435,000, $19,426,000, and $21,196,000 were sponsored by customers and $58,943,000, $38,675,000, and $26,171,000 were Company-sponsored. Approximately 640 professional employees were engaged full-time in research and development activities at January 1, 1994. (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 January 1, 1994, the Company employed approximately 8,800 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 12 in the Registrant's 1993 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) 67 Chairman of the Board, President, Chief Executive Officer, and Director (1956) John N. Hatsopoulos (1) 59 Executive Vice President and Chief Financial Officer (1968) Robert C. Howard 63 Executive Vice President (1968) Peter G. Pantazelos 63 Executive Vice President (1968) Arvin H. Smith 64 Executive Vice President (1983) William A. Rainville 52 Senior Vice President (1993) Paul F. Kelleher 51 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. 17 Item 2. Properties The location and general character of the Company's principal properties by industry segment as of January 1, 1994, are as follows: Instruments The Company owns approximately 697,000 square feet of office, engineering, laboratory, and production space, principally in California, Colorado, Florida, New Mexico, Wisconsin, Germany, and England, and leases approximately 694,000 square feet of office, engineering, laboratory, and production space principally in California, Connecticut, Massachusetts, Wisconsin, Germany, and Japan, under leases expiring from 1994 to 2017. Alternative-energy Systems The Company owns approximately 413,000 square feet of office, engineering, and production space in Pennsylvania and England, and leases approximately 208,000 square feet of office, engineering, laboratory, and production space principally in Massachusetts and Michigan, under leases expiring from 1994 to 2005. The Company operates four alternative-energy power plants in California, Maine, and New Hampshire, under leases expiring from 2003 to 2009. The Company owns three alternative-energy power plants in New Hampshire and California and a waste-recycling facility in California. Process Equipment The Company owns approximately 1,153,000 square feet of office, laboratory, and production space, principally in Connecticut, Massachusetts, New York, Canada, England, France, and Mexico, and leases approximately 471,000 square feet of office, engineering, and production space principally in Georgia, Michigan, and Wisconsin, under leases expiring from 1994 to 2000. Biomedical Products The Company owns approximately 96,000 square feet of office and production space in Connecticut and New Jersey, and leases approximately 286,000 square feet of office, engineering, laboratory, and production space in Illinois, Massachusetts, New Jersey, and Texas, under leases expiring from 1995 to 2003. Services The Company owns approximately 1,855,000 square feet of office, laboratory, and production space, principally in California, Florida, Minnesota, Oregon, South Carolina, and the Netherlands, and leases approximately 782,000 square feet of office, engineering, laboratory, and production space principally in Arizona, California, Massachusetts, New Jersey, New Mexico, and South Carolina, under leases expiring from 1994 to 2008. Advanced Technologies and Corporate Headquarters The Company owns approximately 126,000 square feet of office space in Massachusetts and New York and leases approximately 231,000 square feet of office, engineering, and laboratory space principally in California, Massachusetts, and the Netherlands, under leases expiring from 1994 to 2003. 18 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 which expire in 1994 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. The joint venture sells electricity to Metropolitan Dade County (the County) pursuant to an energy purchase contract signed in 1983. Because the demand for power and chilled water at the Government Center complex has been substantially less than anticipated since the plant's startup in 1987, and because the Company believes the County has breached its contractual obligations with respect to the use of power at County facilities outside the Government Center (affecting plant efficiency), the joint venture has experienced continuing losses. The joint venture sells over half of its actual output to the County and the balance to Florida Power and Light (the local utility). On April 13, 1992, the joint venture re-filed a lawsuit against the County (originally brought in 1988) in the Circuit Court of the Eleventh Judicial Circuit, Dade County, Florida, seeking in excess of $60 million in damages and alleging that the County was in breach of the energy purchase contract and had misrepresented its demand for electrical power. The County has asserted counterclaims in excess of $28 million 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. The County has also asserted that the joint venture is responsible for local property taxes on the project, totaling approximately $10.5 million to date, which the joint venture disputes. On May 18, 1993, the County filed a petition with the Florida Public Service Commission, asserting that the joint venture was engaged in the retail sale of electricity without complying with the rules governing public utilities. The County has filed a similar motion in the state court case alleging that the contract was illegal. Trial of the state court action has been delayed while the County and the joint venture attempt to settle the dispute. On May 28, 1993, the County 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 Florida Power and Light, 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 19 Florida Power and Light argued before FERC that the project did not meet the efficiency standards for 1992. The County is also using FERC's decision in an attempt to have the state court declare the energy purchase contract illegal under Federal law. 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 the 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 under the lease, 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 $54 million and the amount realized from the sale or (b) in the case of re-lease, one-half of the difference between the present value of future rental and prepayment penalty under the lease (approximately $42 million) and the present value of a fair rental value to be collected from a new tenant. The joint venture's revenues and net losses for (a) the year ended January 1, 1994 were $5.0 million and $12.5 million, respectively (exclusive of a $15.0 million reserve the Company recorded in 1993 in connection with this project) and (b) the cumulative period 1987 through 1991 were $26.3 million and $23.0 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. On or about September 8, 1993, the Connecticut Department of Environmental Protection (DEP) served pretrial memoranda in the action captioned "Timothy R.E. Keeney, Commissioner of Environmental Protection vs. Napco, Inc.," in Hartford County (Connecticut) Superior Court, seeking civil penalties from the Company's Napco, Inc. subsidiary for alleged violations of state law relating primarily to labeling and storage of on-site containers allegedly containing hazardous materials, and related record-keeping matters. The allegations do not involve damage to the environment. The DEP seeks to have the court impose civil penalties of up to $25,000 per day per violation, allegedly totaling several million dollars. Napco, Inc. has denied the DEP's allegations, and is defending the case vigorously and asserting all available defenses. The Company believes that any settlement of this matter by its subsidiary will not have a material adverse effect on the Company. Certain subsidiaries of the Company, including those recently acquired by 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. 20 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. 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 1993 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 1993 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 1993 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 January 1, 1994, are included in the Registrant's 1993 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. 21 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. 22 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 schedules set forth in the list below are 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 Certain Financial Schedules included herewith: Schedule I: Marketable Securities Short- and Long-term Schedule II: Amounts Receivable From Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties Schedule VIII: Valuation and Qualifying Accounts Schedule IX: Short-term Borrowings Schedule X: Supplemental Income Statement Information 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 January 1, 1994, the Company was not required to file, and did not file, any Current Report on Form 8-K. (c) Exhibits See Exhibit Index on the page immediately preceding exhibits. 23 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 9, 1994 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 9, 1994. 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: Peter O. Crisp 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: Director Roger D. Wellington 24 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 17, 1994. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in Item 14 on page 23 are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state 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 & Co. Boston, Massachusetts February 17, 1994 25 SCHEDULE I Thermo Electron Corporation Marketable Securities Short- and Long-term (In thousands) January 1, 1994 Amount Market Carried Cost Value in Name of Issuer and Title of Principal of Each of Each Balance Each Issue Amount Issue(a) Issue Sheet(a) - --------------------------------- --------- -------- -------- -------- Corporate Notes: ACM Managed Income Fund $ 4,900 $ 4,899 $ 4,900 $ 4,900 Alexander Haagen Properties Inc. 2,000 2,000 2,000 2,000 American Express Corporation 1,000 1,069 1,076 1,000 Anagram Funding Corp. 5,000 5,000 5,000 5,000 Bankers Trust New York Corp. 5,000 5,000 5,000 5,000 Bear Stearns Companies Inc. 6,000 6,039 6,032 6,000 British Petroleum North America 4,500 4,609 4,604 4,500 Broken Hill Properties Operations Inc. 10,000 10,000 10,000 10,000 Caterpillar Financial Services Inc. 8,000 8,017 8,014 8,000 Chrysler Financial Corp. 9,000 9,062 9,129 9,000 Chubb Capital Corp. 5,100 5,100 5,100 5,100 Coca-Cola Enterprises Inc. 800 800 818 800 Dean Witter Discover & Co. 5,000 5,000 5,000 5,000 Dow Chemical Corp. 10,000 10,000 10,000 10,000 Eastman Kodak Corporation 6,000 2,785 2,753 6,000 First Australia Prime Income Fund 15,000 15,000 15,000 15,000 Ford Motor Credit Company 10,000 10,000 10,013 10,000 Freeport McMoran Inc. 2,000 2,000 1,990 2,000 General Electric Capital Corporation 7,225 7,446 7,583 7,225 General Motors Acceptance Corporation 19,590 20,033 20,072 19,590 Halliburton Co. 6,000 2,651 2,925 6,000 IBM Corporation 7,000 7,000 6,983 7,000 Kimberly-Clark Corp. 2,775 3,126 2,970 2,775 MCI Communications Corp. 3,000 3,019 3,012 3,000 Meditrust 4,200 4,577 4,537 4,200 Merrill Lynch & Co. 7,000 7,174 7,158 7,000 National Health Investors Inc. 5,000 5,095 5,000 5,000 Pepsi Corporation 5,000 5,267 5,260 5,000 Pfizer Inc. 1,200 1,200 1,200 1,200 Pioneer International Hong Kong Ltd. 5,000 5,000 5,000 5,000 Pitney Bowes Inc. 1,350 1,432 1,406 1,350 RJR Nabisco Inc. 4,000 4,482 4,378 4,000 Safeway Stores Inc. 2,000 1,995 2,044 2,000 Seven World Trade Finance Inc. 5,000 5,000 5,000 5,000 Shearson Lehman Hutton Inc. 1,000 1,039 1,150 1,000 Sizeler Property Investors 1,000 1,000 1,000 1,000 Southwestern Bell Capital Corporation $ 2,000 $ 2,085 $ 2,129 $ 2,000 26 Amount Market Carried Cost Value in Name of Issuer and Title of Principal of Each of Each Balance Each Issue Amount Issue(a) Issue Sheet(a) - --------------------------------- --------- -------- -------- -------- Texaco Capital Inc. $ 2,000 $ 2,057 $ 2,073 $ 2,000 The Limited Inc. 7,200 7,200 7,200 7,200 Time Warner Inc. 2,000 2,069 2,095 2,000 Union Bank of Finland 2,000 2,034 2,045 2,000 USX Corporation 4,000 1,420 1,640 4,000 Waste Management Inc. 3,500 3,526 3,679 3,500 Xerox Corporation 1,870 1,906 1,911 1,870 -------- -------- -------- -------- 221,210 215,213 215,879 221,210 -------- -------- -------- -------- Commercial Paper: Allianz of America Finance Corp. 5,000 4,911 5,000 5,000 American International Group Funding 10,000 9,996 10,000 10,000 Bank of New York 10,000 9,985 10,000 10,000 Baxter International 5,000 4,971 5,000 5,000 Conagra Inc. 5,000 4,984 5,000 5,000 Daimler Benz North America Corp. 10,000 9,991 10,000 10,000 GTE Corporation 5,000 4,978 5,000 5,000 Merrill Lynch & Co. 5,000 4,975 5,000 5,000 R.R. Donnelley & Sons 10,000 9,996 10,000 10,000 Time Warner Inc. 5,000 4,971 5,000 5,000 Xerox Credit Corp. 5,000 4,990 5,000 5,000 -------- -------- -------- -------- 75,000 74,748 75,000 75,000 -------- -------- -------- -------- Money Market Preferred Stock: Bank America Corporation 1,000 1,187 1,100 1,000 Duff & Phelps Selected Utilities 5,000 5,000 5,000 5,000 Elf Acquitaine Finance USA 7,500 7,500 7,500 7,500 Ford Holdings Inc. 5,900 5,925 5,934 5,900 Lasalle National Corp. 1,000 1,000 1,000 1,000 Lasmo Funding Corp. 5,000 5,000 5,000 5,000 Rhone Poulenc Equity Development Inc. 5,000 5,000 5,000 5,000 Select Asset Funding 10,400 10,400 10,400 10,400 Texaco Inc. 10,750 10,804 10,763 10,750 -------- -------- -------- -------- 51,550 51,816 51,697 51,550 -------- -------- -------- -------- U.S. Government and Agencies: Federal Home Loan Bank 18,000 18,080 18,181 18,000 Federal Farm Credit 8,000 9,513 9,689 8,000 Federal Home Loan Mortgage Corp. 9,675 9,881 9,769 9,675 Federal National Mortgage Association $ 44,000 $ 45,159 $ 45,260 $ 44,000 27 Amount Market Carried Cost Value in Name of Issuer and Title of Principal of Each of Each Balance Each Issue Amount Issue(a) Issue Sheet(a) - --------------------------------- --------- -------- -------- -------- Student Loan Marketing Association $ 2,000 $ 2,015 $ 2,015 $ 2,000 Overseas Private Investment Corp. 2,800 2,800 2,800 2,800 U.S. Treasury 7,000 6,919 7,098 7,000 CMO Agency Fund 20,903 20,903 21,162 20,903 -------- -------- -------- -------- 112,378 115,270 115,974 112,378 -------- -------- -------- -------- Tax-exempt Securities: Chicago Illinois School Finance Authority 2,000 2,195 2,191 2,000 Intercapital Insured Trust 3,050 3,050 3,050 3,050 Intermountain Power Agency, Utah 2,000 2,206 2,196 2,000 La Grange, Georgia 1,330 1,483 1,370 1,330 Metro Atlantic Rapid Trust 1,000 1,098 1,097 1,000 Muniyield Fund Inc. 5,300 5,300 5,300 5,300 Muniyield New Jersey 8,000 7,991 8,002 8,000 Muniyield Quality IIC Inc. 5,000 4,997 5,005 5,000 Nuveen Insured Municipal Fund Inc. 3,500 3,567 3,553 3,500 Nuveen Premier Income Fund 5,000 5,000 5,000 5,000 Nuveen Performance Plus Fund 3,000 3,000 3,003 3,000 Nuveen Quality Municipal Fund 3,300 3,307 3,332 3,300 Nuveen Municipal Advantage Fund 1,500 1,497 1,509 1,500 Nuveen California Quality Fund 1,700 1,694 1,709 1,700 Van Kempen Municipal Trust 4,500 4,493 4,534 4,500 -------- -------- -------- -------- 50,180 50,878 50,851 50,180 -------- -------- -------- -------- Asset-backed Securities: FHLMC-1232 Class B 5,000 4,939 5,034 5,000 FHLMC-1237 Series D 5,000 4,894 5,003 5,000 First Chicago Trust Series 93F 7,000 7,016 7,009 7,000 -------- -------- -------- -------- 17,000 16,849 17,046 17,000 -------- -------- -------- -------- Other: Common Stock 12,907 12,907 12,730 12,556 Bank Time Deposit 30,875 30,875 30,875 30,875 Whole Loan Repurchase Agreement 25,000 25,000 25,000 25,000 Government Money Market Cash 127,972 127,972 127,972 127,972 Money Market Cash 11,461 11,461 11,461 11,461 Cash in Bank Accounts 39,811 39,811 39,811 39,811 Other $ 3,106 $ 3,106 $ 3,106 $ 3,106 28 Amount Market Carried Cost Value in Name of Issuer and Title of Principal of Each of Each Balance Each Issue Amount Issue(a) Issue Sheet(a) - --------------------------------- --------- -------- -------- -------- Accrued Interest $ 3,996 $ 3,996 $ 3,996 $ 3,996 Accrued Discount/Surplus - - - (4,171) -------- -------- -------- -------- 255,128 255,128 254,951 250,606 -------- -------- -------- -------- Total Cash, Cash Equivalents, Short- and Long-term Investments, and Restricted Funds $782,446 $779,902 $781,398 $777,924 ======== ======== ======== ======== (a) The cost of certain securities exceeds the amount carried on the balance sheet due to the purchase of these securities at a premium. "Accrued discount/surplus" represents the unamortized discount/premium as of January 1, 1994. 29 SCHEDULE II Thermo Electron Corporation Amounts Receivable From Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties (In thousands) Balance, Balance, Beginning End of Year Ended Name of Debtor(a) of Year Additions Deductions Year - ----------------- ----------------- --------- --------- ---------- ------- January 1, 1994 Kenneth L. Wood $ 775 $ 450 $ - $1,225 Kenneth L. Wood $ 588 $ - $ - $ 588 January 2, 1993 Kenneth L. Wood $ - $ 775 $ - $ 775 Kenneth L. Wood $ 588 $ - $ - $ 588 December 28, 1991 Kenneth L. Wood $ 588 $ - $ - $ 588 (a) The $588,000 represents a noninterest bearing note receivable which is payable to the Company's Thermo Process Systems Inc. subsidiary on April 14, 1994. This amount is included in "Accounts receivable" in the Consolidated Financial Statements included in the Registrant's 1993 Annual Report to Shareholders. The $1,225,000 represents a note receivable which bears interest at the Broker Call Rate, minus 25 basis points, and is payable to the Company on September 18, 1995. This note is included in "Other Assets" in the Consolidated Financial Statements included in the Registrant's 1993 Annual Report to Shareholders. These notes were secured by a pledge of Thermo Process common stock and were repaid in full in January 1994. As of January 1, 1994, Kenneth L. Wood was an employee of Thermo Process. 30 SCHEDULE VIII Thermo Electron Corporation Valuation and Qualifying Accounts (In thousands) Year Ended January 1, 1994 Charged Balance, to Accounts Balance, Beginning Costs and Accounts Written End Description of Year Expenses Other(a) Recovered Off of Year - ------------------------------------------------------------------------------ Allowance for Doubtful accounts $11,341 2,675 1,532 1,961 (3,380) $14,129 ============================================================================== Year Ended January 2, 1993 Charged Balance, to Accounts Balance, Beginning Costs and Accounts Written End Description of Year Expenses Other(a) Recovered Off of Year - ------------------------------------------------------------------------------ Allowance for Doubtful accounts $10,865 2,021 1,760 144 (3,449) $11,341 ============================================================================== Year Ended December 28, 1991 Charged Balance, to Accounts Balance, Beginning Costs and Accounts Written End Description of Year Expenses Other(a) Recovered Off of Year - ------------------------------------------------------------------------------ Allowance for Doubtful accounts $10,894 3,020 71 173 (3,293) $10,865 ============================================================================== (a) Allowances of businesses acquired during the year as described in Note 2 to Consolidated Statements in the Registrant's 1993 Annual Report to Shareholders. 31 SCHEDULE IX Thermo Electron Corporation Short-term Borrowings (In thousands except percentages) At Year-end During the Year ---------------- --------------------------------- Weighted Weighted Average Highest Average of Average Category Interest Quarter-end Quarter-end Interest Year Ended (a) Balance Rate Balance Balances Rate (b) - ----------------- ------- -------- -------- ----------- ----------- -------- January 1, 1994 Bank $45,851 6.2% $45,851 $30,047 6.5% January 2, 1993 Bank $22,034 7.6% $22,034 $13,341 9.5% December 28, 1991 Bank $ 4,904 8.6% $ 6,750 $ 5,477 10.2% (a) This schedule does not include current maturities of long-term obligations. (b) Calculations are based on the average daily interest rates in effect during the periods the loans were outstanding. - -------------------------------------------------------------------------------- SCHEDULE X Thermo Electron Corporation Supplemental Income Statement Information (In thousands) Year Ended --------------------------------------------------- January 1, 1994 January 2, 1993 December 28, 1991 --------------- --------------- ----------------- Maintenance and Repairs $19,715 $14,604 $10,327 32 Exhibit Number Description of Exhibit Page - ----------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of the Registrant, as amended (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 [Reg. No. 33-64324] and incorporated herein by reference). 3.2 By-laws of the Registrant, as amended. 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). 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). 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). 33 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. 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. 10.7 Asset and Stock Purchase Agreement dated January 14, 1993 among Thermo Instrument Systems Inc., Spectra-Physics Analytical, Inc. and Spectra-Physics, Inc. (filed as Exhibit 10(j) to the Annual Report on Form 10-K of Thermo Instrument Systems Inc. for the year ended January 2, 1993 [File No. 1-9786] and incorporated herein by reference). 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 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). 34 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 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 A to the Registrant's Proxy Statement dated April 12, 1989 [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 2,700,000 shares, after adjustment to reflect 3-for-2 stock split effected in October 1993). 10.25 Directors' Stock Option Plan of the Registrant (filed as Appendix A to the Registrant's Proxy Statement dated April 14, 1993 [File No. 1-8002] and incorporated herein by reference). (Adjustments to reserved shares and formula grant to reflect stock split as follows: 300,000 shares of Thermo Electron Corporation reserved and option grant size is 1,500 shares as a result of 3-for-2 stock split effected in October 1993). 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 Inc. [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). 35 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 Systems Inc. [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 giving effect to share increase approved in 1988 and adjustment for 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). 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 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). 36 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 37,500 shares, after adjustment to reflect 3-for-2 stock split effected in November 1993). 10.36 Thermo Electron Corporation - 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). 10.37 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] (Maximum number number of shares issuable is 900,000 shares, after adjustment to reflect share increase approved in December 1993). 10.38 Thermo 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 is 900,000 shares, after giving effect to share increase approved in December 1993). 37 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 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 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). 10.41 Thermedics Inc. Equity Incentive Plan (filed as Appendix A to the Proxy Statement dated May 10, 1993 of Thermedics Inc. [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 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 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). 10.43 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 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). 38 10.44 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). 10.45 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, and 3-for-2 stock split effected in November 1993). 10.46 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 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). 10.47 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 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). 10.48 Thermo Instrument Systems Inc. Equity Incentive Plan (filed as Appendix A to the Proxy Statement dated April 27, 1993 of Thermo Instrument Systems Inc. [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). 10.49 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 is 618,750 shares, after giving effect to share increase approved in 1987 and adjustment to reflect 3-for-2 stock split effected in July 1993). 39 10.50 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 is 618,750 shares, after giving effect to share increase approved in 1987 and adjustment to reflect 3-for-2 stock split effected in July 1993). 10.51 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 is 1,945,000 shares, after giving effect to share increases approved in 1992 and 1993, and 3-for-2 stock split effected in October 1993). 10.52 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 is 1,945,000 shares, after giving effect to share increases approved in 1992 and 1993, and 3-for-2 stock split effected in October 1993). 10.53 ThermoTrex Corporation - ThermoLase Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.53 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). 10.54 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). 10.55 ThermoLase Inc. Incentive Stock Option Plan (filed as Exhibit 10.55 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). 10.56 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). 10.57 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). 40 10.58 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 is 950,000 shares, after adjustment to reflect share increases approved in 1990, 1992, and 1993). 10.59 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 is 950,000 shares, after giving effect to share increases approved in 1990, 1992, and 1993). 10.60 Thermo Power Corporation Equity Incentive Plan (filed as Appendix A to the Proxy Statement dated February 8, 1994 of Thermo Power Corporation [File No. 1-10573] and incorporated herein by reference). 10.61 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 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). 10.62 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 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). 10.63 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). 10.64 Thermo Process Systems Inc. - Thermo Remediation Nonqualified Stock Option Plan (filed as Exhibit 10(l) to Thermo Process Systems Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 1994 [File No. 1-9549] and incorporated herein by reference). 10.65 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). 41 11 Statements re: computation of earnings per share. 13 Annual Report to shareholders (only those portions of the Registrant's Annual Report to Shareholders incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen & Co. 42 EX-3.2 2 THERMO ELECTRON 1993 10-K/EXHIBIT 3.2 Exhibit 3.2 Revised 12/93 THERMO ELECTRON CORPORATION BY-LAWS TABLE OF CONTENTS Title Page Article I - Offices ...................................................1 Article II - Stockholders .............................................1 Section 1. Annual Meeting ......................................1 Section 2. Special Meetings ....................................1 Section 3. Notice of Meetings ..................................1 Section 4. Quorum ..............................................2 Section 5. Voting ..............................................2 Section 6. Presiding Officer and Secretary .....................2 Section 7. Proxies .............................................2 Section 8. Judges ..............................................2 Section 9. List of Stockholders ................................3 Article III- Directors ................................................ ................................................ ................................................3 Section 1. Number, Election and Tenure .........................3 Section 2. Vacancies ...........................................3 Section 3. Resignations ....................................... 4 Section 4. Meetings ............................................4 Section 5. Quorum ..............................................4 Section 6. Compensation of Directors ...........................4 Section 7. Committees ..........................................5 Title Page Article IV - Officers and Agents ......................................5 Section 1. General Provisions ..................................5 Section 2. The President .......................................5 Section 3. Vice Presidents .....................................6 Section 4. Chief Financial Officer .............................6 Section 5. The Treasurer ......................................6 Section 6. The Secretary .......................................6 Section 7. Assistant Treasurer .................................7 Section 8. Assistant Secretary .................................7 Section 9. Other Officers ......................................7 Section 10. Delegation of Duties ................................7 Article V - Capital Stock .............................................7 Section 1. Certificates for Shares .............................7 Section 2. Transfer of Shares of Stock .........................7 Section 3. Lost, Stolen or Destroyed Certificates ..............8 Section 4. Closing of Transfer Books; Record Date ..............8 Section 5. Maintenance of Stock Ledger .........................8 Article VI - Seal .....................................................9 Article VII - Waiver ..................................................9 Article VIII - Checks, Notes, Drafts, etc. ............................9 Article IX - Amendments ...............................................9 THERMO ELECTRON CORPORATION BY-LAWS ARTICLE I - OFFICES The principal office of the Corporation in the State of Delaware is located at 100 West Tenth Street in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is called The Corporation Trust Company. The Corporation may also have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time determine. ARTICLE II - STOCKHOLDERS Section 1. Annual Meeting. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held in the Corporation's offices in Waltham, Massachusetts, or at such other place within or without the State of Delaware, and at such time, as may be specified in the notice of meeting or waiver thereof, on the second Wednesday in May in each year or on such other date within six months of the end of the Corporation's fiscal year as may be fixed by the Board of Directors. Section 2. Special Meetings. A special meeting of the stockholders of the Corporation, unless otherwise regulated by statute, may be called by the President and shall be called by the President, the Secretary or an Assistant Secretary when directed to do so by resolution of the Board of Directors at a duly convened meeting of the Board, or at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. On failure of any officer above specified to call such special meeting when duly requested, the signers of such request may call such special meeting over their own signatures. Special meetings shall be held at such place within or without the State of Delaware as may be specified in the call thereof. Business transacted at all special meetings shall be confined to the objects stated in the call. Section 3. Notice of Meetings. Written notice of every meeting of the stockholders shall be served by the Secretary or an Assistant Secretary, either personally or by mail upon each stockholder of record entitled to vote at such meeting, at least ten days before the meeting. If mailed, the notice of a meeting shall be directed to a stockholder at his last known post office address. The notice of every meeting of the stockholders shall state the purpose or purposes for which the meeting is called and the time when and the place where it is to be held. 1 Section 4. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, at any meeting of the stockholders there must be present in person or by proxy the holders of record of a majority of all shares of stock issued and outstanding and entitled to vote upon any question to be considered at the meeting in order to constitute a quorum for the transaction of any business, but a lesser interest may adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum be present, and thereupon any business may be transacted at the adjourned meeting which might have been transacted at the meeting originally called. Except as otherwise provided by law, or by the Certificate of Incorporation or by these By-Laws, the vote of a majority of the shares present and entitled to vote at a meeting shall decide any question brought before such meeting. Section 5. Voting. At every meeting of the stockholders, except as may be otherwise provided in the Certificate of Incorporation or in these By-Laws, every stockholder of the Corporation entitled to vote thereat shall be entitled to one vote for each share of stock entitled to vote standing in his name on the books of the Corporation at the time of the meeting, or, if a record date shall have been fixed as hereinafter provided, on such record date; but, except where the transfer books of the Corporation shall have been closed or a record date shall have been fixed, no share of stock shall be voted on at any election for directors which shall have been transferred on the books of the Corporation within 20 days next preceding such election of directors. No person may be elected a director unless his name shall have first been put before the meeting or the stockholders by nomination of one of the stockholders. Upon the demand of any stockholder entitled to vote, the vote for directors, or the vote upon any question before a meeting, shall be by ballot, but otherwise the method of voting shall be discretionary with the presiding officer at the meeting. Section 6. Presiding Officer and Secretary. At all meetings of the stockholders, the President of the Corporation, or in his absence a Vice President or if none be present, the appointee of the meeting, shall preside. The Secretary of the Corporation, or in his absence an Assistant Secretary, or if none be present the appointee of the Presiding Officer of the meeting, shall act as Secretary of the meeting. Section 7. Proxies. Any stockholder entitled to vote at any meeting of stockholders may vote either in person or by proxy, but no proxy shall be voted on after three years from its date, unless such proxy provides for a longer period. Every proxy must be executed in writing by the stockholder himself, or by his duly authorized attorney, and dated, but need not be sealed, witnessed or acknowledged. Proxies shall be delivered to the Secretary of the Corporation before the meeting or to the Judges at the meeting. Section 8. Judges. At each meeting of the stockholders at which the vote for directors or the vote upon any question before the meeting is taken by ballot, the polls shall be opened and closed by, and the proxies and ballots shall be received and taken in charge by, and all questions touching on the qualifications of voters and the validity of proxies and the acceptance and rejection of the same shall be decided by two Judges. Such Judges may be appointed by the Board of Directors before the meeting, but if no such appointment shall have been made, they shall be appointed by the meeting. If for any reason any Judge previously appointed shall fail to 2 attend or refuse or be unable to serve, a Judge in his place shall be appointed by the meeting. Any appointment of Judges by the meeting shall be by per capita vote of the stockholders present and entitled to vote. Section 9. List of Stockholders. At least ten days prior to every election of directors a complete list of the stockholders entitled to vote at such election, arranged in alphabetical order and indicating the number of voting shares held by each, shall be prepared and certified by the Secretary or an Assistant Secretary. Such list shall be filed at the place where the election is to be held and shall, at all times during the usual hours for business and during the whole time of said election, be opened to the examination of any stockholder. ARTICLE III - DIRECTORS Section 1. Number, Election and Tenure. Except as may be otherwise specifically provided by law, the Restated Certificate of Incorporation or by these By-Laws, the power, business, property and affairs of the Corporation shall be exercised and managed by a board of directors which shall consist of not less than eight or more than twelve directors. Within such limit, the number of directors shall be determined by resolution of the board of directors. The board of directors shall be divided into three classes as nearly as equal in number as possible. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. Such classes shall consist of one class of directors who shall be elected for a three-year term expiring at the annual meeting of stockholders held in 1986; a second class of directors who shall be elected for a three-year term expiring at the annual meeting of stockholders held in 1987; and a third class of directors who shall be elected for a three-year term expiring at the annual meeting of stockholders held in 1988. At each annual meeting of stockholders beginning in 1986, the successors of the class of directors whose term expires at that annual meeting shall be elected for a three-year term. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, or until his earlier death, resignation, retirement, disqualification or removal. Except as provided in Section 2 of this Article, directors shall be elected by a plurality of the votes cast at the annual meeting of stockholders. No director need be a stockholder. Section 2. Vacancies. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled only by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors may be filled only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall be elected for the same remaining term as that of his predecessor in office. Any additional director of any class elected to fill a vacancy resulting from an increase in any such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. 3 Section 3. Resignations. Any director may resign from his office at any time by delivering his resignation in writing to the Corporation, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective. Section 4. Meetings. The Board of Directors may hold its meetings in such place or places within or without the State of Delaware as the Board from time to time by resolution may determine or as shall be specified in the respective notices or waivers of notice thereof, and the directors may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation, not inconsistent with these By-Laws, as they may deem proper. An annual meeting of the Board for the election of officers shall be held within three days following the day on which the annual meeting of the stockholders for the election of directors shall have been held. The Board of Directors from time to time by resolution may fix a time and place (or varying times and places) for the annual and other regular meetings of the Board; provided, that, unless a time and place is so fixed for any annual meeting of the Board, the same shall be held immediately following the annual meeting of the stockholders at the same place at which such meeting shall have been held. No notice of the annual or other regular meetings of the Board need be given. Other meetings of the Board of Directors shall be held whenever called by the President or by any two of the directors for the time being in office; and the Secretary or an Assistant Secretary shall give notice of each such meeting to each director by mailing the same not later than the second day before the meeting, or personally or by telegraphing, cabling or telephoning the same not later than the day before the meeting. No notice of a meeting need be given if all directors are present in person. Any business may be transacted at any meeting of the Board of Directors, whether or not specified in a notice of the meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board, and such written consent is filed with the minutes of proceedings of the Board. Section 5. Quorum. Except as may be otherwise specifically provided by law, the Restated Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If there be less than a quorum at any meeting of the Board of Directors, a majority of those present (or if only one be present, then that one) may adjourn the meeting from time to time, without notice other than announcement at the meeting which shall be so adjourned, until a quorum shall be present. Section 6. Compensation of Directors. The Board of Directors shall have the power to fix the compensation of directors and members of committees of the Board. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors, as well as a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 4 Section 7. Committees. The Board of Directors may, by resolution or resolutions, passed by a majority of the whole Board, from time to time designate an Executive Committee and such other committee or committees as it may determine, each committee to consist of two or more of the directors of the Corporation, which, to the extent provided in said resolution or resolutions, shall have and may exercise any powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have the power to authorize the seal of the corporation to be affixed to all papers which may require it. Any action required or permitted to be taken at any meeting of the committee may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of such committee, and such written consent is filed with the minutes of proceedings of the committee. ARTICLE IV - OFFICERS AND AGENTS Section 1. General Provisions. The officers of the Corporation shall be a President, a Chief Financial Officer, a Treasurer and a Secretary, and may include one or more Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries, all of whom shall be appointed by the Board of Directors as soon as may be after the election of directors in each year. The President shall be chosen from among the directors. Any two offices, except those of President and Vice President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law or by these By-Laws to be executed, acknowledged or verified by any two or more officers. Each of such officers shall serve until the annual meeting of the Board of Directors next succeeding his appointment and until his successor shall have been chosen and shall have qualified. The Board of Directors may appoint such officers, agents and employees as it may deem necessary or proper, who shall respectively have such authority and perform such duties as may from time to time be prescribed by the Board of Directors. All officers, agents and employees appointed by the Board of Directors shall be subject to removal at any time by the affirmative vote of a majority of the whole Board. Other agents and employees may be removed at any time by the Board of Directors, by the officer appointing them, or by any other superior upon whom such power of removal may be conferred by the Board of Directors. The salaries of the officers of the Corporation shall be fixed by the Board of Directors, but this power may be delegated to any officer. Section 2. The President. The President shall be the principal executive officer of the Corporation and shall preside at all meetings of the stockholders and of the Board of Directors. Subject to the control of the Board of Directors, he shall have general charge of the business and affairs of the Corporation and shall keep the Board fully advised. At the direction of the Board of Directors, he shall have power in the name of the Corporation and on its behalf to execute any and all deeds, mortgages, contracts, agreements and other instruments in writing. He shall employ and discharge employees and agents of the Corporation, except such as shall hold their offices by appointment of the Board of Directors, but he may delegate these powers to other officers as to employees under their immediate supervision. He shall have such powers and perform such duties as generally pertain to the office of President, as well as such further powers and duties as may be prescribed by the Board of Directors. The President shall have full power 5 and authority on behalf of the Corporation to execute any stockholders' consents and to attend and act and to vote in person or by proxy at any meetings of stockholders of any corporation in which the Corporation may own stock, and at any such meeting shall possess and may exercise any and all of the rights and powers incident to the ownership of such stock and which, as the owner thereof, the Corporation might have possessed and exercised if present. The Board of Directors, by resolution from time to time, may confer like powers upon any other person or persons. Section 3. Vice Presidents. Each Vice President shall have such powers and perform such duties as the Board of Directors or the President may from time to time prescribe, and shall perform such other duties as may be prescribed in these By-Laws. In the absence or inability to act of the President, the Vice President next in order as designated by the Board of Directors or, in the absence of such designation, senior in length of service in such capacity who shall be present and able to act, shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Board of Directors. The performance of any duty by a Vice President shall be conclusive evidence of his power to act. Section 4. Chief Financial Officer. The Board of Directors shall designate the President or a Vice President to serve as the Chief Financial Officer of the Corporation. The Chief Financial Officer shall be responsible for the financial records and affairs of the Corporation and shall have such further powers and duties as are incident to the position of Chief Financial Officer, subject to the direction of the President and the Board of Directors. The Chief Financial Officer shall supervise the activities of the Treasurer of the Corporation, who shall be subordinate to and report to the Chief Financial Officer. The Chief Financial Officer shall perform such of the duties of the President on behalf of the Corporation as may be assigned to him from time to time by the Board of Directors, the Chairman of the Board or the President. Section 5. The Treasurer. The Treasurer shall have the care and custody of all funds and securities of the Corporation which may come into his hands and shall deposit the same to the credit of the Corporation in such bank or banks or other depository or depositories as the Board of Directors may designate. He may endorse all commercial documents requiring endorsements for or on behalf of the Corporation and may sign all receipts and vouchers for payments made to the Corporation. He shall be subordinate to and responsible to the President or Vice President who is designated Chief Financial Officer by the Board of Directors. He shall render an account of his transactions to the Board of Directors as often as they shall require the same and shall at all reasonable times exhibit his books and accounts to any director; shall cause to be entered regularly in books kept for that purpose full and accurate account of all moneys received and paid by him on account of the Corporation; and shall have such further powers and duties as are incident to the position of Treasurer, subject to the control of the Board of Directors. He may be required by the Board of Directors to give a bond for the faithful discharge of his duties in such sum and with such surety as the Board may require. Section 6. The Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and of the stockholders and shall attend to the giving and serving of all notices of the Corporation. He shall have custody of the seal of the Corporation and shall affix the seal 6 to all certificates of shares of stock of the Corporation and to such other papers or documents as may be proper and, when the seal is so affixed, he shall attest the same by his signature wherever required. He shall have charge of the stock certificate book, transfer book and stock ledger, and such other books and papers as the Board of Directors may direct. He shall, in general, perform all the duties of Secretary, subject to the control of the Board of Directors. Section 7. Assistant Treasurers. In the absence or inability of the Treasurer to act, any Assistant Treasurer may perform all the duties and exercise all of the powers of the Treasurer, subject to the control of the Board of Directors. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Treasurer shall also perform such other duties as the Treasurer or the Board of Directors may from time to time assign to him. Section 8. Assistant Secretaries. In the absence or inability of the Secretary to act, any Assistant Secretary may perform all the duties and exercise all the powers of the Secretary, subject to the control of the Board of Directors. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Secretary shall also perform such other duties as the Secretary or the Board of Directors may from time to time assign to him. Section 9. Other Officers. Other officers shall perform such duties and have such powers as may from time to time be assigned to them by the Board of Directors. Section 10. Delegation of Duties. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer, for the time being, the powers or duties, or any of them, of such officer upon any other officer, or upon any director. ARTICLE V - CAPITAL STOCK Section 1. Certificate for Shares. Certificates for shares of stock of the Corporation certifying the number and class of shares owned shall be issued to each stockholder in such form not inconsistent with the Certificate of Incorporation and these By-Laws, as shall be approved by the Board of Directors. The certificates for the shares of each class shall be numbered and registered in the order in which they are issued and shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and the seal of the Corporation shall be affixed thereto. All certificates exchanged or returned to the Corporation shall be cancelled. Section 2. Transfer of Shares of Stock. Transfers of shares shall be made only upon the books of the Corporation by the holder, in person or by attorney lawfully constituted in writing, and on the surrender of the certificate or certificates for such shares properly assigned. The Board of Directors shall have the power to make all such rules and regulations, not inconsistent with the Certificate of Incorporation and these By-Laws, as they may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. 7 Section 3. Lost, Stolen or Destroyed Certificates. The Board of Directors, in their discretion, may require the owner of any certificate of stock alleged to have been lost, stolen or destroyed, or his legal representatives, to give the Corporation a bond in such sum as they may direct, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate, as a condition of the issue of a new certificate of stock in the place of any certificate theretofore issued alleged to have been lost, stolen or destroyed. Proper and legal evidence of such loss, theft or destruction shall be procured for the Board, if required. The Board of Directors, in their discretion, may refuse to issue such new certificate, save upon the order of some court having jurisdiction in such matters. Section 4. Closing of Transfer Books: Record Date. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding 50 days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding 50 days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding 50 days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. Section 5. Maintenance of Stock Ledger. The original or a duplicate stock ledger containing the names and addresses of the stockholders, and the number of shares held by them, respectively, shall at all times, during the usual hours for business, be open to the examination of every stockholder at the principal office or place of business of the Corporation in the State of Delaware. ARTICLE VI - SEAL The seal of the Corporation shall consist of a flat-faced circular die with the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware" inscribed thereon. 8 ARTICLE VII - WAIVER Whenever any notice whatever is required to be given by statute or under the provisions of the Certificate of Incorporation or By-Laws of this Corporation a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VIII - CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts, acceptances, bills of exchange and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors shall from time to time determine. ARTICLE IX - AMENDMENTS These By-Laws, or any of them, may be altered, amended or repealed, and new By-Laws may be adopted, (1) by the stockholders, at any annual meeting, or at any special meeting called for that purpose, as provided and subject to the limitations set forth in the Restated Certificate of Incorporation or (2) by the Board of Directors, (a) at any duly convened meeting by a majority vote of the whole Board, or (b) without a meeting by prior written consent signed by all members of the Board and filed with the minutes of proceedings of the Board, but any such action of the Board of Directors may be amended or repealed by the stockholders at any annual meeting or any special meeting called for that purpose as provided and subject to the limitations set forth in the Restated Certificate of Incorporation. The time and place, as fixed by these By-Laws, of the annual meeting of the stockholders for the election of directors shall not be changed within 60 days next before the day on which the election is to be held, and a notice of any change shall be given to each stockholder entitled to vote there at least 20 days before the election is held, in person or by letter mailed to his last known post office address. AA931540013 9 EX-10.5 3 THERMO ELECTRON 1993 10-K/EXHIBIT 10.5 Exhibit 10.5 Amended and Restated Reimbursement Agreement among Chemical Trust Company of California, not in its individual capacity but solely as Owner Trustee and Delano Energy Company Inc. and ABN AMRO Bank N.V., Boston Branch, for Itself and as Agent and The First National Bank of Boston, as Co-Agent, Bank of Montreal, as Co-Agent, Barclays Bank PLC, as Co-Agent, Societe Generale, as Co-Agent, and BayBank as Lead Manager, As of December 31, 1993 Table of Contents ----------------- Page Section 1. Status of Agreement 2 Section 2. The Letter of Credit Facility 2 Section 2.1. Reimbursement of Drawings 3 Section 2.2. Reimbursement of Liquidity Advances 4 Section 2.3. Payment of Other Amounts Relating to Drawings 4 Section 2.4. Reserve Requirements, Taxes, etc. 5 Section 2.5. Alternative Credit Facility 6 Section 2.6. Substitute Letter of Credit 6 Section 2.7. Nature of Obligations of Banks 6 Section 2A. Conditions Precedent to Closing 7 Section 2A.1. Conditions Precedent To Be Satisfied By Delano Energy 7 Section 2A.2. Conditions Precedent to be Satisfied by the Agent 12 Section 2A.3. Conditions Precedent to be Satisfied by the Owner Trustee 13 Section 2A.4. Other Conditions Precedent 13 Section 3. Interest; Fees 15 Section 3.1. Interest 15 3.1.1. Payment of Interest 15 3.1.2. Certain Definitions 16 3.1.3. Deductibility of Interest Incurred by Banks 16 Section 3.2. Agent's Fee and Upfront Fee 17 Section 3.3. Calculations 18 Section 3.4. Capital Adequacy Requirements 18 Section 3.5. Letter of Credit Fees 18 Section 3.6. Fronting Fee 19 Section 4. Liquidity Advance Payment Provisions 19 Section 4.1. Payment at Maturity 19 Section 4.2. Voluntary Prepayments 19 Section 4.3. Mandatory Prepayments 20 Section 4.4. Payment and Interest Cutoff 20 Section 5. General Covenants 20 Section 5.1. Corporate Existence 20 Section 5.2. Performance of Covenants, etc. 20 Section 5.3. Certain Covenants with Respect to Basic Documents 21 5.3.1. Amendment, Enforcement, etc. by Borrowers 21 5.3.2. Amendment, Enforcement, etc. by Agent 21 5.3.3. Effect of Event of Default 22 5.3.4. Certain Payments 22 5.3.5. Recording, etc. 22 5.3.6. Power of Attorney 23 Section 5.4. Investments 23 Section 5.5. Regulation 24 Section 5.6. Special Covenants Relating to the Bonds 24 5.6.1. Covenant to Redeem 1989 Bonds 24 5.6.2. Covenant to Redeem 1990 Bonds 24 5.6.2.1. Covenant to Redeem 1991 Bonds 24 5.6.3. [RESERVED] 24 5.6.4. Redemption of Bonds upon Event of Loss 24 5.6.5. Prepayment of Liquidity Advances 25 5.6.6. No Change of Interest Rate Mode 25 5.6.7. Reserve Requirement for 1990 Bonds 25 5.6.7.1. Reserve Requirement for 1991 Bonds 25 5.6.8. Interest Rate Protection 25 Section 5.7. Maintenance of Property 26 Section 5.8. Maintenance of Office 26 Section 5.9. Authorization 26 Section 5.10. Limitation on Indebtedness 26 Section 5.11. Limitation on Investments and Loans 27 Section 5.12. Limitation on Merger, Consolidation, Sale of Assets 27 Section 5.13. Limitation on Certain Transac- tions with Affiliates 27 Section 5.14. Limitation on Distributions and Similar Transactions 28 Section 5.15. Further Assurances 29 5.15.1 General Assurances 29 5.15.2. Change of Location 29 5.15.3. Maintenance of Reserves, etc. 29 5.15.4. Security 29 5.15.5. Additional Assignments 30 5.15.6. Opinion of Counsel 30 Section 5.16. Support Documents 31 5.16.1. No Changes in Support Documents 31 5.16.2. Compliance with Support Documents 31 5.16.3. Fuel Supply 31 Section 5.17. Accounting 32 5.17.1. Records and Accounts 32 5.17.2. Financial Statements 32 5.17.3. Certificates and Information 33 5.17.4. Facility Records 34 5.17.5. Revenue Trust Agreement Reports 35 5.17.6. Operating Standards Support Agreement Reports 36 5.17.7. Inspection, Final Punch List Actions 36 5.17.8. Specifications 37 5.17.9. Other Information 38 Section 5.18. Environmental Covenants 38 5.18.1. Compliance 38 5.18.2. Notices 38 Section 5.19. Qualifying Facility 39 Section 5.20. Supplemental Reserve Fund 39 Section 5.21. Major Maintenance Reserve Fund 39 Section 5.22. Type of Business 40 Section 5.23. Payment of Taxes 40 Section 5.24. Identification 40 Section 5.25. Filing Reports; Notices; Inspection; Information, Etc. 40 5.25.1. Governmental Reports 40 5.25.2. Notices of Material Events 41 Section 5.26. Use of Facility; Maintenance and Operation; Operation and Maintenance Manual 42 5.26.1. General 42 5.26.2. Issuer Requirement 42 Section 5.27. OutPut/Capacity Tests; Plans and Specifications 43 Section 5.28. Compliance 43 5.28.1. Laws, etc. 43 5.28.2. Regulatory Acts 44 5.28.3. Authorization Requirement 44 5.28.4. Pollution Control and Hazardous Substances 44 Section 5.29. Payment of Claims and Obligations 45 Section 5.30. Restriction on Liens 45 Section 5.31. Certain Transfers 46 5.31.1. Interests in Facility 46 5.31.2. Location 46 5.31.3. Possession 46 Section 5.32. No Abandonment 46 Section 5.33. Construction Warranties 46 Section 5.34. Certain Obligations and Duties of the Borrowers 47 Section 5.35. Completion of Construction 47 5.35.1. Modifications to Construction Contracts 47 5.35.2. Materials; Compliance: Etc. 47 5.35.3. Notices and Documents 48 Section 5.36. Replacement 48 5.36.1. Replacement of Parts 48 5.36.2. Removal of Parts 48 Section 5.37. Events of Loss, Etc. 49 5.37.1. Notice 49 5.37.2. Event of Loss 49 5.37.3. Application of Payments with Respect to Event of Loss 49 5.37.4. Application of Payments Not Relating to Event of Loss 49 5.37.5. Disposition of Payments Not Payable to the Borrowers 50 Section 5.38. Insurance 50 5.38.1. Insurance Coverages 50 5.38.2. Delivery of Policies, etc. 51 5.38.3. Annual Insurance Report 51 5.38.4. Notice by Insurers. etc. 54 5.38.5. Independent Insurance 54 Section 5.39. [RESERVED] 54 Section 5.40. Owner Trustee's Location 54 Section 5.41. Tax-Exempt Status of Bonds 54 Section 5.42. Original Lease 55 Section 5.43. [RESERVED] 55 Section 5.44. [RESERVED] 55 Section 5.45. Release of Lessee Security 55 Section 5.46. Breakage Fees 55 Section 5A. Representations and Warranties of Delano Energy 55 Section 5A.1. Corporate Existence 55 Section 5A.2. Power and Authorization 56 Section 5A.3. Execution, Delivery and Enforceability 56 Section 5A.4. No Legal Bar 56 Section 5A.5. Violations; Defaults 56 Section 5A.6. Governmental Actions 57 Section 5A.7. Litigation 57 Section 5A.8. Payment of Taxes 57 Section 5A.9. Chief Place of Business, etc. 57 Section 5A.10. Full Disclosure 58 Section 5A.11. Financial Statements 58 Section 5A.12. Litigation Regarding Agreements 58 Section 5A.13. Public Utility Status 58 Section 5A.14. Title to the Facility and the Land 59 Section 5A.15. Taxes, etc. 59 Section 5A.16. Construction of the Facility 59 Section 5A.17. Interconnection 60 Section 5A.18. Facility Support 60 Section 5A.19. Revenue Trust Agreement 60 Section 5A.20. Fuel Supply Contracts and Price Support 60 Section 5A.21. FERC Qualification 61 Section 5A.22. Holding Company and Investment Company Acts; Public Utility Regulation 61 Section 5A.23. Securities Act 61 Section 5A.24. Base Case Pro Forma 61 Section 5A.25. Representations to FERC 61 Section 5A.26. Licenses, Etc. 62 Section 5A.27. Granted Rights 62 Section 5A.28. Hazardous Materials 62 Section 5A.29. Margin Stock 63 Section 5A.30. Employee Benefit Plans 63 Section 5A.31. Working Capital Requirement 64 Section 5A.32. Natural Gas 64 Section 5B. Representations and Warranties of the Owner Trustee 64 Section 5B.1. Organization 64 Section 5B.2. Power and Authorization 64 Section 5B.3. Execution, Delivery and Enforceability 65 Section 5B.4. No Legal Bar 65 Section 5B.5. FERC Qualification 65 Section 5B.6. No Liens 66 Section 5B.7. Litigation 66 Section 5B.8. Principal Corporate Trust Office 66 Section 5B.9. Knowledge of Lease Defaults 66 Section 6. Defaults 66 Section 6.1. Events of Default 66 Section 6.2. Remedies upon Event of Default 68 Section 6.3. Annulment of Defaults 70 Section 6.4. Waivers 70 Section 6.5. Course of Dealing 70 Section 6.6. Application of Proceeds 70 Section 6.7. [RESERVED] 71 Section 6.8. Defaults Under Bond Documents 71 Section 7. Definitions 71 Section 7.1. Cross References 71 Section 7.2. Bank Agreement 71 Section 7.3. Bank Obligations 72 Section 7.4. Bank Security 72 Section 7.5. Co-Agents 72 Section 7.6. Default 72 Section 7.7. Delano Energy Assignment of Leases 72 Section 7.8. Delano Energy Deed of Trust 72 Section 7.9. Delano Energy Security Agreement 73 Section 7.10. Delano Energy Stock Pledge Agreement 73 Section 7.11. Facility 73 Section 7.12. Lead Manager 73 Section 7.13. Phase I Land 73 Section 7.14. Phase II Land 73 Section 7.15. Security Documents 73 Section 8. Expenses; Indemnity; Liability 73 Section 8.1. Expenses 73 Section 8.2. Indemnity with Respect to Letters of Credit 74 Section 8.3. Liability of Issuing Bank 74 Section 8.4. Indemnity with Respect to Bank Security 76 Section 8.5. Survival of Covenants 76 Section 9. Notices 76 Section 10. Operations 76 Section 10.1. Interests in Credits 77 Section 10.2. Payments 77 Section 10.3. Agent's Authority to Act 78 Section 10.4. Agent's Resignation 79 Section 10.5. Amendments, Consents, Waivers, etc. 80 Section 10.6. Payments, etc. 81 Section 10.7. Concerning the Agent 81 10.7.1. Action in Good Faith, etc. 81 10.7.2. No Implied Duties, etc. 81 10.7.3. Validity, etc. 82 10.7.4. Compliance 82 10.7.5. Employment of Agents and Counsel 82 10.7.6. Reliance on Documents and Counsel 82 10.7.7. Agent's Reimbursement 82 10.7.8. Rights as Credit Provider 83 Section 10.8. Independent Credit Decision 83 Section 10.9. Indemnification 84 Section 10.10. Amendments to Section 10 84 Section 10.11. Actions Under Bond Documents 84 Section 10.12. Required Banks 84 Section 11. Sharing of Payments, Etc. 85 Section 12. Survival of Covenants 85 Section 13. Discharge 85 Section 14. Successors and Assigns; Bank Participants 86 Section 14.1. Bank Participations 86 Section 14.2. Certain Rights of Bank Participants 87 Section 14.3. Transfer of Percentage Interests 87 Section 15. Waiver of Jury Trial 88 Section 16. Payments From Owner Trust Estate Only 89 Section 17. [RESERVED] 89 Section 18. Miscellaneous 89 Section 19. Disclaimer of Warranties 90 Section 20. Bank Substitution 90 Table of Exhibits ----------------- Exhibit 2 Forms of Letters of Credit Exhibit 2A.1.5 Title Report Liens Exhibit 2A.1.7 Governmental Actions Exhibit 5.6.1 Scheduled Redemptions of 1989 Bonds Exhibit 5.6.2 Scheduled Redemptions of 1990 Bonds Exhibit 5.6.2.1 Scheduled Redemptions of 1991 Bonds Exhibit 5.17.4 Forms of Quarterly Operation and Generation Report, Quarterly Fuel Report, Environmental Variances Report, and Monthly Operation and Generation Report Exhibit 5.17.5 Form of Quarterly Cash Report Exhibit 5.17.7A Final Punch List Exhibit 5.17.7B Independent Engineers' Scope of Work Exhibit 5.21 Major Maintenance Reserve Required Amount Exhibit 5A.16 Performance Tests and Guaranties Exhibit 5A.24 Base Case Pro Forma Exhibit 5A.30 Employee Benefit Plans Exhibit 7.11 Description of the Facility Exhibit 7.13 Phase I Land Exhibit 7.14 Phase II Land Exhibit 14.3 Form of Joinder Agreement Chemical Trust Company of California, not in its individual capacity but solely as Owner Trustee 50 California Street San Francisco, California 94111 Delano Energy Company Inc. 81 Wyman Street Waltham, Massachusetts 02254-9046 AMENDED AND RESTATED REIMBURSEMENT AGREEMENT As of December 31, 1993 ABN AMRO Bank N.V., for Itself and as Agent Exchange Place 53 State Street, 19th Floor Boston, Massachusetts 02109 Attn: Manager With a copy to: 135 S. LaSalle Street, Suite 560 Chicago, Illinois 60603 Attn: Project Finance Group Re: Delano Energy Project The First National Bank of Boston 100 Federal Street Boston, Massachusetts 02110 Attn: Stefan Breuer Vice President Energy and Utilities Division Bank of Montreal 707 Wilshire Blvd., Suite 4840 Los Angeles, CA 90017 Attn: Lawrence E. Jones Barclays Bank PLC 222 Broadway, 11th Floor New York, NY 10038 Attn: Mark Tuminello Societe Generale 1111 Bagby, Suite 2020 Houston, TX 77002 Attn: Stephen W. Warfel, U.S. Project Finance 1 BayBank 175 Federal Street Boston, MA 02110 Attn: Timothy M. Laurion Such additional bank or banks as shall become party hereto pursuant to Section 14.3 hereof Ladies and Gentlemen: Chemical Trust Company of California, a California company (successor-by-merger to Manufacturers Hanover Trust Company of California), not in its individual capacity but solely as Owner Trustee under the Owner Trust Agreement dated as of December 3, 1990 (as the same may have been amended from time to time) between Thermo Energy Systems Corporation, a Delaware corporation (herein, with its permitted successors and assigns, called the "Owner Participant") and said Chemical Trust Company of California (herein in such capacity, with its permitted successors and assigns, called the "Owner Trustee"), and Delano Energy Company, Inc., a Delaware corporation ("Delano Energy"; the Owner Trustee and Delano Energy being sometimes collectively referred to herein as the "Borrowers") each hereby jointly and severally agree with each of you as follows: SECTION 1. STATUS OF AGREEMENT. This Agreement constitutes, among other things, a restatement of (i) the Reimbursement Agreement dated as of December 3, 1990 among the Owner Trustee, FNBB, for itself and as Agent, ABN AMRO and ABN AMRO as Swap Bank, and (ii) the Reimbursement Agreement dated as of October 1, 1991 among Delano Biomass, ABN AMRO as Facility Agent and ABN AMRO Bank N.V., New York Branch, as Administrative Agent. This Agreement, as from time to time in effect, constitutes the "Reimbursement Agreement" and the "Construction Loan Agreement" referred to in the Bond Indentures, the Intercreditor Agreements and the other Bond Documents. SECTION 2. THE LETTER OF CREDIT FACILITY. For the benefit of the Owner Trustee and the Owner Participant (with respect to items (a) and (b) below) and Delano Energy (as successor-by-assignment to Delano Biomass) (with respect to item (c) below), there has been issued by Algemene Bank Nederland N.V., now known as ABN AMRO Bank N.V. ("ABN AMRO"), acting through its Boston Branch (in such capacity, the "Issuing Bank"): (a) A Letter of Credit (the "1989 Tax-exempt Financing Credit") in the stated amount of $29,432,076.71, of which $28,900,000 secures the principal of the 1989 Bonds and 2 $532,076.71 secures up to 56 days' interest accrued on the 1989 Bonds on or prior to the maturity thereof, calculated at 12 percent per annum for a 365-day year. (b) A Letter of Credit (the "1990 Tax-exempt Financing Credit") in the stated amount of $34,218,608.22, of which $33,600,000.00 secures the principal of the 1990 Bonds and $618,608.22 secures up to 56 days' interest accrued on the 1990 Bonds on or prior to the maturity thereof, calculated at 12 percent per annum for a 365-day year. (c) A Letter of Credit (the "1991 Tax-exempt Financing Credit") in the stated amount of $58,558,630.14, of which $57,500,000.00 secures the principal of the 1991 Bonds and $1,058,630.14 secures up to 56 days' interest accrued on the 1991 Bonds on or prior to the maturity thereof, calculated at 12 percent per annum for a 365-day year. Each of the Letters of Credit is substantially in the form of Exhibit 2 attached hereto. Each Letter of Credit shall expire on December 29, 2000 (with respect to each such Letter of Credit, the "Termination Date"). Each of you participates in each of the Letters of Credit to the extent of your respective Percentage Interests as set forth in Section 10.1 hereof. Section 2.1. Reimbursement of Drawings. At such time as any payment shall be made in respect of any drawing under any Letter of Credit, and in no event prior to such payment, the Borrowers agree to pay to the Issuing Bank at its principal banking office in Boston, Massachusetts for the account of the Issuing Bank or of each of you in accordance with your Percentage Interests, as the case may be, a sum equal to the amount so drawn which shall be due and payable on the date of the respective drawing (and which, if not paid on such drawing date, shall bear interest to the payment date at a rate per annum equal to the Delay Rate), except as otherwise provided in Section 2.2 hereof. Payment by the Swap Bank to the Issuing Bank of all or any portion of an amount drawn under a Letter of Credit to pay interest on the Bonds shall satisfy the obligation of the Borrowers to the Issuing Bank with respect to such amount or portion thereof, but the obligations of the Borrowers under this Section 2.1 are unconditional and shall not be excused by any failure or delay in payment by the Swap Bank under the Swap Agreements, for whatever reason. In the event that any payment received by the Issuing Bank from the Swap Bank shall exceed the amount due and payable under this Section 2.1 with respect to interest on the Bonds drawn under the Letters of Credit, including accrued interest thereon, if any, the Issuing Bank shall promptly remit the amount of such excess to the Revenue Trustee for deposit in the Supplemental Reserve Fund established under Section 4.1 of the Revenue Trust Agreement. 3 Section 2.2. Reimbursement of Liquidity Advances. (a) If the conditions precedent contained in Section 2.2(b) hereof are satisfied at the time of payment by the Issuing Bank of any Drawing under a Letter of Credit (i) for the purpose of redeeming Bonds pursuant to Section 4.01(b)(ii)(A) of the 1989-90 Bond Indenture (Determination of Taxability), (ii) for the purpose of redeeming Bonds pursuant to Section 4.01(b)(ii)(A) of the 1991 Bond Indenture (Determination of Taxability), (iii) for the purpose of purchasing Bonds under Section 8.15(c) of the 1989-90 Bond Indenture (Remarketing), or (iv) for the purpose of purchasing Bonds under Section 8.15(c) of the 1991 Bond Indenture (Remarketing) (each a "Liquidity Drawing") each such Liquidity Drawing shall constitute an advance ("Liquidity Advance") to the Borrowers. The Borrowers promise to pay to the Issuing Bank at its principal banking office in Boston, Massachusetts for the account of the Issuing Bank or of each of you in accordance with your Percentage Interests, as the case may be, each Liquidity Advance on the earliest of (i) in the case of Liquidity Advances extending as a result of a drawing described in clause (iii) or (iv) above, the date on which any Bonds purchased with funds disbursed under the relevant Letter of Credit in connection with such Liquidity Drawing and held by either of the Borrowers, or its agent, for the account of such Borrower, are redeemed or canceled pursuant to the relevant Bond Indenture, (ii) the date on which any Bonds purchased by either of the Borrowers, or its agent, for the account of such Borrower, with funds disbursed under any Letter of Credit are remarketed pursuant to the relevant Bond Indenture, (iii) the date on which the Letters of Credit are replaced pursuant to the terms of Section 2.5 hereof, or (iv) the Termination Date with respect to the relevant Letter of Credit. (b) Following any payment by the Issuing Bank under any Letter of Credit pursuant to a Liquidity Drawing, a Liquidity Advance shall be made available to the Borrowers only if on the date of payment of such Liquidity Drawing by the Issuing Bank no event has occurred and is continuing, or would result from such payment, which constitutes a Default or an Event of Default. Unless the Borrowers shall have previously advised the Issuing Bank in writing or the Issuing Bank has actual knowledge that an event has occurred and is continuing, or would result from such payment, which constitutes a Default or an Event of Default, the Borrowers shall be deemed to have represented and warranted on the date of such payment that no event has occurred and is continuing, or would result from such payment, which constitutes a Default or an Event of Default. Section 2.3. Payment of Other Amounts Relating to Drawings. In addition to its reimbursement obligation in Sections 2.1 and 2.2, the Borrowers hereby agree to pay to the Agent at its principal banking office in Boston, Massachusetts 4 for the account of each of you in accordance with your Percentage Interests (except for fees owing solely to the Issuing Bank, which shall be paid directly to the Issuing Bank): (a) on the date of each Drawing under a Letter of Credit, a sum equal to such amount as shall be necessary to cover letter of credit negotiation fees, the reasonable costs of transferring funds and other costs and expenses of the Issuing Bank, if any, incurred in connection with such Drawing; (b) on demand, any amount that is paid by the Agent or any other of you in connection with the exercise of the discretionary rights provided in Section 6.8; and (c) interest on any and all amounts remaining unpaid by the Borrowers under this Section 2 (including unpaid amounts of interest to the extent permitted by law) at any time from the date such amounts become due and payable until payment in full, payable on demand, at a rate per annum equal to the Delay Rate. Section 2.4. Reserve Requirements, Taxes, etc. If any change in any law, executive order or regulation, or in any request or directive of any administrative or governmental authority (whether or not having the force of law), or in the interpretation of any of the foregoing by any court or administrative or governmental authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against any Letter of Credit or (ii) impose on any of you any tax or other cost or condition regarding this Agreement or any Letter of Credit, and the effect of any such change shall be to increase the cost to any of you of issuing or maintaining any Letter of Credit or participating therein or shall reduce any amount receivable or received by you in respect of any Letter of Credit or participating therein, then, upon demand by the Agent, the Borrowers shall immediately pay to the Agent for your respective accounts additional amounts which shall be sufficient to compensate you for such increased cost, together with interest on each such amount from the date demanded until payment in full thereof at a rate per annum equal to the Effective Rate; provided, however, that the foregoing provision shall not apply to any such charge with respect to (a) taxes imposed upon or measured by the net income of any of you or (b) taxes or other conditions which would have been imposed even if this Agreement had not been entered into or the Letters of Credit had not been issued. Your determination of the amount of such costs, if done in good faith, shall, in the absence of demonstrable error, be conclusive. The covenants contained in this Section 2.4 shall survive the termination of the other provisions of this Agreement. 5 Section 2.5. Alternative Credit Facility. (a) The Borrowers may replace all (but not less than all) of the Letters of Credit and the Swap Agreements with an Alternative Credit Facility issued by a bank or financial institution other than one of you, in accordance with the terms of the CPC Loan Agreements and the Bond Indentures upon (i) surrender of all outstanding Letters of Credit to the Agent; (ii) payment in full of all Bank Obligations including Bank Obligations under the Swap Agreements; and (iii) delivery to the Agent of releases (on terms reasonably acceptable to the Agent) by the Bond Trustee, the Owner Trustee, the Owner Participant and Delano Energy of all further liability of the Agent, the Issuing Bank, the Swap Bank and each other of you under the Letters of Credit and the Bank Agreements and the Swap Agreements. (b) The Borrowers may replace all (but not less than all) of the Letters of Credit with an Alternative Credit Facility issued by a bank or financial institution other than one of you without simultaneously replacing the Swap Agreements upon (i) surrender of all outstanding Letters of Credit to the Agent; (ii) payment in full of all Bank Obligations other than Bank Obligations under the Swap Agreements; and (iii) delivery to the Agent of releases (on terms reasonably acceptable to the Agent) by the Bond Trustee, the Owner Trustee, the Owner Participant and Delano Energy of all further liability of the Agent, the Issuing Bank and each other of you under the Letters of Credit and the Bank Agreements. The replacement of the Letters of Credit without the simultaneous replacement of the Swap Agreements is further conditioned on the continued lien position of the Swap Bank in the Facility, the Land and the other assets of Delano Energy and the Owner Trustee as provided in the Lessor Security Documents and the Security Documents; such lien to be pari passu with the lien to be granted to the new issuer of the Letters of Credit provided, however, that such pari passu sharing shall be limited, with respect to such new issuer, as of any particular point in time to only the principal amount which would have been outstanding on such date under the existing Letters of Credit in accordance with the Bond redemption schedules attached hereto as Exhibits 5.6.1, 5.6.2 and 5.6.2.1 and any interest accruing thereon; and the balance shall be subordinate to the obligations owed to the Swap Bank. Section 2.6 Substitute Letter of Credit. It is understood and agreed that neither the Issuing Bank nor any other of you shall have any obligation hereunder to issue or participate in any Substitute Letter of Credit (as defined in the Bond Indentures) contemplated under the provisions of the CPC Loan Agreements. Section 2.7. Nature of Obligations of Banks. Your obligations under this Agreement are several and are not joint or joint and several. Each of you represents that you are making the extension of credit contemplated hereby as principal (subject 6 to Section 14 hereof) and not as agent or as trustee for any pension plan, trust or other Person. Section 2A. Conditions Precedent to Closing. Section 2A.1. Conditions Precedent To Be Satisfied By Delano Energy. The obligations of the Agent and the Banks hereunder shall be subject to compliance with all of the following conditions precedent, to the satisfaction of the Agent: 2A.1.1. Each of the Basic Documents shall have been duly authorized, executed and delivered by the parties thereto, shall be satisfactory in form and substance to the Agent, and shall be in full force and effect; each party to each Basic Document shall have complied in all material respects with such party's obligations thereunder; no default or event of default, or event, which with notice or lapse of time or both would constitute a default or event of default, shall exist under any of said Basic Documents then in effect or in the performance by any party thereto of any of its obligations thereunder, or would exist under any of said Basic Documents or in the performance by any party thereto of any of its obligations thereunder after giving effect to the transactions to occur on the Document Delivery Date as contemplated hereby and thereby; no Event of Loss, or event or condition which with lapse of time would constitute an Event of Loss shall have occurred; and all required consents shall have been obtained and shall be in full force and effect. 2A.1.2. All actions reasonably requested by the Agent in order to perfect the assignments of revenues and other security interests created by the Revenue Trust Agreement shall have been taken; and all other provisions of the Revenue Trust Agreement to be complied with or performed on or prior to the Document Delivery Date shall have been complied with or performed. 2A.1.3. The Owner Participant and the Banks shall have been furnished with true, correct and complete copies of the Fuel Supply Contracts referred to in Section 5.16.3. 2A.1.4. Prior to the Document Delivery Date, the Agent shall have received copies of a Class A survey of the Land, satisfactory in form and substance to the Agent, prepared in accordance with Minimum Standard Detail requirements for ALTA/ACSM Land Title Surveys, jointly established and adopted by ALTA and ACSM in 1986, certified (to the Agent, the Banks and the title insurance company described in Section 2A.1.5 below) by the surveyor pursuant to a certificate in form and substance reasonably satisfactory to the Agent, showing (i) the location of the Land and all improvements thereon, (ii) no encroachment on the Land and no encroachment by the Facility, as constructed, on 7 adjoining property, and (iii) no other defect, Lien, or encumbrance, other than Title Report Liens. 2A.1.5. Prior to the Document Delivery Date, the Agent shall have received copies of a mortgagee title insurance policy, in substance and form, and issued by an insurer, satisfactory to the Agent, including endorsements satisfactory to the Agent, insuring the Agent's interests in the Facility and the Land, subject only to Title Report Liens set forth in Exhibit 2A.1.5 hereto and to such other exceptions as shall be reasonably satisfactory to the Agent, and title reinsurance policies, in substance and form, and issued by reinsurers satisfactory to the Agent, providing for reinsurance in such amounts which shall be allocated among such reinsurers as the Agent shall designate, insuring the Agent's interests in the Facility and the Land. 2A.1.6. On the Document Delivery Date, insurance complying with the requirements of Section 5.38 hereof shall be in full force and effect; the Agent shall have received (i) certificates of insurance with respect to all insurance policies in effect with respect to the Facility and (ii) a report of Alexander & Alexander, or another independent insurance broker or independent insurance consultant satisfactory to the Agent, setting forth the insurance obtained by the Borrowers in accordance with Section 5.38 hereof and certifying that such insurance complies in all material respects with the requirements of Section 5.38 hereof, is in full force and effect, names the Revenue Trustee and the Agent, for the interests of the Banks, as each of their respective interests may appear, as an additional insured or loss payee, as appropriate, provides that the Agent shall receive at least 45 days' prior written notice of any cancellation or reduction of coverage, and that all premiums then due thereon have been paid; and the Agent shall have received certified copies of all insurance policies with respect to the Facility which the Borrowers are required to maintain pursuant to Section 5.38 hereof (or, at the option of Delano Energy with the consent of the Agent, which consent shall not be unreasonably withheld, certificates therefor signed by the insurer or an agent authorized to bind the insurer, with copies of such policies to be provided by Delano Energy to the Agent as soon as practicable, but in any event no later than 90 days following the Document Delivery Date). 2A.1.7. Except as set forth in Exhibit 2A.1.7 hereto with respect to Governmental Actions to be completed after the Document Delivery Date which are either routine in nature or cannot be (or are not normally) applied for prior to the time they are required, all Governmental Actions which are necessary or advisable in connection with the execution, delivery and performance of this Agreement or any other Basic Document and the transactions contemplated hereby or thereby, including without limitation the construction, financing and operation of the Facility, shall have been duly obtained or made and shall be in full force and effect, and no proceeding, or notice threatening a 8 proceeding concerning any change, revocation, modification or qualification to any such Governmental Action or other consent or approval shall have been initiated or issued with respect to the Facility or the operation thereof or the Land. Each such Governmental Action shall have been certified by Delano Energy as being final (subject to any conditions which may be set forth therein) and in full force and effect on the Document Delivery Date and Delano Energy shall have obtained all consents, approvals and transfers of any Governmental Action which are required as a result of the transactions contemplated by this Agreement, or shall have demonstrated to the reasonable satisfaction of the Agent that no such consents, approvals or transfers are needed. There shall have been delivered to the Agent, at or prior to the Document Delivery Date, a copy of each such Governmental Action and other consents and approvals, including, without limitation, true and complete copies of all notices to and from FERC pursuant to 18 C.F.R. Section 292.207(a) concerning the status of the Facility as a qualifying facility, as shall have been requested by any of the foregoing Persons. Without limiting the generality of the foregoing, all Governmental Actions needed in order to be in compliance with this Section 2A.1.7 (other than Governmental Actions set forth in Exhibit 2A.1.7) shall have been obtained or taken. The Facility and the Land and the operations thereof and Delano Energy shall be in material compliance with all Laws, including without limitation (i) all Laws relating to (x) the construction, use, occupancy and operation of the Facility by Delano Energy, (y) the ownership of Phase I by the Owner Trustee and the leasing of Phase I by the Owner Trustee to Delano Energy, and (z) the ownership of Phase II by Delano Energy; including without limitation all applicable zoning and municipal ordinances and (ii) all environmental laws, including without limitation all such Laws relating to air, water and hazardous wastes and the operation of the Facility by Delano Energy, and the use in the Facility by Delano Energy of the fuel subject to the Fuel Supply Contracts. 2A.1.8. All approvals and consents of any trustee or the holders of any indebtedness, obligations or securities of Delano Energy, Thermo Systems, Thermo Electron or any other Person party to any Basic Document which are required in connection with any of the transactions contemplated by this Agreement or any other Basic Document shall have been duly obtained and shall be in form and substance satisfactory to the Agent; and a counterpart or certified copy of each such approval or consent and an executed certificate of a duly authorized officer of Delano Energy, Thermo Systems, Thermo Electron, or such other Person, as the case may be, to the effect that such approvals and consents are in full force and effect without any amendment or modification, shall have been delivered to the Agent. 2A.1.9. Resolutions, certificates or other evidence of corporate action satisfactory in form and substance to the Agent 9 with respect to actions taken by Delano Energy, Thermo Systems or Thermo Electron or any other Person (other than Fuel Contractors) party to any Basic Document, shall have been duly executed and delivered and shall be in full force and effect. 2A.1.10. (a) All necessary or desirable recordings and filings of or with respect to the Revenue Trust Agreement, the Delano Energy Security Agreement, the Delano Energy Deed of Trust, the Delano Energy Assignment of Leases, the Delano Energy Stock Pledge Agreement and any other Basic Document (or of appropriate notices or memoranda thereof) shall have been duly made, and all financing statements and other instruments relating thereto shall have been duly executed, delivered and recorded or filed, in all such places as may be required by law, or as may be deemed necessary or desirable by the Agent, in order to establish, preserve, protect and perfect the interests and rights (and the priority thereof) of the Agent created or intended to be created thereby; all of such recordings and filings shall be in full force and effect; and all taxes and fees in connection therewith shall have been paid by Delano Energy. The Agent, for the benefit of the Banks, shall have a first Lien on, and a prior perfected security interest in, all right, title, estate and interest of Delano Energy in and to the Land, the Facility and the Collateral, prior and superior to all other Liens thereon, existing or future, except Permitted Liens. The Agent shall have received authenticated copies or other evidence of all filings, recordings and other actions obtained or made in order to create and perfect such Lien on, and perfected security interest in, the Collateral. (b) All filings, recordings and other actions that are necessary or desirable in order to establish, protect, preserve and perfect the Agent's first Lien on and prior perfected security interest in all estate, right, title and interest of the Owner Trustee in and to the Owner Trust Estate for the benefit of the Banks, prior and superior to all other Liens, existing or future (assuming the timely filing of continuation statements), except Permitted Liens, shall have been duly made or taken, and all fees, taxes and other charges relating to such filings and recordings and other actions shall have been paid by Delano Energy. The Agent shall have a first Lien on, and prior perfected security interest in, all estate, right, title and interest of the Owner Trustee in and to the Owner Trust Estate for the benefit of the Banks, prior and superior to all other Liens thereon, existing or future, except Permitted Liens. The Agent shall have received authenticated copies or other evidence of all filings, recordings and other actions obtained or made in order to create and perfect such first Lien on, and perfected security interest in, the Owner Trust Estate. 2A.1.11. The representations and warranties of Delano Energy contained herein or in any other Basic Document or made in writing by Delano Energy or any of its officers in connection with the transactions contemplated hereby or thereby shall be 10 true and correct on and as of the Document Delivery Date with the same effect as if made on and as of such date (unless any such representation or warranty is stated to be true and correct on and as of another date, in which case such representation or warranty shall be true and correct as of the date as of which made); Delano Energy shall have performed and complied with all agreements and conditions contained herein and in each other Basic Document required to be performed or complied with by it prior to or on the Document Delivery Date; nothing shall have occurred after January 1, 1993 which might materially adversely affect the properties, business, prospects or financial condition of Delano Energy, or the ability of Delano Energy to perform its obligations hereunder or under any other Basic Document; no event or condition shall have occurred and be continuing, or would result from the consummation of any of the transactions contemplated hereby, which constitutes a Default; and the Agent shall have received an Officer's Certificate of Delano Energy to the foregoing effects. 2A.1.12. The representations and warranties of each of Thermo Systems and Thermo Electron contained in each Basic Document to which either Thermo Systems or Thermo Electron is a party or made in writing by Thermo Systems or Thermo Electron or any of their respective officers in connection with the transactions contemplated hereby or thereby shall be true and correct on and as of the Document Delivery Date with the same effect as if made on and as of such date (unless any such representation or warranty is stated to be true and correct on and as of another date, in which case such representation or warranty shall be true and correct as of the date as of which made); each of Thermo Systems and Thermo Electron shall have performed and complied with all agreements and conditions contained therein required to be performed or complied with by either of them prior to or on the Document Delivery Date; no event or condition shall have occurred and be continuing, or would result from the consummation of any of the transactions contemplated hereby which constitutes a default, or would after notice or lapse of time or both constitute a default, under any of the Basic Documents to which either Thermo Systems or Thermo Electron is a party; and the Agent shall have received Officer's Certificates of each of Thermo Systems and Thermo Electron to the foregoing effects. 2A.1.13. Opinions of each of the following counsel, satisfactory in form and substance to the Agent, shall have been executed and delivered by such counsel: (i) the opinion, addressed to the Agent for the benefit of the Banks, the Owner Trustee and the Owner Participant, of Messrs. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to Delano Energy and Thermo Systems; 11 (ii) the opinion, addressed to the Agent for the benefit of the Banks, the Owner Trustee and the Owner Participant, of Messrs. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to Thermo Electron; (iii) the opinion, addressed to the Agent for the benefit of the Banks, the Owner Trustee and the Owner Participant, of Messrs. Pillsbury, Madison & Sutro, special California counsel to Delano Energy and Thermo Systems; (iv) a letter, addressed to the Agent for the benefit of the Banks, the Owner Trustee and the Owner Participant, of Messrs. Pillsbury, Madison & Sutro, special California counsel to Delano Energy and Thermo Systems, with respect to Zoning Matters; (v) a letter, addressed to the Agent for the benefit of the Banks, of Messrs. Pillsbury, Madison & Sutro, special California counsel to Delano Energy and Thermo Systems, with respect to California sales and use taxes; (vi) [RESERVED]; (vii) the opinion of Messrs. Best, Best & Krieger to the effect that, among other things, the transactions contemplated hereby will not adversely affect the tax exempt status of the Bonds; (viii) the opinion, addressed to CPCFA, of Messrs. Best, Best & Krieger, with reliance letters to the Owner Participant and the Banks; (ix) [RESERVED]; (x) the opinion of Graham and James, counsel to Delano Energy, as to FERC regulatory matters and Qualifying Facility status; (xi) the opinion, addressed to the Agent for the benefit of the Banks, ABN AMRO and the Owner Trustee, of Messrs. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to Delano Energy, as to certain matters in respect of investment of accounts; and (xii) the opinion, addressed to the Agent for the benefit of the Banks and the Owner Participant, of Messrs. Kelly, Drye & Warren as counsel to the Owner Trustee. Section 2A.2. Conditions Precedent to be Satisfied by the Agent. The Agent, as Phase II Agent, shall have executed and delivered to Thermo Electron the Release of Guaranty. 12 Section 2A.3. Conditions Precedent to be Satisfied by the Owner Trustee. 2A.3.1. Each of the Basic Documents to which the Owner Trustee is a party shall have been duly authorized, executed and delivered by the Owner Trustee, shall be satisfactory in form and substance to the Agent, and shall be in full force and effect; and no default or event of default, or event, which with notice or lapse of time or both would constitute a default or event of default, shall exist under any of said Basic Documents then in effect or in the performance by the Owner Trustee of any of its obligations thereunder, or would exist under any of said Basic Documents or in the performance by the Owner Trustee of any of its obligations thereunder after giving effect to the transactions to occur on the Document Delivery Date as contemplated hereby and thereby. 2A.3.2. The representations and warranties of the Owner Trustee contained in Section 5B hereof or made in writing by the Owner Trustee or any of its officers in connection with the transactions contemplated hereby or thereby shall be true and correct on and as of the Document Delivery Date with the same effect as if made on and as of such date (unless any such representation or warranty is stated to be true and correct on and as of another date, in which case such representation or warranty shall be true and correct as of the date as of which made); and the Owner Trustee shall have performed and complied with all agreements and conditions contained herein required to be performed or complied with by it prior to or on the Document Delivery Date. Section 2A.4. Other Conditions Precedent. 2A.4.1. (a) Neither the Owner Participant nor the Owner Trustee nor any of their Affiliates shall, by reason of (i) the beneficial or legal ownership of the Phase I or any Part by the Owner Participant or the Owner Trustee or (ii) the lease of Phase I to Delano Energy under the Lease or (iii) any other transaction contemplated by this Agreement or any of the other Basic Documents, be deemed, by any governmental authority having jurisdiction, to be, or to be subject to regulations as, an "electric utility," "electrical corporation," "electrical company," "public utility," "public utility company" or a "public utility holding company" under any law or governmental regulation, Federal, state or local, and any consent, order or approval of, or filing with, any governmental authority necessary to accomplish this result shall have been duly obtained or made, shall be satisfactory in form and substance to the Owner Participant and the Owner Trustee, shall be in full force and effect, and shall not be the subject of any pending or threatened administrative or judicial proceeding. 13 (b) No Bank shall by reason of (i) the ownership of Phase I by the Owner Trustee or the operation thereof by Delano Energy, (ii) the ownership and operation of Phase II by Delano Energy; (iii) the Reimbursement Agreement, (iv) the issuance of the Letters of Credit, (v) the securing of the Bank Obligations by Liens on the Owner Trust Estate, the Facility and the Land, (vi) the Swap Agreements, or (vii) any other transaction contemplated by this Agreement or any of the other Basic Documents, be deemed by any governmental authority to be, or to be subject to regulation as, an "electric utility," "electrical corporation," "electrical company," "public utility," "public utility company" or "public utility holding company" under any existing law, rule or regulation of any governmental authority. 2A.4.2. No change shall have occurred since June 1, 1993, in any applicable law or regulation or in the interpretation thereof by any governmental or regulatory authority which, in the opinion of the Owner Participant, the Owner Trustee or the Agent would make any such Person's or any Bank's participation in the transactions contemplated hereby illegal or would subject any of them or any of their Affiliates to any penalty or other liability or onerous condition or to regulation by any governmental or regulatory authority to which such Person is not otherwise subject in a substantially similar manner. 2A.4.3. The Banks shall have received a report from the Independent Engineers in form and substance satisfactory to each Bank. 2A.4.4. The Banks shall have received a report from TSS Consultants, Inc., as Fuel Consultant, in form and substance satisfactory to each Bank. 2A.4.5. The Banks shall have received a report from Gale, Smith and Co., Inc., as insurance consultant, in form and substance satisfactory to each Bank. 2A.4.6. The Banks shall have received the results of searches conducted in the UCC, tax lien and judgment lien filing records in California and Massachusetts. 2A.4.7. The bills for the fees and disbursements of Messrs. Chapman and Cutler, special counsel to the Banks, as reflected in the statement of such special counsel delivered prior to the Document Delivery Date, shall each have been approved for payment on or before the Document Delivery Date. 2A.4.8. All obligations of Delano Energy under the Phase II Reimbursement Agreement, excluding obligations accruing from and after the date hereof in respect of the 1991 Tax-exempt Financing Credit, shall have been paid or performed. 14 2A.4.9. The bills for the fees and disbursements of ABN AMRO and FNBB, as reflected in the respective statements thereof delivered prior to the Document Delivery Date, shall each have been approved for payment on or before the Document Delivery Date. 2A.4.10. There shall have been no default or event of default, or event or condition which, with the giving of notice or the passage of time, or both, would constitute a default or event of default, under the Bond Indentures, and there shall be no more than $120,000,000 in aggregate principal amount of Bonds outstanding on the Document Delivery Date. 2A.4.11. The Swap Agreements shall have been executed and delivered and shall be in full force and effect. 2A.4.12. The SCE Credit shall be in effect, as provided in the Restatement Agreement. 2A.4.13. The Agent shall have received an appraisal report with respect to the Facility from Barakat & Chamberlin, in form and substance satisfactory to each Bank and which satisfies all applicable requirements for appraisals set forth in the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989. 2A.4.14. All proceedings taken in connection with the Overall Transaction and all documents and papers relating thereto shall be satisfactory to each Bank, and each Bank shall have received copies of such documents and papers as each may reasonably request in connection therewith, all in form and substance satisfactory to each Bank. SECTION 3. INTEREST; FEES. Section 3.1. Interest. The principal amount of all Liquidity Advances shall accrue and bear interest at a rate per annum equal to (i) the sum of the Federal Funds Rate plus one half of one percent (0.50%) plus the then-applicable Letter of Credit Fee Rate (as described in Section 3.5 below), such rate to be in effect for the first seven calendar days following such Liquidity Advance, and (ii) the Effective Rate, at all times thereafter. 3.1.1. Payment of Interest. Prior to the due date or any accelerated maturity of any Liquidity Advance, the Borrowers will, on June 30 and December 31 in each year (or, if such day is not a Business Day, on the next succeeding Business Day), beginning on the first such date after such Liquidity Advance is made, pay the accrued and unpaid interest thereon. On any due date or accelerated maturity of any Liquidity Advance all accrued and unpaid interest on such Liquidity Advance shall be forthwith due and payable. In addition, the Borrowers will, on 15 demand, pay interest on any overdue installments of principal and, to the extent not prohibited by applicable law, on any overdue installments of interest and fees owed to any of you hereunder in respect of any Liquidity Advance at a rate per annum which is at all times equal to the Delay Rate. All payments of interest hereunder shall be made by the Borrowers to the Agent for the account of each of you in accordance with your respective Percentage Interests. 3.1.2. Certain Definitions. For purposes of this Agreement: (a) The term "Effective Rate" shall mean a rate per annum equal to (i) prior to January 1, 1995 the sum of one percent (1%) plus the Base Rate, (ii) after December 31, 1994 and prior to January 1, 1997 the sum of one and one-eighth percent (1.125%) plus the Base Rate and (iii) thereafter the sum of one and three-eighths percent (1.375%) plus the Base Rate. (b) The term "Base Rate" shall mean for any day the greater of (i) the per annum rate of interest from time to time announced by the Agent at its principal banking office in Boston, Massachusetts as its Base Rate in effect for such day and (ii) the sum of one-half of one percent (.50%) plus the Federal Funds Rate. Upon request by the Borrowers at any time that a Liquidity Advance is outstanding, the Agent shall advise the Borrowers of the Base Rate then in effect, provided that any failure to so advise the Borrowers of such rate shall not affect the obligations of the Borrowers hereunder. (c) The term "Federal Funds Rate" shall mean for any day the per annum rate equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as such weighted average is published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for such Business Day, the average of the quoted rates for such Business Day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by the Agent. Each determination by the Agent of the Federal Funds Rate shall, in the absence of demonstrable error, be conclusive. 3.1.3. Deductibility of Interest Incurred by Banks. In the event that, notwithstanding the provisions of this Agreement and the Bond Documents to the contrary, any of you shall be advised by your tax advisers that under Section 265 of the Code or any other provision of the Code all or any portion of interest charges on obligations incurred or deemed incurred by 16 such of you to finance the maintenance of the Liquidity Advances is disallowed as a deduction for federal income tax purposes, then the Effective Rate shall be adjusted from and after the June 30 or December 31 next preceding the date on which such of you notifies the Agent and the Borrowers of such nondeductibility to a rate equal to the Effective Rate as from time to time in effect multiplied by the sum of (a) one plus (b) the product of (i) the percentage, expressed as a decimal, of interest incurred or deemed incurred by you that is so disallowed under the Code times (ii) the highest marginal statutory rate of federal income tax imposed on corporations as from time to time in effect. In addition, the Borrowers promptly shall pay to the Agent for the account of each of you in accordance with your respective Percentage Interests an amount equal to the difference between the amount of interest previously paid on the Liquidity Advances with respect to the period commencing on the earliest date on which such disallowance took effect and the amount that would have been paid for such period had interest been calculated as provided in the preceding sentence. The covenant contained in this Section 3.1.3 shall survive the termination of the other provisions of this Agreement. Section 3.2. Agent's Fee and Upfront Fee. The Borrowers will pay to the Agent (with respect to clause (a) below, for the benefit of the Banks) the following fees: (a) an Upfront Fee (the "Upfront Fee"), due and payable at the Document Delivery Date, equal to the sum of the following: A) 1.375% of the amount of the exposure retained under the Letters of Credit on the Document Delivery Date by Co-Agents other than ABN AMRO and FNBB; B) 1.125% of the amount of the exposure retained under the Letters of Credit on the Document Delivery Date by the Lead Manager; and C) 0.6875% of the amount of exposure retained under the Letters of Credit on the Document Delivery Date by ABN AMRO and FNBB; and (b) an Administrative Fee (the "Administrative Fee") equal to $90,000 per year, due and payable in arrears on each anniversary of the Closing Date with a final payment due on the date of the final payment of the Bank Obligations. The Administrative Fee will escalate annually from the Closing Date in accordance with increases in CPI; provided, however, that the Administrative Fee shall not be decreased in the event of a decrease in CPI in any year. 17 Section 3.3. Calculations. Calculations of amounts of interest or amounts expressed as interest for all purposes of this Agreement shall be made on a daily basis and on the basis of a 360-day year for the actual number of days elapsed, and amounts of interest and commitment fees payable on the last Business Day of any calendar or fiscal period shall include the amounts thereof calculated for the entire period. Section 3.4. Capital Adequacy Requirements. If after the date hereof any of you shall have determined that the adoption of any law, rule or regulation regarding capital adequacy, or any change therein (including without limitation any change according to a prescribed schedule of increasing requirements, whether or not known on the date hereof), or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such one of you with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such one of you as a consequence of its commitment to extend credit hereunder and/or its issuance of or participation in the Letters of Credit to a level below that which such one of you could have achieved but for such adoption, change or compliance (taking into consideration the policies of such one of you with respect to capital adequacy), then from time to time, within 30 days after demand by such one of you, the Borrowers shall pay to such one of you such additional amount or amounts as will compensate such one of you for such reduced return relating to its commitment or such issuance or participation hereunder; provided, however, that any such increase relating to such commitment (but not such issuance or participation) shall be prospective only from the date of demand. Such one of you shall deliver to the Borrowers, not later than the date of making such demand, a certificate specifying the event by reason of which it is entitled to make such claim and setting forth in reasonable detail the basis and computation of such claim, which computation shall be conclusive absent manifest error. The covenants contained in this Section 3.4 shall survive the termination of the other provisions of this Agreement. Section 3.5. Letter of Credit Fees. In consideration of your commitments to pay drawings under the Letters of Credit and to participate therein, the Borrowers hereby agree to pay to the Agent for the benefit of the Banks a letter of credit fee with respect to each of the Letters of Credit computed (on the basis of a year of 360 days) on the amount from time to time available to be drawn under such Letter of Credit from and including the dates of issuance thereof through and including the date of expiration thereof at the following rates: (a) with respect to the 1989 Tax-exempt Financing Credit and the 1990 Tax-exempt Financing Credit, (i) prior to January 1, 1996 at the rate of one 18 and five-hundredths percent (1.05%) per annum, (ii) after December 31, 1995 and prior to January 1, 1997 at the rate of one and three-tenths percent (1.30%) per annum and (iii) thereafter at the rate of one and fifty-five-hundredths percent (1.55%) per annum and (b) with respect to the 1991 Tax-exempt Financing Credit, (i) prior to January 1, 1995 at the rate of one and three-quarters percent (1.75%) per annum and (ii) thereafter at the rate of two percent (2.00%) per annum. Each percentage referred to in the preceding sentence shall constitute the "Letter of Credit Fee Rate" for the period specified. Each letter of credit fee payable under this Section 3.5 shall be payable semiannually in arrears on June 30 and December 31 of each year (or, if such day is not a Business Day, on the next succeeding Business Day), commencing June 30, 1994. Section 3.6. Fronting Fee. In further consideration of the Issuing Bank's commitment to issue and to continue to provide the Letters of Credit, the Borrowers hereby agree to pay to the Issuing Bank an annual Fronting Fee (the "Fronting Fee") with respect to each of the Letters of Credit equal to one quarter of one percent (0.25%) of the outstanding undrawn portion of each Letter of Credit, subject to adjustment pursuant to the provisions of the following sentence. Notwithstanding the foregoing, if at any time one or more of the Banks is rated (i) lower than "A" by Standard & Poor's Ratings Group or "A2 " by Moody's Investors Service and (ii) lower than "BBB+" by Standard & Poor's Ratings Group or "Baa1" by Moody's Investors Service, then in such case the portion of the Fronting Fee allocable to such Bank's Percentage Interest shall be increased to four-tenths of one percent (0.40%). The Fronting Fee shall be payable at the same time, and in the same manner, as the Letter of Credit Fees described in Section 3.5 above. SECTION 4. LIQUIDITY ADVANCE PAYMENT PROVISIONS. The Borrowers covenant that so long as (i) any Bank shall be committed to extend credit under this Agreement or (ii) any Letter of Credit is outstanding or (iii) any Bank Obligations are outstanding: Section 4.1. Payment at Maturity. On the due date of each Liquidity Advance or on any accelerated maturity of any Liquidity Advance, the Borrowers shall pay to the Agent for your several accounts the entire principal amount of such Liquidity Advance then outstanding, together with all accrued and unpaid interest thereon and all other Bank Obligations owing to any of you hereunder or under any other Bank Agreement. Section 4.2. Voluntary Prepayments. Upon not less than three Business Days' prior written notice to the Agent, the Borrowers may at any time or from time to time prepay all or any part of the outstanding principal amount of any Liquidity Advance in such amounts as are not less than $100,000 in the aggregate 19 for any one such payment, unless such payment is equal to the entire outstanding amount of all such Liquidity Advances at a prepayment price equal to the principal amount prepaid plus accrued and unpaid interest thereon, without premium. No partial prepayment pursuant to this Section 4.2 shall affect the obligation of the Borrowers to make the prepayments required by Section 4.3. Section 4.3. Mandatory Prepayments. On each date on which the Borrowers are required to prepay a Liquidity Advance in whole or in part under Section 5.6.4 or 5.6.5 hereof, the Borrowers shall prepay such Liquidity Advance in the principal amount required under Section 5.6.4 or 5.6.5, as the case may be, at a prepayment price equal to the principal amount thereof plus accrued and unpaid interest thereon, without premium. Section 4.4. Payment and Interest Cutoff. Upon all prepayments of Liquidity Advances, in whole or in part, pursuant to this Agreement, there shall be paid to the Agent for your several accounts in accordance with the Percentage Interests the principal amount thereof to be prepaid together with unpaid interest in respect thereof accrued to the date of prepayment. Notice of prepayment having been given in compliance with Section 4.2 and whether or not notice is given of prepayments pursuant to Section 4.3, the amount specified to be prepaid shall become due and payable on the date specified for prepayment and from and after said date (unless the Borrowers shall default in the payment thereof) interest thereon shall cease to accrue. SECTION 5. GENERAL COVENANTS. The Borrowers covenant that until all of the Bank Obligations shall have been paid in full or so long as any Bank shall be committed under this Agreement or any other Bank Agreement, they will comply with the following provisions: Section 5.1. Corporate Existence. The Borrowers will each do, or cause to be done, all things necessary to preserve and keep in full force and effect their respective existence, franchises, rights and privileges as a corporation and present corporate structure to the extent necessary to preserve the legality, validity and enforceability of the Bank Obligations and the full benefits and security of this Agreement, the Lessor Security Documents, the Lessee Security Agreement, the Implementation Agreement and the Security Documents for the Bank Obligations. The Borrowers will not take any action or fail to take any action so as to cease to be empowered to exercise such powers as may be necessary or appropriate for the purposes of enabling the Borrowers to carry out the provisions of this Agreement. Section 5.2. Performance of Covenants, etc. The Borrowers will faithfully perform and observe at all times any and all 20 covenants, undertakings, stipulations and provisions to be performed by them under the Basic Documents and the Bank Agreements. In addition, the Borrowers will comply with (a) the applicable laws and regulations wherever their business is conducted, and (b) all agreements and instruments by which they or any of their properties may be bound and all applicable decrees, orders and judgments in such manner that there will not result in the imposition of substantial penalties or a material and adverse effect on the financial condition, properties or business of the Borrowers. Except for the Lease, the Borrowers hereby represent and warrant that they have not granted and hereby covenant that they will not grant any of their right, title or interest in the Bank Security to anyone other than the Agent. Section 5.3. Certain Covenants with Respect to Basic Documents. The Borrowers covenant and agree as follows with respect to the Basic Documents: 5.3.1. Amendment, Enforcement, etc. by Borrowers. Notwithstanding any provision to the contrary in any other Basic Document, but subject to Section 5.16.1 hereof, the Borrowers will not, without the prior written consent of the Agent, enter into any agreement or take or consent to any action subordinating, amending, modifying, supplementing, releasing, terminating or enforcing any rights, powers or privileges under or in respect of any Basic Document, or waiving, excusing, rescinding, avoiding, disaffirming, abating, suspending, deferring, impairing, compromising or settling any obligation thereunder or any liability consequent thereon, whether or not there shall have occurred any Lease Event of Default or default, breach or failure to perform under or in respect of any Basic Document, and notwithstanding any bankruptcy, insolvency, reorganization, arrangement, readjustment, liquidation, dissolution, winding-up or other proceeding against or affecting Delano Energy, the Owner Participant or the Owner Trustee and notwithstanding any action with respect to any Basic Document which may be taken by an assignee, receiver or trustee in bankruptcy (or other similar official) or other party to, or the court, referee, bankruptcy judge or officer or officers in, any such proceeding (any action or attempted action by either Borrower contrary to this Section 5.3.1, unless and until approved, ratified and confirmed in writing by the Agent, being void and of no effect). 5.3.2. Amendment, Enforcement, etc. by Agent. If no Event of Default shall have occurred and be continuing, the Agent will not take any action of the nature referred to in Section 5.3.1 under or in connection with any Basic Document, or enforce the same, without, in each case, the prior written consent of the Borrowers; provided, however, that the prior written consent of the Borrowers shall not be required in connection with the giving 21 of notices or the making of demands for payments which are for the benefit of the Agent or of the Banks. 5.3.3. Effect of Event of Default. During the continuance of any Event of Default, the Agent is empowered to exercise, in place of the Owner Trustee, the remedies of the Owner Trustee under the Lease (including the power of the Owner Trustee to declare the Lease to be in default pursuant to the provisions thereof) and the remedies of the Borrowers under each other Basic Document. Without limiting the generality of the foregoing, during the continuance of any Event of Default, the Agent, acting directly or through counsel or other authorized representatives, shall have the exclusive power to direct and control all proceedings of any nature involving the Borrowers with respect to the Basic Documents, including, without limitation, the giving or making of any notice, consent, waiver or demand, the institution and conduct of any legal proceedings, the making of any agreements incident to such proceedings (and the settlement or other disposition of any such proceedings) and the taking of any one or more of the actions with respect to such agreements and instruments as the Agent may, in its discretion, deem necessary or appropriate to protect and preserve the right and interest of the Agent in and to all amounts payable to it or to the Owner Trustee under the Lease or to the Borrowers under any of the other Basic Documents, including without limitation the right to sue for, give acquittance for, to settle, adjust or compromise any claim with respect to any such amounts. The foregoing provisions of this Section 5.3.3 shall not affect the rights of the Borrowers to receive notices under any Basic Document. 5.3.4. Certain Payments. Except to the extent that the same have been properly paid to the Borrowers by the Revenue Trustee, the Borrowers will remit to the Agent, forthwith upon receipt, all monies and property of any kind received by them under or in respect of the Basic Documents, without offset, counterclaim, deduction, suspension, abatement or diminution, and the Borrowers will not seek to recover from the Agent any monies paid to the Agent by virtue of this Section 5.3.4. 5.3.5. Recording, etc. The Borrowers will from time to time upon the written request of the Agent execute and deliver such agreements, instruments and documents as the Agent may reasonably request in order to provide the Agent with the full benefits of the Grants contained in the Bank Agreements and will cooperate in connection with the taking of all action reasonably requested from time to time by the Agent or Delano Energy or identified in any Opinion of Counsel delivered to the Agent pursuant to Section 2A.1.13(iii) hereof to maintain and preserve the Lien of the Security Documents, the Lessor Security Documents and the Basic Documents, including, without limitation, subject to the provisions of Section 16 hereof, paying (or causing Delano Energy to pay, pursuant to Section 17 of the Participation 22 Agreement) all required taxes and filing, recording and registration fees in connection therewith and executing and delivering such instruments of further assurance as the Agent or Delano Energy may from time to time reasonably request or as may be identified in any Opinion of Counsel delivered to the Agent pursuant to Section 2A.1.13(iii) hereof to evidence the perfection of the Lien of the Security Documents, the Lessor Security Documents and the Basic Documents and the estates, interests, rights, powers, privileges and immunities conferred or intended to be conferred upon the Agent thereby, it being understood that the Borrowers shall have no such obligations absent either (i) such request by the Agent or (ii) identification of such action in any Opinion of Counsel delivered to the Agent pursuant to Section 2A.1.13(iii) hereof. 5.3.6. Power of Attorney. The Borrowers (subject to the provisions of Sections 5.3.1 through 5.3.4 hereof) hereby constitute and appoint the Agent their true and lawful agent and attorney-in-fact, irrevocably, with full power (in the name of the Borrowers or either of them or otherwise) to ask, require, demand and receive any and all monies and claims for monies payable and to become payable to the Borrowers from Delano Energy or any other Persons under or arising out of the Basic Documents (including without limitation all amounts of Rent and other payments due from Delano Energy under the Lease), to endorse any checks or other instruments or orders in connection therewith to give instructions and to file any claims, institute any proceedings, take any action or exercise any right, power or privilege under any of the aforesaid agreements or instruments which the Agent may deem to be necessary or advisable in the circumstances, and, if an Event of Default shall have occurred and be continuing, to make any settlements in connection therewith; provided, however, that such power of attorney shall not be construed to permit, nor shall it authorize the Agent to take, any actions inconsistent with the provisions of this Agreement or in derogation of the rights of the Borrowers hereunder. The powers with which the Agent is hereby irrevocably vested include, but are not limited to, the powers specifically referred to in Sections 5.3.1 through 5.3.4 hereof. Section 5.4. Investments. Notwithstanding the provisions of Section 5.05 of the Bond Indentures, the Borrowers will permit the proceeds from the issuance of the Bonds (including without limitation all amounts from time to time held in the Construction Fund, the Bond Fund and any Reserve Fund created under the Bond Indentures) to be invested only in Investment Securities. The Borrowers will not directly or indirectly purchase or carry any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder as from time to time in effect or make any Investment prohibited by the Comprehensive Anti-Apartheid Act of 1986 or by any applicable comparable state statute. 23 Section 5.5. Regulation. Not more than 50% in the aggregate of the ownership interests in either of the Borrowers shall be owned by public utility companies and/or public utility holding companies so long as the effect of such ownership of 50% or more would be to cause the Facility or Phase I or Phase II to fail to be a qualifying small power production facility as defined in the then applicable FERC regulations issued under the Public Utility Regulatory Policies Act of 1978, as amended, or any successor thereto. Section 5.6. Special Covenants Relating to the Bonds. The Borrowers covenant and agree as follow with regard to the Bonds: 5.6.1. Covenant to Redeem 1989 Bonds. Subject to Section 5.6.5 hereof, the Owner Trustee shall cause the principal of the 1989 Bonds to be redeemed under Section 4.01(b)(i)(B) of the 1989-90 Bond Indenture on each June 30 and December 31 specified in Exhibit 5.6.1 attached hereto (or, if such date is not a Business Day, on the next succeeding Business Day), in the amount set forth next to such date in said Exhibit 5.6.1. Each of you hereby consents to such redemptions. 5.6.2. Covenant to Redeem 1990 Bonds. Subject to Section 5.6.5 hereof, the Owner Trustee shall cause the principal of the 1990 Bonds to be redeemed under Section 4.01(b)(i)(B) of the 1989-90 Bond Indenture on each June 30 and December 31 specified in Exhibit 5.6.2 attached hereto (or, if such date is not a Business Day, on the next succeeding Business Day), in the amount set forth next to such date in said Exhibit 5.6.2. Each of you hereby consents to such redemptions. 5.6.2.1. Covenant to Redeem 1991 Bonds. Subject to Section 5.6.5 hereof, Delano Energy shall cause the principal of the 1991 Bonds to be redeemed under Section 4.01(b)(i)(B) of the 1991 Bond Indenture on each June 30 and December 31 specified in Exhibit 5.6.2.1 attached hereto (or, if such date is not a Business Day, on the next succeeding Business Day), in the amount set forth next to such date in said Exhibit 5.6.2.1. Each of you hereby consents to such redemptions. 5.6.3. [RESERVED] 5.6.4. Redemption of Bonds upon Event of Loss. Notwithstanding any provision of the Bond Documents to the contrary, if an Event of Loss shall have occurred, the Owner Trustee or Delano Energy, as appropriate, shall cause the Bonds to be redeemed under Section 4.01(b)(i)(B) of the Bond Indentures in whole and shall prepay the Liquidity Advances in whole on the date of such redemption. In such case the redemption of the Bonds and the prepayment of the Liquidity Advances shall be effected as of the date the insurance proceeds payable as a result of such Event of Loss are received by the Agent, and the 24 portion of the payment allocable to the redemption of the Bonds shall be applied to reimburse the Issuing Bank for the redemption price drawn under the Letters of Credit on the date of such drawing. Each of you hereby consents to such redemptions of the Bonds. 5.6.5. Prepayment of Liquidity Advances. Notwithstanding the provisions of the foregoing Sections 5.6.1 through 5.6.2.1, inclusive, in the event that on any date on which a redemption of the Bonds shall be required pursuant to Section 5.6.1, 5.6.2 or 5.6.2.1 there shall be outstanding any Liquidity Advances (and whether or not any Bonds shall be outstanding on such date), then the Borrowers on such date shall prepay principal of the Liquidity Advances in an aggregate principal amount equal to the lesser of (a) the aggregate principal amount of Bonds otherwise required to be redeemed on such date under Section 5.6.1, 5.6.2 or 5.6.2.1, as the case may be, and (b) such aggregate principal amount of the Liquidity Advances as may then be outstanding. To the extent that the amount described in clause (a) of the preceding sentence shall exceed the amount described in clause (b), the Borrowers shall cause Bonds to be redeemed on such date as provided in Section 5.6.1, 5.6.2 or 5.6.2.1, as the case may be, but shall be required to effect such redemption on such date only to such extent. 5.6.6. No Change of Interest Rate Mode. The Borrowers shall not exercise their options under Section 2.02(b) of the Bond Indentures to elect that the applicable Bonds bear interest at any rate other than the Daily Interest Rate (as defined in the applicable Bond Indenture). 5.6.7. Reserve Requirement for 1990 Bonds. So long as the 1990 Bonds shall be outstanding, the "Reserve Requirement" with respect thereto for purposes of the 1989-90 Bond Indenture shall be zero. 5.6.7.1. Reserve Requirement for 1991 Bonds. So long as the 1991 Bonds shall be outstanding, the "Reserve Requirement" with respect thereto for purposes of the 1991 Bond Indenture shall be zero. 5.6.8. Interest Rate Protection. The Borrowers shall not exercise any right to terminate the obligations of the Swap Bank under the Swap Agreements except with the written consent of the Required Banks or in connection with the replacement of the Letters of Credit with an Alternative Credit Facility under Section 2.5. In the event that on any date prior to December 31, 2000, the Swap Agreements shall be terminated in whole or in part for any reason (including without limitation any extension of the scheduled amortization of the Bonds) or the Swap Bank shall have failed to make payments under the Swap Agreements for any reason for a period of longer than 30 days, then not later than 60 days 25 following such date the Borrowers shall enter into one or more interest rate protection agreements, each in form and substance satisfactory to each of you with an LC Bank as provider, which will cap all of the Borrowers' exposure to interest rate risk under the CPC Loan Agreements until December 31, 2000 at a rate not to exceed a rate approved by each of you. The Borrowers shall not consent to any assignment of the Swap Bank's obligations under the Swap Agreements to any bank other than an LC Bank without the prior written consent of the Required Banks. Section 5.7. Maintenance of Property. The Borrowers will keep their assets in good repair, working order and condition, and make all needed and proper repairs, replacements, additions and improvements thereto as are necessary for the conduct of its business. The Borrowers shall not agree to or implement any modification to the Facility that could adversely affect the Facility's capacity or efficiency without the prior consent of the Agent and the Required Banks. Section 5.8. Maintenance of Office. Delano Energy will maintain an office in Delano, California or at such other place in Massachusetts or California as Delano Energy shall designate at least thirty days prior to any change of such office by written notice, addressed as provided in Section 23 of the Participation Agreement, where notices, presentations and demands to or upon Delano Energy may be given. Section 5.9. Authorization. Upon written request of the Agent or any of its representatives, the Borrowers shall furnish to the requesting party or representative, evidence of authority identifying the person or persons who are currently authorized to act for or on behalf of the Borrowers. Section 5.10. Limitation on Indebtedness. The Borrowers will not create, incur, assume, guarantee or otherwise become or remain liable in respect of any Indebtedness, except that the foregoing limitation shall not apply to: (i) Indebtedness incurred for accounts payable and expense accruals incurred or assumed in the ordinary course of business to providers of goods or services that are Essential Operating Expenses, on account of the current provision thereof, and not including any liability for money borrowed or similar extension of credit, up to an maximum aggregate of $500,000 outstanding at any one time, provided, that none of such Indebtedness shall have remained unpaid for more than 90 days after it became payable, unless it is being contested by the Borrowers in good faith and appropriate amounts shall have been segregated as funds held for future disbursement by the Revenue Trustee under the provisions of the Revenue Trust Agreement; 26 (ii) purchase money Indebtedness and Indebtedness in respect of capitalized lease obligations, not in excess of $1,000,000 aggregate principal amount at any one time outstanding; (iii) liabilities in respect of the SCE Credit; (iv) Indebtedness incurred to Thermo Electron or any Affiliate thereof for money borrowed from Thermo Electron or such Affiliate, to the extent that the Basic Documents contemplate such borrowing, or that such sums are borrowed for the payment of Essential Operating Expenses or payments of obligations of Delano Energy under any of the Basic Documents, or for other purposes of Delano Energy contemplated by the Basic Documents, provided that such Indebtedness shall in each case be unsecured, and subordinated to all Indebtedness of Delano to the Agent pursuant to the Subordination Agreement or another subordination agreement in form and substance satisfactory to the Agent; (v) Indebtedness for taxes, assessments, and other governmental charges and levies constituting or included in Essential Operating Expenses; (vi) liabilities in respect of endorsements of negotiable instruments for deposit or collection in the ordinary course of business; and (vii) indebtedness to the Banks incurred hereunder. Section 5.11. Limitation on Investments and Loans. Delano Energy will not make, directly or indirectly, or allow to subsist any Investment other than Investment Securities. Delano Energy will not make or agree to make any loans or advances or contributions of capital to any other Person. Section 5.12. Limitation on Merger, Consolidation, Sale of Assets. The Borrowers will not merge, consolidate or amalgamate with any other Person or liquidate or dissolve themselves (or suffer any liquidation or dissolution); or sell or lease or sell and lease back or otherwise dispose of all or substantially all of their property, assets and business to any other Person; or sell, lease or otherwise dispose of any portion of such property, assets or business except in the ordinary course of business. Section 5.13. Limitation on Certain Transactions with Affiliates. The Borrowers will not sell, convey, transfer or otherwise dispose of, any of their assets to any Affiliate of Delano Energy (except sales of products in the ordinary course of business at prices and on terms no less favorable to the Borrowers than prices and terms offered to Persons who are not Affiliates of Delano Energy), except as required by any Basic 27 Document. The Borrowers will not purchase or otherwise acquire any services or assets of an Affiliate of Delano Energy (except purchases of products and services in the ordinary course of business at prices and on terms no less favorable to the Borrowers than prices and terms available from such Affiliate to any Persons who are not Affiliates of Delano Energy), except as required by any Basic Document. The limitation contained in the foregoing sentence shall not apply to purchases of fuel under the Thermo Fuel Contract, which purchases shall be made on the terms set forth therein. Section 5.14. Limitation on Distributions and Similar Transactions. The Borrowers will not directly or indirectly make any distribution of their assets or operating profits, or pay any distribution, dividends or make any other distribution (whether in cash, stock or in property) to any stockholder or purchase or redeem any stock or make any payment on or with respect to any Subordinated Obligations (all such distributions, purchases, payments and other actions being collectively called "Restricted Distributions"), except that so long as immediately prior and after giving effect thereto no Event of Loss or Default or Event of Default has occurred and is continuing, the Borrowers may make Restricted Distributions, but only out of cash which is (i) not held by the Revenue Trustee, (ii) is not in the Disbursement Account, and (iii) has not been withdrawn from the Revenue Trust Estate for a specific purpose as provided in the Revenue Trust Agreement; provided; however, that the cumulative amount of such Restricted Distributions (other than those in respect of Withdrawn Funds) shall not exceed the cumulative amount of Distributed Amounts. In addition, the Borrowers may make Restricted Distributions consisting of Withdrawn Funds and Income Tax Payments. In addition to the foregoing Restricted Distributions, if Delano Energy's Working Capital exceeds the Working Capital Requirement, Delano Energy may, on two Business Days' notice following satisfaction of the conditions precedent set forth in the following sentence, request the Revenue Trustee to make a special distribution (the "Special Distribution") determined as follows: for the period commencing on the date of Firm Operation of Phase II (as such term is defined in the SCE Contract) and ending on the day prior to the Document Delivery Date, the difference between Power Revenues earned by Phase II during such period less (i) Essential Operating Expenses attributable to Phase II during such period, (ii) all "Bank Obligations" (as such term is defined in the Phase II Reimbursement Agreement) payable during such period and (iii) the total amount of closing costs relating to the transactions contemplated herein which were previously approved in writing by the Agent and which were paid as Essential Operating Expenses; provided, however, that such Special Distribution shall not exceed the Special Distribution Amount. As used in the formula contained in the preceding sentence, the term "Essential Operating Expenses attributable to Phase II" shall be deemed to be the greater of (i) the amount certified by Delano Energy as 28 being the amount of Essential Operating Expenses paid with respect to Phase II during such period and (ii) the amount determined by multiplying the total amount of Essential Operating Expenses for the Facility during such period times a fraction, the numerator of which is the Power Revenues earned by Phase II during such period and the denominator of which is the Power Revenues earned by the Facility during such period. The Special Distribution may only be made so long as no Default shall have occurred and be continuing at the time of such requested Special Distribution. The foregoing to the contrary notwithstanding, nothing in this Section 5.14 shall prohibit the payment of the Deemed Equity Return or the Income Tax Payments if all of the conditions for such payment as set forth in the Revenue Trust Agreement have been otherwise satisfied. Section 5.15. Further Assurances. 5.15.1. General Assurances. The Borrowers shall defend the title to the Facility and the Land as warranted in Section 5A.14 hereof against any and all claims and demands whatsoever. The Borrowers shall cause the Basic Documents and any amendments and supplements to any of them (together with any other instruments, financing statements, continuation statements, records or papers necessary in connection therewith) to be recorded and/or filed and re-recorded and/or re-filed in each jurisdiction as and to the extent required by law in order to, and shall take such other actions as may from time to time be necessary to preserve, protect and perfect each of the other rights and interests created by any of the Basic Documents in favor of the Agent, subject to no Liens other than Permitted Liens. 5.15.2. Change of Location. The Borrowers will not change the location of their respective principal places of business or the respective offices where they keep their respective corporate records and books of account or their names without giving at least 30 days' prior notice to the Agent specifying the new address or name and taking such action as may be required by Section 5.15.1 hereof. 5.15.3. Maintenance of Reserves, etc. The Borrowers shall fund the Supplemental Reserve Fund and the Major Maintenance Reserve as required by, and shall at all times comply with all other terms of, the Revenue Trust Agreement. The Borrowers shall take such actions as may from time to time be necessary to preserve, protect and perfect each of the rights and security interests in the General Revenue Fund, Supplemental Reserve Fund and Major Maintenance Reserve Fund created by the Revenue Trust Agreement in favor of the Agent, subject to no other Liens. 5.15.4. Security. Delano Energy covenants and agrees that it shall (i) provide under the Security Agreement a 29 perfected, first priority security interest to the Agent, in all Power Revenues receivable, and the proceeds thereof, including, without limitation, such a security interest in each contract, agreement, or arrangement under which Delano Energy may from time to time sell power produced or otherwise derive Power Revenues (each individually a "Power Contract", and collectively the "Power Contracts"), including without limitation the Power Purchase Agreement and the Ancillary Power Contracts; (ii) instruct the power purchaser to pay to the Revenue Trustee all revenues and other payments at any time due, owing, otherwise payable, or otherwise to be paid, to or for the account of Delano Energy, from or by such power purchaser, including, without limitation, Power Revenues; (iii) furnish to each Bank a copy of each Power Contract and each amendment thereto and a consent to assignment of each such Power Contract in form and substance satisfactory to the Agent; and (iv) in the event that through error or otherwise any payment, funds, or other asset or property constituting or representing Power Revenues, or any part thereof, or any item in lieu thereof or in substitution therefor, should be paid to Delano Energy, then Delano Energy shall forthwith pay over or transfer the same to the Revenue Trustee to be held in and disposed of as part of the General Revenue Fund. 5.15.5. Additional Assignments. The Borrowers shall assign to the Agent for the benefit of the Banks all of its rights, claims and benefits under such other contracts, sub-contracts or other similar arrangements, in substitution for, or in replacement of, any of the Support Documents, or which fulfill similar purposes, either in whole or in part, as any of the Support Documents, as the Agent may from time to time reasonably require for the purpose of securing the obligations of the Borrowers under any of the Basic Documents. 5.15.6. Opinion of Counsel. On March 1 of each year, commencing on March 1, 1995, Delano Energy will deliver to each Bank an opinion of counsel stating in form and substance satisfactory to the Agent that all actions required to be taken pursuant to this Section 5 to the date of such opinion have been duly taken and specifying what actions, if any, required by this Section 5, (i) have been taken since the date of the previous opinion required by this sentence (or since the Closing Date, in the case of the first such opinion) and (ii) are required or advisable to be taken during the twelve-month period following the date of such opinion in order to comply with Sections 5.28.1 and 5.28.3 hereof. Delano Energy shall cause all such actions referred to in clause (ii) of the preceding sentence to be duly and timely taken, and promptly upon effecting each thereof, shall, at Delano Energy's expense, furnish to the Agent an opinion of such counsel specifying any such action and stating that such action has been duly taken. 30 Section 5.16. Support Documents. 5.16.1. No Changes in Support Documents. The Borrowers shall not cancel, terminate, amend, supplement, modify, waive or otherwise allow to expire, any of the provisions of any of the Support Documents, or consent to or permit any such cancellation, termination, amendment, supplement or modification of any of the Support Documents except (i) in the case of any Fuel Supply Contract or Ancillary Power Contract (except any Ancillary Power Contract affecting Power Revenues), in a manner that does not materially adversely affect any Bank and (ii) in the case of each of the Operating Standards Support Agreement, the Power Purchase Agreement, the Subordination Agreement, and the Fuel Contractor Consents, with the written consent of the Required Banks. The provisions of the immediately preceding sentence shall not prevent the termination of any Fuel Supply Contract which is not needed in order to meet the requirements of Section 5.16.3 hereof. The Borrowers shall not enter into any agreement in substitute for, or in addition to, any of the Support Documents other than the Fuel Supply Contracts without the prior written consent of the Agent, which consent shall not be unreasonably withheld. Delano Energy shall at all times maintain a wood ash removal and disposal program satisfactory to the Banks. The Banks agree that the program shall be satisfied by the execution of an Ash Disposal Contract with Hondo Chemical, satisfactory in form and content to the Agent, for all wood ash generated by the Facility and the delivery of a consent to assignment with respect thereto by Hondo Chemical to the Agent. 5.16.2. Compliance with Support Documents. The Borrowers shall (i) duly perform all obligations to be performed by them under the Support Documents in a manner that does not adversely affect the Banks, (ii) promptly take any and all action as may be necessary to protect and preserve their rights under the Support Documents and to enforce or secure the performance by the other parties thereto of their respective obligations thereunder provided, however, that in the case of any Fuel Supply Contract or Ancillary Power Contract not affecting Power Revenues, the Borrowers shall not be required to take such action unless the failure to take such action would adversely affect the Banks, and (iii) use their best efforts to obtain all orders, consents, permits, licenses and approvals, and make all registrations, declarations and filings, necessary to keep the Support Documents in full force and effect. 5.16.3. Fuel Supply. Delano Energy shall, at any date, be a party to Fuel Supply Contracts (other than the Thermo Fuel Contract) providing for at least 50% of the projected fuel requirements of the Facility (including 100% of the Offset Fuel Requirements of the Facility), which contain terms and conditions, and have been entered into with Fuel Contractors, satisfactory in each case to the Agent (whose weighted average term is equal to or in excess of December 31, 2000) for the 31 remaining total of the Facility's wood fuel need with an initial weighted average price no greater than $41.00 per bone dry ton F.O.B. the Facility during the first year of the contracts and escalating at a weighted average rate no greater than 3.5% per annum. Each Fuel Supply Contract shall at all times have a remaining term of not less than one year; provided, that in the twelve months prior to the Termination Date, each Fuel Supply Contract shall have at all times a remaining term extending at least through the Termination Date. If any such Fuel Supply Contract is terminated for any reason so that the requirements of the immediately preceding two sentences are not met, Delano Energy shall, within 30 days after such termination, furnish to the Agent for its approval a proposed substitute Fuel Supply Contract (or amendment to an existing Fuel Supply Contract) so that the requirements of the immediately preceding sentence will be met. In addition, the Thermo Fuel Contract shall remain in effect at all times through March 31, 2001, (or Delano Energy shall have entered into a successor contract satisfactory in form and substance to the Agent), and, in addition to the foregoing requirements, Delano Energy shall use its best efforts to maintain at all times an adequate fuel supply for the Facility. Delano Energy shall, upon the request of the Agent, cause all Offset Fuel to be segregated from the balance of the fuel for the Facility. In addition to the foregoing, Delano Energy shall at all times maintain on the Land a minimum 30-day supply of wood fuel for the Facility. Section 5.17. Accounting; Reports; Information. 5.17.1. Records and Accounts. The Borrowers will keep true records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles, consistently applied, and maintain adequate accounts and reserves for all taxes (including income taxes), all depreciation, depletion, obsolescence and amortization of its properties, all contingencies and all other reserves. 5.17.2. Financial Statements. Delano Energy shall furnish to each Bank, (i) as soon as available, and in any event within 120 days after the end of each fiscal year of Delano Energy, the balance sheet of Delano Energy as of the end of such fiscal year and related statements of income, stockholders' equity and cash flows of Delano Energy for such fiscal year, all in reasonable detail (including, without limitation, the calculation of the Fixed Charge Coverage Ratio, and also consolidating information for Phase I and Phase II and such additional information as the Agent may require in order to verify the calculation of the Special Distribution as set forth in Section 5.14 hereof), prepared in accordance with generally accepted accounting principles applied on a basis consistently maintained throughout the period involved, unless any inconsistency therein is approved in writing by the accountants 32 certifying such financial statements, and certified by Arthur Andersen & Co. or other independent certified public accountants of nationally recognized standing selected by Delano Energy; (ii) as soon as available, and in any event within 45 days after the end of each of the first three quarterly periods of each fiscal year of Delano Energy, the balance sheet of Delano Energy as of the end of such quarterly period, and related statements of income, stockholders' equity and cash flows of Delano Energy, for the three-month and the twelve-month periods then ending, in each case including a comparison with the comparable period from the previous year, all in reasonable detail, prepared in accordance with generally accepted accounting principles applied on a basis consistently maintained throughout the periods involved, unless any inconsistency therein is approved in writing by the accountants described in clause (i) above, and certified by a principal financial officer of Delano Energy (subject to normal year-end adjustments); (iii) as soon as available and in any case at least 30 days after the end of each fiscal quarter, a copy of the quarterly reports referenced in the San Joaquin Valley Unified Air Pollution Control District Authority to Construct Certificates dated August 2, 1993, indicating compliance with the offset fuel requirements; and (iv) concurrently with the delivery of the financial statements referred to in clause (i) above, a certificate of the independent certified public accountants who certified such statements, stating that in making the examination necessary for the audit of such financial statements they obtained no knowledge of any default by Delano Energy in the observance, performance or fulfillment of any of the covenants contained in this Agreement or any other Basic Document, or if they shall have obtained knowledge of any such default, specifying the same. 5.17.3. Certificates and Information. Delano Energy shall furnish to each Bank, (i) concurrently with the delivery of the financial statements referred to in Section 5.17.2 above, (a) a certificate of a principal executive officer of Delano Energy stating that such officer has made or caused to be made under his supervision a review of the transactions and conditions of each Basic Document during the fiscal period covered by such financial statements, and, to the best of his knowledge after due inquiry, that Delano Energy has observed and complied in all material respects with each and every covenant and agreement of Delano Energy contained in each Basic Document and that no default under any of Basic Documents has occurred and is continuing (or, if any such event or condition shall exist, specifying the nature and status thereof), and (b) the Property Report; (ii) promptly upon the availability thereof, copies of (a) all material audit reports submitted to Delano Energy by independent public accountants in connection with any annual, interim or special audit of the accounts of Delano Energy made by such accountants, (b) all material reports to any stockholder of Delano Energy, (c) all material reports or statements which Delano Energy may make to, or file with, the Securities and 33 Exchange Commission, FERC, the air quality board or any public body succeeding to any or all of the functions of any of such Commissions or Boards (excluding any such reports or statements which are treated as confidential and not available to the public, in accordance with applicable law, by the entity with which they are filed, for so long as such confidentiality shall be maintained), and (d) all orders, determinations or other written actions as to the Facility or the operation or financing thereof, and any other actions by any of such Commissions or Boards or by an administrative or regulatory agency of any state having jurisdiction over the utility operations of Delano Energy having a material adverse effect on the business, properties or prospects of Delano Energy or its ability to perform its obligations under any Basic Document; (iii) prompt notice of any change in independent public accountants or any material litigation (other than individual personal injury claims) relating to or affecting the Facility or the operation thereof or the Land and of any litigation calling into question the validity or enforceability of any Basic Document; (iv) promptly after any officer of Delano Energy obtains knowledge of the occurrence of any event or condition which constitutes a Default hereunder, a certificate of a principal executive officer of Delano Energy specifying the nature of such condition or event, the period of existence thereof, the action Delano Energy has taken or proposes to take with respect thereto and the date, if any, on which it is estimated that such event or condition will be remedied or terminated; (v) on the Closing Date and on each anniversary of the Closing Date, a proposed quarterly operating budget with respect to the operations of the Facility for the following fiscal year; (vi) as soon as available, and in any event within 30 days after the end of each fiscal quarter of Delano Energy, a report with respect to the operations of the Facility setting forth the comparison between the projected operating budget for such fiscal quarter and the actual results of operations for such fiscal quarter; (vii) as soon as practicable, and in any event within 15 days after the end of each calendar month, operating and maintenance records, including records of the Facility's power output and fuel usage during that month; (viii) promptly upon obtaining knowledge thereof, notice of any Default hereunder or any default or event which with the giving of notice or passage of time or both would constitute a default by any other party under any other Basic Document or any Support Document or any notice or assertion of such a default or any event which would give rise to a right to terminate, refuse to perform or decrease payments otherwise due by any other party thereto; and (ix) promptly, such additional financial and other information as Delano Energy may be required to furnish to the holder of any other security or indebtedness of Delano Energy or as any Bank from time to time may reasonably request. 5.17.4. Facility Records. Delano Energy shall provide to each Bank on a quarterly basis until the repayment in full of all Bank Obligations (i) the Quarterly Operating and Generation 34 Report substantially in the form appearing as part of Exhibit 5.17.4 hereto showing, without limitation, results for both the preceding fiscal quarter and the year-to-date, (ii) the Quarterly Fuel Report substantially in the form appearing as part of Exhibit 5.17.4 hereto, (iii) the Environmental Variances Report substantially in the form appearing as part of Exhibit 5.17.4 hereto, and (iv) such other information in connection with or supplemental to the foregoing as any Bank may from time to time reasonably require. Such reports shall be provided not later than 45 days after the end of each calendar quarter. In addition, Delano Energy shall provide to each Bank on a monthly basis until repayment in full of all Bank Obligations the Monthly Operating and Generation Report substantially in the form appearing as part of Exhibit 5.17.4 hereto, not later than 15 days after the end of each month. 5.17.5. Revenue Trust Agreement Reports. 5.17.5.1. The Borrowers shall use amounts which are withdrawn under the Revenue Trust Agreement for the payment of Essential Operating Expenses only for the payment of such Essential Operating Expenses. Delano Energy will use the Disbursement Account only (i) to pay Essential Operating Expenses, (ii) to make payments into a Reserve Fund (iii) [RESERVED], (iv) to make payments required to be paid by the terms hereof, and (v) to pay all Transaction Costs. Delano Energy shall provide for the maintenance of detailed accounts and records recording all cash receipts and all expenditures of the Borrowers, reflecting: (a) all receipts, classified as between disbursements received from the Revenue Trustee and disbursements from other sources; (b) all expenditures, classified as between expenditures made out of funds received from the Revenue Trustee and funds received from other sources; and (c) unexpended receipts. Such records shall make such categorizations and further classifications as the Agent may reasonably request. Delano Energy shall deliver copies of the statements for (x) all accounts maintained under the Revenue Trust Agreement and (y) the Disbursement Account to the Agent on a monthly basis no later than the 15th day of the following month. 5.17.5.2. Delano Energy shall furnish to each Bank a summary report (the "Quarterly Cash Report") for each Quarterly Reporting Period showing, according to such classifications and categorizations, (a) all such receipts, (b) all such disbursements, and (c) all unexpended funds received, which shall further be identified as between unallocated funds and funds held for particular items or categories of expenditure. In addition, Delano Energy shall include in each Quarterly Cash Report such information as any Bank may reasonably require regarding accrued liabilities, unaccrued liabilities, commitments, contracts, purchase orders, and other obligations incurred relative to any or all items of Essential Operating Expenses, including, without limitation, 35 amounts thereof. Each Quarterly Cash Report shall be in a form satisfactory to each Bank, shall be certified as complete and correct by the principal financial officers of Delano Energy, and shall be delivered to each Bank on or before the 45th day following the end of the applicable Quarterly Reporting Period, substantially in the form of Exhibit 5.17.5 hereto. 5.17.6. Operating Standards Support Agreement Reports. In the event that Delano Energy shall have Negative Cash Flow during any calendar year, Delano Energy shall, within 45 days after the end of such period, prepare and furnish to Thermo Electron and each Bank a report which shall state with respect to such period, (a) the Adjusted Available Funds, (b) the Facility Cash Flow and (c) Pro Forma Cash Flow. Each such report shall be in such form as may reasonably be requested by Thermo Electron or the Agent on behalf of any Bank, shall set forth in reasonable detail the data and computations upon which it is based, including relevant data as to the output and efficiency of the Facility, and shall be certified by the chief executive officer or chief financial officer of Delano Energy and, if the Agent, on behalf of any Bank so requires, by independent accountants and engineers satisfactory to such Person. The failure of Delano Energy to furnish any such report, or to furnish any such report in a timely fashion, shall not relieve Thermo Electron of its obligations under the Operating Standards Support Agreement, nor shall any error or inaccuracy contained in any such report be binding upon Delano Energy, the Owner Trustee, the Owner Participant or any Bank. In the event of any dispute or disagreement as to any of the matters set forth above, including without limitation the amount of Adjusted Available Funds, Anticipated Output, Anticipated Peak Month Output, Facility Cash Flow or Pro Forma Cash Flow, the determination thereof by the Independent Engineers or such other independent accountants or engineers selected by the Agent and reasonably acceptable to Delano Energy shall be conclusive and binding upon Thermo Electron, Delano Energy, the Owner Trustee, the Owner Participant and the Banks. The fees and expenses of any such engineers or accountants shall be borne by Delano Energy. 5.17.7. Inspection, Final Punch List Actions. The Borrowers shall permit any Person designated by the Agent at the expense of such designating party, to visit and inspect any of the properties or examine (and make copies of or take extracts from) the books of account or financial records of the Borrowers, to inspect the Facility and Delano Energy's books and records with respect thereto, and to discuss its affairs, finances and accounts with its principal officers and with their independent public accountants (and, when requested, Delano Energy shall instruct its accountants so to discuss such matters), all at such times during normal business hours and as often as may be reasonably requested. The Borrowers will furnish to each Bank (i) within 30 days after receipt thereof, a copy of any notice or order of any governmental authority asserting that either 36 Borrower is not in compliance in any material respect with any law, ordinance or regulation relating to environmental matters applicable to the Facility or the Land, (ii) within 30 days after the end of each calendar year, an accurate statement in reasonable detail regarding the condition and state of repair of the Facility, and (iii) at such other time or times as the Agent may reasonably request, accurate statements regarding the condition and state of repair of the Facility or Land or any part thereof in such detail as the Agent may reasonably request. If any Property Report delivered pursuant to Section 5.17.3 hereof reveals that a problem may exist at the Facility or on the Land, and if the Agent reasonably believes that further investigation is necessary, Delano Energy shall hire with the Agent's approval and at Delano Energy's cost and expense, an engineer reasonably acceptable to the party initiating such further investigation and Delano Energy, to review the problem and recommend solutions thereto. Upon request of the party initiating such further investigation, Delano Energy shall implement all such recommended solutions within Delano Energy's control, or, if Delano Energy so requests, such solution as has been approved by the Agent in its reasonable discretion, as promptly as possible. The Independent Engineers shall, on or before the Document Delivery Date, prepare a list of corrective actions to be taken by Delano Energy with respect to the Facility attached hereto as Exhibit 5.17.7A (the "Final Punch List"). Delano Energy shall not be entitled to request or receive any distributions pursuant to Sections 3.3.2(h) or (i) of the Revenue Trust Agreement until such time as the Independent Engineers have delivered to the Agent a certificate certifying that the items set forth on the Final Punch List have been properly performed. The Independent Engineers shall perform an inspection of the Facility upon the completion of the items on the Final Punch List, in accordance with the scope of work attached hereto as Exhibit 5.17.7B. Following certified completion of the items on the Final Punch List, the Independent Engineers may, at the Agent's discretion, be retained annually thereafter though the repayment of the Bank Obligations, to monitor operating performance of the Facility. With respect only to the period following certified completion of the items on the Final Punch List, then so long as (a) the Fixed Charge Coverage Ratio is in excess of or equal to 1.15 times for the preceding calendar year and (b) no event of default has occurred or is continuing, the expenses related to the Independent Engineers' work will be for the account of the Banks. If (x) the Fixed Charge Coverage Ratio falls below 1.15 times during any calendar year, or (y) an event of default has occurred or is continuing, then Delano Energy shall pay to the Agent up to $10,000 per annum to offset the costs related to the Independent Engineers' work, with the balance being for the account of the Banks. 5.17.8. Specifications. Delano Energy will at all times cause an accurate and complete set of the "as built" plans and specifications relating to the Facility to be maintained at 37 the Facility and available for inspection by representatives and agents of the Agent, which plans and specifications shall be amended and supplemented from time to time to reflect all current improvements, additions and modifications to the Facility. 5.17.9. Other Information. The Borrowers shall provide such information regarding the operation of the Facility, the generation of power by the Facility, the transmission of power generated by the Facility, and the sale of power generated by the Facility (to the extent that such information has not been provided pursuant to any other section of this Agreement or the Participation Agreement), as the Agent may from time to time reasonably require and shall furnish promptly to the Agent such financial information, including but not limited to information relative to capital expenditures made or proposed, and contracts, agreements or other obligations incurred relative to the Borrowers or their business or the Facility or its operations, as the Agent may from time to time reasonably request, and in each case within such time as the Agent may reasonably require. Section 5.18. Environmental Covenants. 5.18.1. Compliance. The Borrowers shall comply with, and ensure compliance by any and all occupants of the Facility or the Land with, all applicable Environmental Laws and any other federal, state and local environmental standards and requirements affecting the Facility or the Land, including, without limitation, all federal, state and local Laws, regulations and orders with respect to the presence (however and by whomsoever generated, and whether now existing or hereafter arising) and the discharge and removal of Hazardous Materials; will keep the Facility and the Land free of any Lien imposed pursuant to such laws, regulations or orders; and will pay or cause to be paid when due any and all costs in connection with any of the foregoing, including, without limitation, the cost of delineation, removal, treatment and 0disposal of any such Hazardous Materials. If the Borrowers fail to do any of the foregoing, then the Agent may, but shall have no obligation to, cause the Facility or the Land, as the case may be, to be freed from such Hazardous Materials, and the cost of such removal shall be borne by the Borrowers and the obligation to pay such cost shall be included as Bank Obligations hereunder. The Borrowers will give the Agent and each of its agents and employees access to the Facility and the Land, and the Borrowers hereby specifically grant to the Agent a license to remove such Hazardous Materials. The Borrowers shall not use the Facility or the Land to generate, manufacture, refine, produce, treat, store, handle, dispose of, transfer, process or transport Hazardous Materials other than (i) as necessary to operate the Facility and (ii) in compliance with all applicable law. 5.18.2. Notices. The Borrowers will notify each Bank promptly upon receipt by either Borrower or, to their knowledge, 38 by the Federal government of any notice or advice from any governmental authority or any other source with respect to Hazardous Materials on, from or affecting the Facility or the Land. Section 5.19. Qualifying Facility. The Borrowers shall provide each Bank prompt notice of all events, conditions or occurrences of which either Borrower has notice which have caused or may cause the loss of the Facility's status as a Qualifying Facility. The Borrowers shall not take any action or fail to take any action which could result in (i) either Borrower or any Bank becoming subject to financial, organization or rate regulation as an "electric utility," "electrical corporation," "electrical company," "public utility," "public utility company" or "public utility holding company" under any existing law, rule or regulation of any governmental authority, or (ii) the Facility no longer being a Qualifying Facility. The Borrowers shall take all appropriate actions in order to maintain and reestablish the Qualifying Facility status of the Facility. On or before March 15, 1994, the Borrowers shall apply to FERC for recertification of the Facility as a Qualifying Facility reflecting the differences, if any, between the Facility as built and the Facility as described in the prior certification (in which case the Borrowers shall thereafter diligently pursue such recertification). Section 5.20. Supplemental Reserve Fund. Delano Energy shall, not later than the Document Delivery Date, cause there to be deposited in the Supplemental Reserve Fund an amount equal to the Supplemental Reserve Required Amount. Section 5.21. Major Maintenance Reserve Fund. Delano Energy shall cause the Revenue Trustee to deposit on each Distribution Date the amounts determined according to the formula set forth in the following sentence (the "Major Maintenance Reserve Required Amount") into a reserve account (the "Major Maintenance Reserve Fund") held pursuant to the Revenue Trust Agreement for purposes of funding major maintenance items with respect to the Facility consisting of (i) rebagging the baghouse, (ii) overhaul of turbine/generator, (iii) superheater replacement and (iv) in-bed tube replacement. The Major Maintenance Reserve Required Amount as of any Distribution Date shall be (a) the amount scheduled on Exhibit 5.21 hereto as of such Distribution Date less (b) the sum of (i) the aggregate amount expended by Delano Energy in the calendar year preceding such Distribution Date and (ii) the amount, if any, by which the aggregate amounts expended by Delano Energy in all prior calendar years (following the Document Delivery Date) exceeds the aggregate amount scheduled on Exhibit 5.21 hereto for such calendar years, in all cases for major maintenance expenditures approved by the Agent, less (c) all interest earned with respect to the Major Maintenance Reserve Fund balance during the preceeding calendar year. In the event that in any year there shall be insufficient 39 funds available to fully fund the Major Maintenance Reserve Required Amount, the shortfall shall be added to the Major Maintenance Reserve Required Amount for the following year(s) until it has been fully funded into the Major Maintenance Reserve Fund. Section 5.22. Type of Business. The Borrowers will engage only in the businesses of (i) developing, constructing, owning, leasing (as lessee), and operating the Facility, and (ii) selling electrical power. Section 5.23. Payment of Taxes. The Borrowers will promptly pay and discharge, before the same shall become in arrears, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profit or upon any property, real, personal or mixed, or any part thereof belonging to it (collectively, "Taxes") and will duly and timely file all tax returns, reports and other documents required in connection therewith. Section 5.24. Identification. If and to the extent required by written notice to the Borrowers from the Agent, the Borrowers shall, at their sole cost and expense, attach to or place on such Parts as the Agent may designate in writing, a sign, stencil, plaque or label stating that such Parts and the Facility are subject to the Lien of the Basic Documents. The Borrowers will reattach and replace, at its sole cost and expertise, any such sign, stencil, plaque or label which becomes illegible or ceases to be affixed thereto or placed thereon. The Borrowers will not allow the name of any other Person to be attached to or placed on any Part a designation that might be interpreted as a claim of ownership with respect thereto adverse to the Lien of the Basic Documents. Section 5.25. Filing Reports; Notices; Inspection; Information, Etc. 5.25.1. Governmental Reports. In the event that any report, application or other document (herein "Report") with respect to the condition or operation of the Facility or any Part shall be required to be filed or submitted by any Bank to any Federal, state, municipal or other governmental or regulatory authority, the Borrowers shall prepare and deliver the Report to the Person required to file or submit such Report within a reasonable time prior to the date for filing or submission, and the Borrowers shall thereafter file or submit the same unless the Person required to file or submit such Report shall otherwise request. The Person required to submit such report shall execute any such Report prepared and delivered by the Borrowers if such Report is accompanied by a written request for execution thereof, provided that (i) such Report is required by applicable law or regulation with respect to the Facility to be executed by such Person, (ii) the execution by such Person of such Report will not 40 involve any possibility of the imposition of any criminal liability or penalty or (unless indemnified by the Borrowers in such manner and form, and with such security, as shall be satisfactory to the Person required to file or submit such Report) any civil liability or penalty upon the Person required to file or submit such Report, and will not adversely affect any rights of any Bank hereunder or under any other Basic Document, (iii) such Report is in form and substance satisfactory to the Person required to file or submit such Report, and (iv) if requested by the Person required to file or submit such Report, such Report and request for execution are accompanied by an Opinion of Counsel, obtained at the Borrowers' sole cost and expense, satisfactory to the Person required to file or submit such Report, as to the matters set forth in clauses (i) and (ii) above. 5.25.2. Notices of Material Events. The Borrowers will promptly give notice to each Bank, including brief particulars of: (i) the occurrence of any Event of Default; (ii) the occurrence of any default under any mortgage, deed of trust, overdraft, or other credit facility, loan agreement, lease, guarantee, indemnity, or any other contract or instrument that is material to the operation of the Facility, or the generation of electric power by the Facility, or the transmission or sale of electric power generated by the Facility, and to which either Borrower is a party, or by which the Facility, any Part, any material Realty Right, or other material property or property right, of either Borrower is bound or affected, or other event or condition thereunder, of itself entitling, or with the giving of notice or lapse of time or both entitling, the holder thereof or any party thereto (other than the Borrowers) to exercise any right or remedy thereunder, including but not limited to a remedy of acceleration of future payments or similar remedy; (iii) the occurrence, in a single incident or series of related incidents of any accident or other casualty involving damage to the Facility, the cost of repairing of which would or is likely to cost more than $50,000 in the aggregate; (iv) the occurrence of a default under either of the Construction Contracts of which either Borrower has actual knowledge, or the occurrence of a default under any subcontract or any contract of a supplier, or the terms of any purchase or sale of goods or equipment, in connection with the Construction Contracts or the construction of the Facility, of which either Borrower has actual knowledge; and 41 (v) the institution of, or the receipt by either Borrower of any written communication threatening the institution of, any action, suit, proceeding or investigation before any court, governmental agency, commission arbitration tribunal, or official, against or affecting either Borrower or any Affiliate of Delano Energy, the Facility, the operation of the Facility, the generation of electric power by the Facility, or the transmission or sale of electric power generated by the Facility, which, if adversely determined, could adversely affect the financial position, business, or prospects of either Borrower or impair or prevent its operation of the Facility, its generation of electric power by the Facility, or its transmission or sale of such electric power or the performance of its obligations under any Basic Document. Section 5.26. Use of Facility; Maintenance and Operation; Operation and Maintenance Manual. 5.26.1. General. The Borrowers will use the Facility in a prudent, responsible, careful and proper manner, solely in the conduct of its lawful business, and in accordance with sound industry practices. The Borrowers shall, at their sole cost and expense, maintain, service, clean and repair all Parts and furnish all Parts, mechanisms, tools and devices necessary to maintain the Facility in good order and repair so that the condition and operating efficiency thereof will at all times be maintained and preserved at a level consistent with accepted norms for boilers and generating plants of similar type and capacity and so that the Facility is kept in the same condition and repair as it was on the Closing Date, ordinary wear and tear excepted. In addition, the Borrowers will at their sole cost and expense maintain and operate the Facility in accordance with a manual assembled by Delano Energy for that purpose ("Operation and Maintenance Manual"). The Operation and Maintenance Manual shall (i) include, without limitation, provisions with respect to maintenance training, maintenance planning and preventive maintenance and (i) be available at the Facility for inspection by the Agent. Delano Energy will maintain at the Facility the final version of the Operation and Maintenance Manual with all revisions and updates. The Borrowers will not enter into any contract for the overall operation or maintenance of the Facility without the prior written consent of the Agent. 5.26.2. Issuer Requirement. For so long as any Bond is outstanding, the Borrowers shall operate the Facility as a "project" within the meaning of the California Pollution Control Financing Authority Act, as amended and supplemented (the "Act"), for the disposal of solid waste and the Borrowers shall make no changes to the Facility or to the operation thereof which would adversely affect the qualification of the Facility under the Act or impair the exclusion from gross income of interest on the Bonds for purposes of federal income taxation. 42 Section 5.27. OutPut/Capacity Tests; Plans and Specifications. Delano Energy shall provide to each Bank, upon receipt thereof by Delano Energy, a copy of any output/capacity test conducted at the Facility by SCE or any other Power Purchaser. Section 5.28. Compliance. 5.28.1. Laws, etc. The Borrowers shall, at their sole cost and expense, conform to and comply or cause compliance with: (i) all laws, statutes, rules, regulations, ordinances, approvals, consents, authorizations, orders and other requirements of governmental or regulatory agencies or authorities with respect to the design, acquisition, manufacture, construction, erection, installation, assembly, use, maintenance, servicing, storage, finishing, condition or operation of the Land, the Facility or any Part (including, without limitation, all zoning, pollution and environmental control requirements, all requirements relating to the generation of electric power by, or the transmission or sale of electric power generated by, the Facility, and all requirements as to changing or replacing any Part from time to time incorporated or installed in, or attached to, the Facility or incorporating or installing in, or attaching or adding to, the Facility any additional or other Part), except (a) to the extent valid variances, waivers, exemptions or similar exceptions have been obtained therefrom or (b) for violations of any such law or requirement the validity of which is being contested by the Borrowers in good faith by appropriate proceedings diligently prosecuted, provided that no violation referred to in this clause (b) involves any danger of (I) criminal or civil penalties with respect to any Bank, (II) foreclosure, sale, forfeiture or loss of any Part, (III) a material and adverse effect on the operation of the Facility or on the business, prospects or revenues of either Borrower or (IV) the impairment of either Borrower's ability to perform its obligations hereunder or under any of the other Basic Documents; (ii) the provisions of each of the Support Documents and all Governmental Actions; (iii) the terms and conditions of all insurance policies in effect with respect to the Land, the Facility or any Part and required to be maintained under Section 5.38 hereof; (iv) all operating, repair and maintenance standards as are required to permit the enforcement of material 43 warranty claims against the respective contractors with respect to the Facility or any Part; and (v) all applicable manufacturer, contractor and other appropriate specifications and procedures. 5.28.2. Regulatory Acts. The Borrowers will at all times (i) o all things necessary to preserve and keep in full force and effect its certification by FERC as a small power production facility which meets the requirements for qualification set forth in 18 C.F.R. 292.207(a), (ii) comply with all applicable laws and all applicable requirements in effect from time to time with respect to qualification as a Qualifying Facility under Section 210 of the Public Utility Regulatory Policies Act of 1978, 16 U.S.C. 824a-3 and Section 228.5 of the California Public Utilities Code and (iii) comply with all applicable Federal, state and local environmental laws, regulations and ordinances. Upon receipt of any notice of noncompliance, violation, termination, cancellation or revocation with respect to any of the foregoing, the Borrowers shall immediately notify each Bank and enclose a copy of such notice. 5.28.3. Authorization Requirement. In the event that any additional Governmental Action is required for the completion of the construction of the Facility, the operation of the Facility, the generation of electric power by the Facility, or the transmission or sale of electric power generated by the Facility, the Borrowers will immediately give notice thereof to each Bank and will immediately take or cause to be taken all necessary steps within the power of the Borrowers to obtain and comply with such Governmental Action. 5.28.4. Pollution Control and Hazardous Substances. The Borrowers shall not release, emit or discharge into the environment Hazardous Materials in excess of federally or state permitted releases or reportable quantities, or other concentrations, standards or limitations under the foregoing laws or any state law governing the protection of health and the environment or under any other federal, state or local laws, regulations or Governmental Authorizations in connection with the construction, fuel supply, power generation and transmission, waste disposal or any other operations or processes relating to the Facility. The Borrowers shall not, except in accordance with applicable law, (i) store or dispose, or allow the storage or disposal, of any Hazardous Materials on or in the Facility or the Land or (ii) transport or arrange for the transportation of any Hazardous Materials to or from the Land. If the Agent reasonably believes that there may be the presence or the possible presence of any Hazardous Materials on or in the Facility or the Land in violation of applicable Law, the Borrowers shall, upon the written request of the Agent and at the Borrowers' cost, take any and all actions necessary to reasonably assure the Agent that no Hazardous Materials are stored or disposed on or in the Facility 44 or the Land in violation of applicable law. The Borrowers shall promptly notify the Agent in writing of any release or threatened release of any Hazardous Materials at or from the Facility or the Land, or of any notice of a release or threatened release of any Hazardous Materials, or for the costs for the cleanup thereof (including, without limitation by assessment, containment or removal), received by either Borrower or by any Person for whose conduct either Borrower is or may be responsible from any federal, state or other governmental authority. To the extent allowable by law or contract, the Borrowers shall indemnify and hold each Indemnitee harmless from, and defend each such Indemnitee against, any and all claims, demands and liabilities, including reasonable attorneys' fees, of whatever nature relating to or in any way arising due to the release, emission or discharge into the environment of Hazardous Materials, by the Borrowers or any prior owner or user of the Facility or the Land or arising out of the Borrowers' failure to observe the covenants contained in this Section 5.28.4. The indemnities contained in this Section 5.28.4 shall be in addition to and not in derogation of the indemnities set forth in Section 8.4 hereof and shall survive the repayment in full of all Bank Obligations. Section 5.29. Payment of Claims and Obligations. In the normal course of business, and subject to the provisions of the Revenue Trust Agreement, the Borrowers will pay and discharge, at or before the fixed or extended maturity thereof, all of its material obligations and liabilities, including, without limitation, liabilities for Essential Operating Expenses, and claims of any kind on account of Essential Operating Expenses (including claims for labor, material, or supplies) which, if unpaid, might by law become a lien or charge upon any of the income or property of the Borrowers, the Facility or the Land, excepting, however, in each case, any of such obligations, liabilities or claims that are being contested in good faith and by appropriate measures, provided that the Revenue Trustee is holding appropriate, segregated reserves therefor as sums held for future disbursement as Essential Operating Expenses. Section 5.30. Restriction on Liens. The Borrowers shall not, directly or indirectly, create, incur, assume or suffer to exist any Lien on or with respect to any of its property or assets, including without limitation the Facility, the Land or any Part, title thereto or any interest therein or in this Lease, except Permitted Liens, and the Borrowers shall comply with the provisions of the proviso to clause (iii) of the definition of "Permitted Liens" in the Glossary attached as Appendix A to the Participation Agreement. If the Borrowers propose a Lien which is a Permitted Lien under clause (v) of the definition of "Permitted Liens," the Agent shall, at the Borrowers' request, execute such instruments and other documents as shall be necessary for such purpose, provided that (i) the execution of such instruments and other documents by the Agent is required under applicable law to create the Permitted Lien and if requested by any Bank, the 45 Borrowers shall have provided each Bank with an opinion of counsel satisfactory to each Bank to such effect, (ii) such instruments and other documents shall have been prepared or have been caused to be prepared by the Borrowers without expense to the Banks and shall be in form and substance satisfactory to the Agent, and (iii) the Borrowers shall have provided each Bank with such additional information and documentation concerning the requested Permitted Lien as any such Person shall have requested. The Borrowers shall promptly, at their own expense, take such action as may be necessary to duly discharge or eliminate in a manner satisfactory to the Agent any Lien which is not a Permitted Lien if the same shall arise at any time. Except as provided in Section 5.15.1 hereof, the Borrowers will not file any financing statement under the Uniform Commercial Code as in effect in any jurisdiction, or other instruments creating or giving notice of any Lien, or analogous document, in any jurisdiction. Section 5.31. Certain Transfers. 5.31.1. Interests in Facility. Except as permitted under Section 5.36 hereof, the Borrowers will not sell, transfer, convey or assign to, or in any manner create in, any Person, any interest in the Facility or the Land. Any attempted assignment by either Borrower in violation of these provisions shall be void. 5.31.2. Location. The Borrowers will not remove, or permit to be removed, any Part from the Land without the prior consent of the Agent unless such Part is removed pursuant to Section 5.36 hereof. 5.31.3. Possession. The Borrowers will not, without the prior consent of the Agent, sublease or in any other manner sell, assign, transfer, dispose of or (except as expressly permitted by Section 5.36 hereof) relinquish possession of any Part to any Person. Section 5.32. No Abandonment. The Borrowers shall not abandon the Facility. Section 5.33. Construction Warranties. The Borrowers shall maintain in full force and effect the Borrowers' rights, claims, interests and benefits under all warranties and other or similar rights, claims, interests and benefits in respect of the Facility or of work performed, or required to be performed, under or in respect of the Construction Contracts, or any modification thereof or change thereunder, by the Contractor, or in respect of any Part or any part of such work that is procured, or required or permitted to be procured, by the Contractor from others, including, without limitation, manufacturers, vendors, suppliers, and subcontractors. The Borrowers shall collaterally assign to the Agent, so far as they are assignable, and diligently enforce 46 for the Agent's benefit, whether or not they are assignable, all rights, claims, interests and benefits of the Borrowers under or in respect of all warranties by, or similar obligations of, each manufacturer, vendor and subcontractor of any Part. The Borrowers shall promptly notify each Bank in writing of any actual or potential claim against the Contractor, or any manufacturer, vendor, supplier or subcontractor, and provide such further information as any Bank may reasonably require in connection therewith. The Borrowers shall not compromise, settle, release or discharge any right, claim, interest or benefit under the Construction Contract or against any manufacturer, vendor, supplier or subcontractor, without the prior written consent of the Agent. Section 5.34. Certain Obligations and Duties of the Borrowers. The Borrowers will faithfully perform and observe all of the Borrowers' obligations and duties under the Construction Contracts, and shall cause the performance and observance, of all obligations and duties of the Borrowers to the extent necessary to preserve and protect for the Agent all rights, claims, interests and benefits available to the Agent under or in respect of the Construction Contracts, the Contractors' warranties thereunder or any warranty or obligation of any manufacturer, vendor, supplier or subcontractor in connection with the construction or completion of the Facility or otherwise referred to under Section 5.35 hereof or in connection with the completion of the Facility or the attainment of satisfaction of the performance guarantees referred to in Section 5A.16 hereof. Section 5.35. Completion of Construction. 5.35.1. Modifications to Construction Contracts. The Borrowers shall not consent to any modification or change in the Construction Contracts without the written consent of the Agent and, if required by law or contract, any third party. 5.35.2. Materials; Compliance: Etc. No materials, fixtures, equipment or articles to be incorporated into the Facility shall be used in the completion of construction and equipping of the Facility unless on and after the date of installation thereof good title thereto, free of all Liens shall, by virtue of such installation and without further act, automatically vests in one or the other of the Borrowers. The Borrowers and/or the Contractor have, (i) obtained or maintained all approvals, authorizations, licenses or permits from all local, state and Federal governmental agencies or otherwise necessary for the proper completion of the construction, (ii) fully complied in all material respects with all Federal, state and local laws, ordinances, codes, regulations and orders of public authorities in effect from time to time and (iii) paid all royalties, all sales, consumer, use and similar taxes imposed, all fees for permits, licenses, approvals and 47 inspections, and all license fees and other governmental fees necessary, in connection with such completion of construction. 5.35.3. Notices and Documents. Upon receipt of any notice of noncompliance, violation, termination, cancellation, revocation or default with respect to any approval, consent, order, authorization or license heretofore or hereafter obtained with respect to the Facility, the Borrowers shall notify each Bank and enclose a copy of such notice. The Borrowers, to the extent from time to time requested by the Agent, shall deliver to such Person copies of all documents (including, without limitation, reports, schedules, certificates and governmental authorizations) furnished to the Borrowers by the Contractor. The Independent Engineer and authorized representatives of each Bank shall have the right to enter the Facility at all reasonable times for the purpose of inspecting the Facility and the progress of the work of completion. Section 5.36. Replacement. 5.36.1. Replacement of Parts. In the event that any Part shall become worn out, lost, stolen, destroyed, seized, condemned, confiscated, requisitioned, damaged beyond repair or permanently rendered unfit for normal use for any reason whatsoever, the Borrowers, at their sole cost and expense, shall promptly replace such Part. Each such replacement Part shall be free and clear of all Liens and shall be in as good operating condition as, and shall have a utility at least equal to, the Part being replaced, it being assumed for this purpose that such replaced Part was in the condition and repair and had the utility required to be maintained by the terms hereof. If any such replacement Part or related group of Parts has a cost (including installation) in excess of $50,000, prior to or on the date of installation thereof, the Borrowers at their sole cost and expense shall (a) take such action as the Agent may request in order to subject such Part to the Lien of the Basic Documents and (c) furnish each Bank with such evidence of the Borrowers' title to, and of the condition of, such Part as such Person may reasonably request. 5.36.2. Removal of Parts. The Borrowers may, in the ordinary course of maintenance, service, repair, overhaul or testing, remove from the Facility any Part, provided that the Borrowers promptly return such Part to the Facility after completion of such maintenance, service, repair, overhaul or testing. In no event shall any change be made in the location of any such Part which removes such Part into a jurisdiction in which filings and recordings have not been made in the manner required by law to preserve the validity, perfection and priority of the security interest of the Agent in such Part. 48 Section 5.37. Events of Loss, Etc. 5.37.1. Notice. If an Event of Loss with respect to the Facility shall occur, the Borrowers shall promptly give each Bank notice thereof specifying the circumstances of such Event of Loss. 5.37.2. Event of Loss. If an Event of Loss with respect to the Facility shall occur, the Bonds shall be redeemed pursuant to the provisions of Section 5.6.4 hereof, and the Borrowers shall pay to the Agent, immediately upon demand, all Bank Obligations then due and owing, after giving effect to such redemption. 5.37.3. Application of Payments with Respect to Event of Loss. Any payments received at any time by the Borrowers from any governmental authority, insurer, contractor or other Person with respect to an Event of Loss shall be applied in payment of the amount required to be paid by the Borrowers to the Agent pursuant to Section 5.37.2 hereof to the extent not already paid by the Borrowers, and, after such amount shall have been paid by the Borrowers to the Agent, shall, unless an Event of Default shall have occurred and be continuing, be applied to reimburse the Borrowers for their payment of such amount, and the balance, if any, of any such payments remaining thereafter shall, unless an Event of Default shall have occurred and be continuing, be paid to the Borrowers. 5.37.4. Application of Payments Not Relating to Event of Loss. Any payments received at any time by the Borrowers from any governmental authority, insurer, contractor or other Person with respect to any condemnation, confiscation or seizure of, or requisition of title to or use of, or theft of, or loss of use of, or damage to, any part of the Facility not constituting an Event of Loss shall, (i) if such payments shall be in the aggregate in excess of $250,000, be paid over to or retained by the Agent, and (ii) if such payments shall be in the aggregate $250,000 or less, and if no Event of Default has occurred and is continuing, be paid over to or retained by the Borrowers. In either case, such payments shall be released, as repair or replacement shall be completed, to the Borrowers upon receipt by Agent, (A) of invoices evidencing the amounts to be paid by the Borrowers with respect to such repair or replacement and (B) of an Officer's Certificate of Delano Energy (with copies to each Bank) stating that such repair or replacement was made in full compliance with all applicable laws and that, after giving effect to such repair or replacement, the Facility is in compliance with this Section 5, is at least equal in value and general utility as it was prior to the damage or destruction and is at least equal in operating capacity as it was prior to the damage or destruction. Such payments may also be released, as repair or replacement shall progress, to the Borrowers upon receipt by Agent of (I) invoices evidencing the amounts to be paid by the 49 Borrowers with respect to such repair and replacement, (II) an Officer's Certificate of Delano Energy (with copies to each Bank) demonstrating that the Borrowers have available funds sufficient to fully complete such repairs or replacement and identifying the source(s) of such funds, and (III) an Officer's Certificate of Delano Energy (with copies to each Bank) (a) stating the total cost of all required repairs or replacements and (b) stating that, when all such repairs or replacements are completed in accordance with the plans and specifications provided to the Independent Engineers by Delano Energy, the Facility will be in compliance with this Section 5 and all applicable laws, will be at least equal in value and general utility as it was prior to the damage or destruction and will be at least equal in operating capacity as it was prior to the damage or destruction. 5.37.5. Disposition of Payments Not Payable to the Borrowers. Any amounts which would be payable to the Borrowers, or which the Borrowers would be entitled to retain pursuant to this Section 5.37, but which are not so payable or retainable solely because an Event of Default shall have occurred and be continuing, shall be retained by, or paid to, the Agent (without any liability for interest) and held by Agent as security for the Bank Obligations, and shall be paid over to the Borrowers when no Event of Default shall be continuing, unless the Agent shall have commenced realization upon its collateral under the Basic Documents, in which case such amounts shall be retained by Agent. Section 5.38. Insurance. 5.38.1. Insurance Coverages. The Borrowers, at their sole cost and expense, shall maintain at all times insurance with respect to the Facility: (i) in such form (including, without limitation, the form of the loss payable clauses) and with such insurers and reinsurers as shall be reasonably satisfactory to the Agent; (ii) in amounts sufficient to prevent the Borrowers from being co-insurers of any partial loss under the applicable policies; and (iii) in such amounts, and against such insurable hazards, casualties, risks and contingencies, as the Borrowers would maintain in the prudent management of their property, as are maintained by others (who are not self-insurers) similarly situated in respect of property similar to the Facility and as shall be reasonably satisfactory to the Agent. Delano Energy agrees that it shall purchase other increased insurance as the Agent's insurance consultant may reasonably require (subject to a commercially available standard; provided, however, that reasonable increased cost alone shall not render such insurance commercially unavailable). Insurers and reinsurers rated A-,8 or better by A.M. Best are deemed acceptable unless the Agent notifies the Borrowers to the contrary. All insurance policies required hereby covering loss or damage to the Facility shall name the Agent as the sole loss payee. All policies shall be endorsed to make payments of loss to Delano Energy for direct damages up to $250,000 with notice to the Agent; all direct 50 damage loss in excess of $250,000 and all business interruption loss payments shall be payable to the Agent. All liability policies (other than workman's compensation policies) shall name Revenue Trustee and each Bank as additional insureds. Each policy shall (a) insure Revenue Trustee and each Bank and their respective interests regardless of any breach or violation by the Borrowers of any warranties, declarations or conditions contained in such policy or any action or inaction of the Borrowers or other interests insured under such policy, the occupation or use of the Facility or the Land by the Borrowers for purposes more hazardous than permitted by the terms of any of such policies or any change in the title to or ownership of any portion of the Facility or the Land; (b) expressly provide that all provisions thereof, except the limits of liability (which shall be applicable to all insureds as a group) and liability for premiums (which shall be solely a liability of the Borrowers), be primary and operate in the same manner as if there were a separate policy covering each such insured, without right of contribution from any other insurance which may be carried by any insured, including, without limitation, any insurance carried by any Bank pursuant to Section 5.38.5 hereof; (c) waive any right of subrogation of the insurers against the Banks; (d) waive any right of the insurers to any set-off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of, any Bank or the Borrowers; (e) provide that all deductibles provided for thereon shall be allocated solely to the account of the Borrowers; and (f) provide that each Bank shall have the right, as against the insurer, to pay any premium due if the Borrowers shall neglect to do the same. All general liability and umbrella liability/excess liability policies shall be on "occurrence" forms. All insurance proceeds received with respect to the Facility shall be applied as provided in Section 5.37 hereof. Such insurance coverages will, in any event, include the following: (i) Comprehensive General Liability Insurance, including contractual liability, bodily injury liability, personal injury liability, broad form property damage coverage, explosion, collapse and underground (XCU) coverage, including coverage for all claims for damages for personal injury, and claims for property damage which may arise out of, or result from either (a) the Borrowers' operations of the Facility, or (b) any other Person who shall be present at the Facility or on the Land, including, without limitation, independent contractors. The limits of liability for comprehensive general liability to the public per occurrence, per location, for bodily injury and property damage shall be $1,000,000 combined single limit and a $2,000,000 annual aggregate, and shall include a cross liability endorsement; (ii) Comprehensive Automobile Liability Coverage (business owner's policy), including Automobile Contractual Liability insuring all owned, non-owned, hired or leased 51 vehicles, with limits of $5,000,000 combined single limit for bodily injury and property damage; (iii) Worker's Compensation and Employers' Liability Insurance of $1,000,000 for any one accident or occurrence or series of accidents or occurrences arising out of any one event; (iv) Umbrella Liability Insurance (excluding automobile liability coverage), the limits of which shall be in such amounts necessary to provide a total coverage of $14,000,000 per occurrence, per location, of insurance, following the terms of the underlying Comprehensive General Liability and Employers' Liability Insurance. In the event that coverages are not project specific or include a per location aggregate endorsement, Delano Energy shall notify the Agent in the event that the aggregate limits are reduced below $7,500,000 and Delano Energy shall take immediate steps to restore the limits for the Facility to $14,000,000; (v) Property Insurance on an "All Risk" basis for physical loss or damage including, but not limited to, loss by earthquake or flood (in amounts of at least $35,000,000) to buildings, machinery, plant property, equipment, inventory, transmission lines (whether owned by the Borrowers or for which the Borrowers have the risk of loss), goods in transit or in storage (whether on or off site), extra expense coverage for costs incurred to resume Facility operations after a loss, Business Interruption coverage, and All Risk Contingent Business Interruption coverage. The valuation for property shall not, at any time, be less than the full replacement cost of the Facility or $116,000,000, whichever is greater. Business Interruption coverage shall be on a gross earnings basis. Contingent Business Interruption coverage shall be in an amount to cover loss of revenues resulting from loss of fuel supply and inability of power purchaser to accept produced power (but in any event not less than $5,000,000); (vi) Boiler and Machinery Insurance, extended comprehensive standard form and including expediting coverage in the amount of $500,000, to the extent not included in All Risk Property Insurance, subject to a limit per accident of the greater of (x) the value representing the full replacement cost or (y) $50,000,000. The valuation shall be the same as that with respect to property under the All Risk Property Insurance coverage, including Business Interruption coverage and Contingent Business Interruption coverage on a Gross Earnings basis; and (vii) The deductible amount for property insurance policies shall not be in excess of: (x) $100,000 for direct damage; (y) 30 days for business interruption; and (z) 5% of value for earthquake and flood. 52 In the event that insurance coverages under clauses (v) and (vi) above, except earthquake and flood coverages, are not insured with the same carrier, both policies under clauses (v) and (vi), except earthquake and flood coverages, shall be endorsed to include a joint loss agreement. Business Interruption coverage, Contingent Business Interruption coverage and earthquake insurance are required under clauses (v) and (vi) above to the extent that such coverages are available for comparable projects at commercially reasonable rates to insureds of a standing comparable to Thermo Electron's standing at May 31 of each year. 5.38.2. Delivery of Policies, etc. The Borrowers will deliver to the Agent certified copies of all insurance policies which the Borrowers are required to maintain pursuant to this Section 5.38 and certificates thereof executed by the insurer or its duly authorized agent. Each such policy and certificate shall expressly state that such insurance is primary insurance and not in excess of, supplemental to or subject to contribution by, any insurance maintained by any Bank. Delano Energy will also deliver to each Bank (with a copy to the Agent's insurance consultant), promptly upon request of any such Person, an Officer's Certificate of Delano Energy setting forth such details as may be reasonably requested by the Agent as to all such insurance policies and certifying that the same comply with the requirements of this Section 5.38, that all premiums then due thereon have been paid and that the same are in full force and effect. Delano Energy shall from time to time deliver to the Agent certificates of insurance and such other evidence as the Agent may request to evidence to the Agent's satisfaction that the insurance required pursuant to this Section 5.38 continues to be maintained at all times. Delano Energy agrees that it shall promptly obtain and maintain, at its sole cost and expense, such additional insurance coverages as the Agent may from time to time reasonably deem appropriate. 5.38.3. Annual Insurance Report. Annually, as soon as practicable after the effective date of the All Risk Property Insurance policy, or its anniversary date, as appropriate, and in any event within 30 days thereafter, the Borrowers will deliver to the Agent (with a copy to the Agent's insurance consultant) a report by an independent insurance broker or independent insurance consultant satisfactory to each Bank, setting forth the insurance obtained by the Borrowers pursuant to this Section 5.38 and then in effect, and stating whether, in the opinion of such independent insurance broker or independent insurance consultant, such insurance complies with the requirements of this Section 5.38 and, to the extent the Facility is insured under the Thermo Electron corporate coverages, including a review of outstanding unreported claims. Such report shall also set forth recommendations of such independent broker or independent 53 insurance consultant as to additional insurance, if any, reasonably required for the protection of respective interests of the Agent, each Bank, the Revenue Trustee and Delano Energy in the light of available insurance coverage and practice on comparable equipment similarly situated. The Borrowers shall provide copies of all insurance policies to the Agent (with a copy to the Agent's insurance consultant) within 90 days after the effective date of the All Risk Property Insurance policy or its anniversary date, as appropriate. 5.38.4. Notice by Insurers. etc. The Borrowers shall cause the insurers with whom they maintain the insurance required by this Section 5.38 to agree to advise the Agent in writing promptly of any act or omission on the part of the Borrowers of which they have knowledge and which might invalidate or render unenforceable, in whole or in part, any such insurance. The Borrowers shall also cause such insurers to agree to advise the Agent in writing, at least 45 days prior thereto, of the modification, cancellation, expiration or termination of any such insurance, and at least 10 days prior thereto of cancellation due to nonpayment of premiums. Prior to any termination, the Borrowers shall provide new certificates of insurance for the insurance policies replacing the terminating policies. In the event that the Borrowers shall fail to maintain insurance as provided in this Section 5.38, the Agent may at its option maintain the insurance required hereby and, in such event, the Borrowers shall reimburse the Agent upon demand for the cost thereof together with interest thereon at the Delay Rate. 5.38.5. Independent Insurance. Nothing in this Section 5.38 shall prohibit any Bank from maintaining, at such Bank's expense, additional insurance for its own account with respect to liability, or loss or damage to the Facility or any Part. Section 5.39. [RESERVED] Section 5.40. Owner Trustee's Location. The Owner Trustee hereby agrees that it will not change its location (within the meaning of Section 9-103(3)(d) of the Uniform Commercial Code) without first giving the Agent at least thirty days prior written notice and filing all financing statements which are necessary to continue the perfection of the security interests in the Owner Trust Estate Granted by the Owner Trustee under the Lessor Security Documents. Section 5.41. Tax-Exempt Status of Bonds. It is the intention of the parties hereto that interest on the Bonds shall be and remain tax-exempt. To that end Delano Energy, the Owner Participant and the Owner Trustee agree that all funds invested under any Basic Document shall be invested in accordance with instructions of nationally recognized bond counsel acceptable to the Agent so that no such investment shall cause any of the Bonds 54 to lose their status as tax-exempt. Delano Energy and the Owner Trustee shall cooperate to ensure that the provisions of Section 148 of the Code are complied with in respect of all such investments. Section 5.42. Original Lease. Delano Energy and the Owner Trustee hereby agree, as among themselves, that the only original counterpart of the Lease that shall constitute "chattel paper" within the meaning of the Uniform Commercial Code of any jurisdiction is the original executed counterpart which has been identified as counterpart no. 1 on the cover page and the signature page thereof by Delano Energy and the Owner Trustee. Section 5.43. [RESERVED] Section 5.44. [RESERVED] Section 5.45. Release of Lessee Security. At any time after one year and one day following the later to occur of (i) the recording of the Deed of Trust and (ii) the filing of all necessary UCC-1 Financing Statements with respect to the Security Agreement, the Agent shall have the right, but not the obligation, to instruct the Owner Trustee to release its liens created under the Lessee Security Agreement, the Implementation Agreement and the Option to Acquire Stock Agreement. The Owner Trustee agrees that it will, at Delano Energy's sole cost and expense, promptly execute and deliver releases in form and substance satisfactory to the Agent to accomplish the foregoing. Delano Energy agrees, promptly upon request, to execute and deliver to the Agent a certificate stating that Delano Energy is not bankrupt nor insolvent (or, if so, stating so), which certificate will be used by the Agent in its determination of whether or not to request said releases. Section 5.46. Breakage Fees. The Owner Trustee shall pay, as soon as practicable, to the Revenue Trustee for deposit into the General Revenue Fund an amount equal to any Breakage Fee payable to the Owner Trustee under Section 6(e) of the Swap Agreements when paid. SECTION 5A. REPRESENTATIONS AND WARRANTIES OF DELANO ENERGY. Delano Energy hereby represents and warrants that: Section 5A.1. Corporate Existence. Delano Energy is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power and authority to own its assets and to transact its business as now conducted and as presently proposed to be conducted by it. Delano Energy is duly licensed or qualified and is in good standing as a foreign corporation in the State of California and in each other jurisdiction in which licensing or qualification is 55 necessary to transact its business as now conducted or as presently proposed to be conducted by it. Section 5A.2. Power and Authorization. Delano Energy has full power, authority and legal right to execute, deliver and perform this Agreement, and each other Basic Document to which it is or is to become a party, and the execution, delivery and performance by Delano Energy of the Basic Documents have been duly authorized by all necessary action on the part of Delano Energy, and do not require any shareholder approval or the approval or consent of any trustee or holder of any indebtedness or obligations of Delano Energy. Section 5A.3. Execution, Delivery and Enforceability. This Agreement has been duly executed and delivered by Delano Energy and constitutes, and each other Basic Document will upon execution and delivery thereof by Delano Energy constitute, legal, valid and binding obligations of Delano Energy enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditors' rights. Section 5A.4. No Legal Bar. The execution, delivery and performance by Delano Energy of the Basic Documents (i) will not violate any provision of any applicable law or regulation or any order, writ, judgment or decree of any court, arbitrator or governmental authority applicable to Delano Energy or to any of its assets, (ii) will not violate any provision of Delano Energy's charter or by-laws, and (iii) will not violate any provision of, or constitute a default under, or result in the creation or imposition, of any Lien on any of the assets of Delano Energy pursuant to the provisions of any mortgage, contract, agreement or other undertaking of which Delano Energy is a party or which purports to be binding upon Delano Energy or upon any of its assets. Section 5A.5. Violations; Defaults. No Default or Event of Default has occurred and is continuing. Delano Energy is not in default under any other Basic Document or in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any security or other evidence of any obligation for borrowed money or evidenced by notes, debentures or other similar instruments, or in any mortgage, deed of trust, indenture or loan agreement with respect thereto, and Delano Energy is not in violation, in any material respect, of, any applicable law, or in violation of or in default, in any material respect, with respect to any applicable order, writ, judgment, or decree of any court, arbitrator or governmental authority (including, without limitation, laws, regulations and requirements with respect to equal employment opportunity, occupational safety and health or environmental protection), the consequences of which violation or default might have a material 56 adverse effect on the properties, business, prospects or financial condition of Delano Energy. Section 5A.6. Governmental Actions. No Governmental Actions are required in connection with the participation by Delano Energy, Thermo Electron or the Banks in the transactions contemplated hereby or by the Basic Documents or with respect to the participation by any of such Persons in the construction, use, occupancy or operation of the Facility, compliance with Environmental Laws by any such Person, the ownership and the operation of the Facility by Delano Energy, the use in the Facility by Delano Energy of the fuel subject to the Fuel Supply Contracts, or the execution, delivery and performance by any of such Persons of the Basic Documents to which such Person is a party, except (i) such as are set forth in Exhibit 2A.1.7 hereto, each of which (other than those set forth in Exhibit 2A.1.7 hereto) has been duly obtained or made, is in full force and effect and is not the subject of any pending or threatened judicial or administrative proceedings, and (ii) in respect of the Banks, such as may be required under banking, or other regulatory laws, rules or regulations applicable to such Persons in respect of their lending or financing activities, or similar activities. Section 5A.7. Litigation. There are no actions, suits, investigations or proceedings (whether or not purportedly on behalf of Delano Energy) pending or, to the best knowledge of Delano Energy, threatened against or affecting Delano Energy or any of its properties, which, if adversely determined, might either in any case or in the aggregate have a material adverse effect (i) on Delano Energy's ability to deliver, or perform its obligations under any Basic Document or (ii) on the properties, business, prospects or financial condition of Delano Energy. Section 5A.8. Payment of Taxes. Delano Energy has filed all Federal, state and local tax returns which are required to be filed and has paid all taxes which have become due pursuant to such returns or pursuant to any assessment received by it, and Delano Energy has no knowledge of any actual or proposed deficiency or additional assessment in connection therewith which either in any case or in the aggregate, would be materially adverse to Delano Energy. The charges, accruals and reserves on the books of Delano Energy in respect of Federal, state and local taxes for all open years, and for the current fiscal year, make adequate provision for all unpaid tax liabilities for such periods. Section 5A.9. Chief Place of Business, etc. The chief place of business of Delano Energy is located in Delano, California and the offices where it keeps its records concerning the Facility and all original contracts relating thereto are located in Delano, California, with copies thereof located in Waltham, Massachusetts. 57 Section 5A.10. Full Disclosure. Neither this Agreement nor any other Basic Document or certificate, written statement or other document furnished to the Banks by or on behalf of Delano Energy at Delano Energy's direction or with Delano Energy's knowledge in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact which Delano Energy has not disclosed to the parties hereto in writing prior to the date hereof which materially adversely affects or, so far as Delano Energy can now reasonably foresee, will materially adversely affect the properties, business, prospects or financial condition of Delano Energy or the ability of Delano Energy to perform its obligations under any Basic Document, and Delano Energy is not a party to and is not bound by any agreement which materially adversely affects or, so far as Delano Energy can now reasonably foresee, will materially adversely affect the properties, business, prospects or financial condition of Delano Energy or the ability of Delano Energy to perform its obligations under any Basic Document. Section 5A.11. Financial Statements. The financial statements of Delano Energy for its fiscal year ending January 2, 1993, including its balance sheet and related statements of income and of cash flows, have been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly present its financial position as at that date and for the fiscal period then ended; and since the date of such financial statements there has been no material adverse change in its financial position. Section 5A.12. Litigation Regarding Agreements. No Basic Document is the subject of any pending or threatened administrative or judicial proceedings. Section 5A.13. Public Utility Status. No Bank shall by reason of (i) the ownership of the Facility or the operation thereof by Delano Energy, (ii) the issuance, sale or purchase of the Bonds, (iii) the issuance of the Letters of Credit, (iv) the execution and delivery by the Agent or any Bank of the Reimbursement Agreement, the Security Agreement, the Deed of Trust, the Assignment of Leases, the Swap Agreements or any other Basic Document, or (v) the securing of the Bank Obligations by Liens on the Bank Security be deemed by any governmental authority having jurisdiction to be, or be subject to regulation as, an "electric utility," "electrical corporation," "electrical company," "public utility," "public utility company" or "public utility holding company" under any existing law, rule or regulation of the federal government or of any state or subdivision thereof, and all consents, orders or approvals of, or filings with, all governmental authorities necessary to accomplish this result have been duly obtained or made and are in 58 full force and effect and are not the subject of any pending or threatened administrative or judicial proceedings. So long as the Facility remains a Qualifying Facility, by reason of the exercise by the Agent of any remedies under the Basic Documents, including without limitation, the acquisition through foreclosure of the right, title and interest to Facility or leasehold interest in the Land of Delano Energy, no Bank shall be deemed by any governmental authority to be, or to be subject to financial, organizational or rate regulation as, an "electric utility," "electrical corporation," "electrical company," "public utility," "public utility company" or "public utility holding company" under any existing law, rule or regulation of the federal government or of any state or subdivision thereof. Section 5A.14. Title to the Facility and the Land. (a) Delano Energy has good title to Phase II and the Land with good right and power to convey title to Phase II and the Land, free and clear of all Liens except Title Report Liens. (b) The Owner Trustee has good title to Phase I with good right and power to convey title to Phase I, free and clear of all Liens except Title Report Liens. Section 5A.15. Taxes, etc. Except for transfer taxes and registration, recordation and other miscellaneous fees payable in connection with the recordation of the Deed of Trust and the Assignment of Leases, (or of appropriate supplements thereto or notices or memoranda thereof) and the filing of financing statements with respect to the Security Agreement, the Revenue Trust Agreement, the Support Documents, neither (i) the construction of the Facility, (ii) the recordation of the Deed of Trust, (iii) the issuance of the Bonds and the Letters of Credit, (iv) the execution and delivery of this Reimbursement Agreement or any other Basic Document by the respective parties thereto, nor (v) the consummation of any of the transactions contemplated hereby or thereby on or prior to the Document Delivery Date, will result in any tax, levy, impost, duty, charge or withholding imposed by the United States, the State of California, the Commonwealth of Massachusetts or any taxing authority or political subdivision thereof on or with respect to such construction, sale, transfer, lease, recordation, execution, delivery or consummation or upon or with respect to the Agent or any Bank. Section 5A.16. Construction of the Facility. Construction of the Facility (i) has been substantially completed in a good and workmanlike manner in conformity with good construction and engineering practice (with the exception of the Final Punch List), and (ii) conforms in all material respects to the description of the Facility set forth in Exhibit 7.11 hereto; no Event of Loss has occurred with respect to the Facility (or any material Part thereof); the Facility achieved the Performance Guarantees as established by the Performance Tests, each of which 59 are described in Exhibit 5A.16 hereto; "Substantial Completion" and "Acceptance" (as such terms are defined in the Construction Contracts) have occurred under the Construction Contracts and a "Certificate of Completion" have been filed within the meaning of the 1991 Bond Indenture. Such construction has been completed in accordance with, and operation of the Facility as constructed does not, and shall not, violate any laws, ordinances, rules, regulations or orders applicable thereto, including, without limitation, any thereof relating to matters of health, safety or environmental protection, other than immaterial violations that do not, and would not, in any case or in the aggregate, prevent or interfere with the continuous satisfactory operation of the Facility, result in the imposition of penalties on any Bank or involve material costs of cleanup or correction. All sums due and owing under the Construction Contract have been paid. Section 5A.17. Interconnection. Both of Phase I and Phase II have been interconnected with the electrical system of SCE, and have started energy deliveries and have achieved "Firm Operation" within the meaning of, and otherwise are in compliance with, the Power Purchase Agreement and the Interconnection Agreement. Section 5A.18. Facility Support. The facilities constructed to supply water to the Facility and the sources of water are capable of supplying water at a rate sufficient for the efficient operation of the Facility at its name-plate rating; the easements, rights-of-way and other rights and real property relating to the Facility are sufficient for the operation, maintenance and use of the Facility and uses incidental thereto; and the fuel processing and transportation system of the Facility is capable of delivering fuel to the Facility at a rate sufficient for the efficient operation of the Facility at its name-plate rating. All other necessary actions have been taken or arrangements made so that the Facility may be operated at its name-plate rating. Section 5A.19. Revenue Trust Agreement. The trusts provided for in the Revenue Trust Agreement have been established; all actions reasonably requested by the Agent in order to perfect the assignments to the Agent of revenues and other security interests created by the Revenue Trust Agreement have been taken; and all other provisions of the Revenue Trust Agreement to be complied with or performed prior to the Document Delivery Date have been complied with or performed. Section 5A.20. Fuel Supply Contracts and Price Support. Fuel Supply Contracts (other than the Thermo Fuel Contract) providing for at least 50% of the projected fuel requirements of the Facility and complying with Section 5.16.3 hereof have been entered into. Each such Fuel Supply Contract is the legal, valid and binding obligation of each Fuel Contractor party to such a Fuel Supply Contract and enforceable against each such Fuel 60 Contractor in accordance with its terms. Delano Energy, Thermo Systems and Thermo Electron have entered into the Thermo Fuel Contract. The Thermo Fuel Contract is the legal, valid and binding obligation of each party thereto and is enforceable against each such Person in accordance with its terms. Section 5A.21. FERC Qualification. The Facility is certified by FERC as a small power production facility which meets the requirements for qualification set forth in 18 C.F.R. Section 292.207 and meets all requirements of a Qualified Facility. Such certification is without any terms or conditions which would prevent or materially hinder Delano Energy's operating the Facility or which would have a materially adverse effect on the financial condition of Delano Energy, and such certification has not been revoked, suspended, or terminated. Section 5A.22. Holding Company and Investment Company Acts; Public Utility Regulation. Delano Energy is not a "holding company", or a "subsidiary company", or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company" or a company controlled by or under common control with an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Delano Energy is not a public utility nor is it subject to any regulation as a public utility under any Federal or state law. Delano Energy is exempt from all sections of the Federal Power Act, except those enumerated in 18 CFR Section 292.601(c)(1)-(4). Section 5A.23. Securities Act. Neither Delano Energy nor anyone acting on its behalf has directly or indirectly offered any interest in the Facility, the Land, the Bonds, or the CPC Loan Agreements or any similar securities with respect to any of the foregoing for sale to, or solicited any offer to acquire any of the same from, anyone in a manner which would result in a violation of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Section 5A.24. Base Case Pro Forma. Delano Energy has reviewed the Base Case Pro Forma attached hereto as Exhibit 5A.24. The projected financial information and results therein are based on assumptions concerning events that have not yet occurred. Some of these assumptions may prove inaccurate, and events inevitably may not materialize, and unanticipated events and circumstances may occur. Therefore, the actual results achieved during the projected period are likely to vary from the projections and such variations may be material. However, Delano Energy believes that the projections contained in the Base Case Pro Forma are reasonable. Section 5A.25. Representations to FERC. All representations made to FERC by Delano Energy or its Affiliates or their representatives in connection with any application made 61 to FERC with respect to the Facility (including the application for re-certification of the Facility as a Qualifying Facility pursuant to Section 5.19 hereof) are true and correct on the date hereof and the documents delivered and submissions made by any such Persons in connection with any such application did not at the time of their delivery or submission contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained in such documents or submissions not misleading. Section 5A.26. Licenses, Etc. Delano Energy has obtained all licenses, trademarks, patents or agreements with respect to the usage of technology and all other permits necessary for the construction, completion, use, ownership, leasing, operation and maintenance of the Facility, provided, however, that this Section 5A.26 shall not be deemed to be a representation with respect to Governmental Actions. Section 5A.27. Granted Rights. The rights granted by Delano Energy to the Agent for the benefit of the Banks pursuant to the Deed of Trust and the Security Agreement comprise all material rights necessary to operate and maintain the Facility and the Land in accordance with all applicable law as contemplated herein and in the other Basic Documents and provide adequate means of ingress and egress for any reasonable purpose in connection with the operation of the Facility. There are no rights, services or materials required for the construction, completion, ownership, leasing, use, maintenance or operation of the Facility in accordance with the Basic Documents, other than (x) those rights granted by, or to be provided by Delano Energy pursuant to, the Basic Documents or (y) those that can be reasonably be expected to be commercially available. Section 5A.28. Hazardous Materials. (a) To the best of Delano Energy's knowledge, no Hazardous Materials are present on the Land (including, but not limited to, residual soil and groundwater), except for "designated waste" which may from time to time be contained in the overflow pond and Hazardous Materials (such as fuels or solvents) stored at the Facility which are normal to the operation of the Facility. No Hazardous Materials are present in concentration levels exceeding those permitted under any applicable law, and all Hazardous Materials have been stored and handled in accordance with applicable law. (b) Neither Delano Energy nor, with respect to the Facility or the Land any Affiliate of Delano Energy has been identified in any litigation, administrative proceeding or investigation as a potential responsible party for any liability under any and all federal, state or local laws, regulations or orders with respect to the discharge and removal of Hazardous Materials. 62 (c) Other than (i) as necessary to operate the Facility, and (ii) in compliance with all applicable law, no portion of the Facility or the Land is now or, to the best of Delano Energy's knowledge, has ever been used to generate, manufacture, refine, produce, treat, store, handle, dispose of, transfer, process or transport Hazardous Materials. Delano Energy has not used, and does not intend to use, any portion of the Facility or the Land for such purposes. (d) To the best of Delano Energy's knowledge, Delano Energy has not transferred Hazardous Materials from the Land or Facility to another location which is not in compliance with all applicable federal, state or local environmental laws, regulations or permit requirements. (e) To the best of Delano Energy's knowledge, the Facility and the Land are in compliance with all applicable federal, state and local Environmental Laws affecting the Facility and the Land, and there are no environmental conditions which could interfere with the continued operation of the Facility. Section 5A.29. Margin Stock. Delano Energy has not and will not, directly or indirectly, use any of the funds giving rise to Bank Obligations for the purpose, whether immediate, incidental or ultimate, of buying a "margin stock" within the meaning of the Securities Exchange Act of 1934 or of maintaining, reducing or retiring any indebtedness originally incurred to purchase a stock that is currently a "margin stock", or for any other purpose which might violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, including without limitation, Regulations G, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Delano Energy does not own or have any present intention of acquiring any such "margin stock". Section 5A.30. Employee Benefit Plans. No accumulated funding deficiency, whether or not waived, exists with respect to any employee benefit plan which is subject to the provisions of Title IV of ERISA and in respect of which Delano Energy or any of its Affiliates is (or if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an employer (each individually a "Plan," and collectively, the "Plans"). No liability to the Pension Benefit Guaranty Corporation has been or is reasonably presently expected by Delano Energy to be incurred with respect to any Plan which is or would be materially adverse to Delano Energy, and to the best of Delano Energy's knowledge after due inquiry, each such Plan is in material compliance with the applicable provisions of ERISA and the Code. Delano Energy has not incurred and does not reasonably presently expect to incur any withdrawal liability under Title IV of ERISA with respect to any Plan which is a multi-employer plan which is or would be materially adverse to Delano Energy. Neither the 63 execution and delivery of this Agreement or any other Basic Document will involve any transaction which constitutes a prohibited transaction which could subject any party hereto to the penalty or tax on prohibited transactions imposed by Section 502 of ERISA or Section 4975 of the Code. Exhibit 5A.30 hereto contains a complete and correct list of all Plans with respect to which Delano Energy is a party in interest and with respect to which its securities are employer securities. As used in this Section 5A.30, the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Code, the term "employer" has the meaning specified in Section 3.5 of ERISA, the term "multi-employer plan" has the meaning specified in Section 4001(a)(3) of ERISA, the term "prohibited transaction" has the meaning specified in Section 406 of ERISA and Section 4975 of the Code, the terms "employee benefit plan" and "party in interest" have the respective meanings specified in Section 3 of ERISA and the term "employer securities" has the meaning specified in Section 407(d)(1) of ERISA. Section 5A.31. Working Capital Requirement. Delano Energy has fulfilled the Working Capital Requirement. Section 5A.32. Natural Gas. Phase II is technically capable to operate on natural gas in combination with wood/biomass fuel. Phase II is permitted by the State of California to generate up to 100% of its rated capacity utilizing biomass fuel exclusively, and up to 35% of its rated capacity utilizing natural gas. SECTION 5B. REPRESENTATIONS AND WARRANTIES OF THE OWNER TRUSTEE. The Owner Trustee hereby represents and warrants, except as specifically indicated, solely in its capacity as trustee under the Owner Trust Agreement and not in its individual capacity, that: Section 5B.1. Organization. CTCC, in its individual capacity, is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Section 5B.2. Power and Authorization. (i) CTCC, in its individual capacity, has full power, authority and legal right to execute, deliver and perform the Owner Trust Agreement, and has taken all necessary corporate and trust action to authorize the execution, delivery and performance by it of the Owner Trust Agreement; and (ii) the Owner Trustee has full power, authority and legal right to execute, deliver and perform this Agreement, the Lease, the CPC Assignment and Assumption Agreement, the Participation Agreement, the Swap Agreements, the Lessor Security Agreement, the Lessee Option Agreement and each other Basic Document to which it is or is to become a party (each 64 individually an "Owner Trustee Document" and collectively, the "Owner Trustee Documents") and has taken all necessary corporate and trust action to authorize the execution, delivery and performance by it of the Owner Trustee Documents. There is no fact which the Owner Trustee has not disclosed to the parties hereto in writing prior to the date hereof which materially adversely affects or, so far as the Owner Trustee can now reasonably foresee, will materially adversely affect the ability of the Owner Trustee to perform its obligations under any of the Owner Trustee Documents. Section 5B.3. Execution, Delivery and Enforceability. (i) the Owner Trust Agreement has been duly executed and delivered by CTCC, in its individual capacity, and constitutes the legal, valid and binding obligation of CTCC, enforceable against CTCC in accordance with its terms; and (ii) the Owner Trustee Documents have been, or will be, duly executed and delivered by the Owner Trustee and constitute, or will constitute, legal, valid and binding obligations of the Owner Trustee, enforceable against the Owner Trustee in accordance with their respective terms; in each case as limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting generally the enforcement of creditors' rights. Section 5B.4. No Legal Bar. The execution, delivery and performance by CTCC, in its individual capacity, of the Owner Trust Agreement and the execution, delivery and performance by the Owner Trustee of the Owner Trustee Documents (i) will not violate any provision of any applicable law or regulation affecting the validity or enforceability as to CTCC, in its individual capacity, of the Owner Trust Agreement or the Owner Trustee of the Owner Trustee Documents, or any order, writ, judgment or decree of any court, arbitrator or governmental authority applicable to the Owner Trustee or CTCC, in its individual capacity, or the Owner Trustee, as the case may be, or to any of the assets of either (other than laws, regulations or orders to which they may be subject by reason of the business activities of Delano Energy or the nature or use of the Facility), (ii) will not violate the corporate charter or by-laws of CTCC, and (iii) will not violate any provision of, or constitute a default under, or result in the creation or imposition of any Lien (except for the Lien of the Lessor Security Documents) on any of the assets of CTCC, in its individual capacity, or the Owner Trustee, as the case may be, pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking to which CTCC, in its individual capacity, or the Owner Trustee, as the case may be, is a party or which purports to be binding upon CTCC, in its individual capacity, or the Owner Trustee, as the case may be, or upon any of their assets. Section 5B.5. FERC Qualification. The Owner Trustee does not own, for purposes of 18 C.F.R. Section 292.204(a)(2), another 65 small power production facility located within one mile of the Facility. Section 5B.6. No Liens. There are no Lessor Liens resulting from acts of or claims against the Owner Trustee or CTCC, in its individual capacity, affecting the title of the Owner Trustee to the Facility. Section 5B.7. Litigation. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Owner Trustee, threatened against the Owner Trustee (in any capacity) before any court, arbitrator or administrative or governmental body and which relates to its banking or trust powers which, individually or in the aggregate, if decided adversely to the interests of the Owner Trustee in such capacity would have a material adverse effect upon the ability of the Owner Trustee (in any capacity) to perform its obligations under the Owner Trust Agreement or the Owner Trustee Documents (in any capacity). Section 5B.8. Principal Corporate Trust Office. The chief place of business and chief executive office of the Owner Trustee and the office where its records concerning the accounts and contract rights relating to the transactions contemplated hereby are kept, is located at the address set forth in Section 23 of the Participation Agreement. Section 5B.9. Knowledge of Lease Defaults. To the knowledge of the Owner Trustee, no Lease Default, Lease Event of Default, Default or Event of Default has occurred and is continuing. The Owner Trustee is not in violation of any of the terms of this Agreement or any other Owner Trustee Document. SECTION 6. DEFAULTS. Section 6.1. Events of Default. Each of the following events or conditions shall constitute an Event of Default hereunder (whether or not any such event or condition shall be voluntary or involuntary, or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any governmental or public authority or agency): 6.1.1. The Borrowers shall fail to make any payment in respect of: (a) any amount payable under Section 2.1, Section 3.2, Section 3.5 or Section 3.6 hereof, and any interest due thereon, as and when such amount and interest shall become due, which failure shall continue for a period of five Business Days; (b) interest on any Liquidity Advance or any other interest owing to you under this Agreement as the same shall become due, which failure shall continue for a period of five Business Days; (c) principal of any Liquidity Advance as the same shall become due, whether at the due date or by acceleration or otherwise, 66 which failure shall continue for a period of five Business Days; (d) any amount payable to the Swap Bank under the Swap Agreements, and any interest thereon, as and when such amount and interest shall become due, which failure shall continue for a period of five Business Days; or (e) fees or other amounts owing to the Agent or any Bank under this Agreement, the Swap Agreements or any other Bank Agreement (other than amounts described in clause (a), (b), (c) or (d) above) as the same shall become due, which failure shall continue for a period of five Business Days after the Agent, the Swap Bank or any Bank shall have given notice of the amount thereof to the Owner Trustee or Delano Energy, as appropriate. 6.1.2. Delano Energy, Thermo Electron, the Owner Trustee or the Owner Participant shall fail to perform or observe any other covenant, condition or agreement herein, any covenant, condition or agreement in the Participation Agreement running to or for the benefit of any Bank or any covenant, condition or agreement contained in any other Bank Agreement and such failure shall continue unremedied for a period of 30 days after written notice thereof shall have been given to Delano Energy, Thermo Electron and the Owner Trustee by the Agent or any Bank, which written notice shall state that it is a "Notice of Default" under this Agreement. 6.1.3. Delano Energy, the Owner Trustee or the Owner Participant shall commence a voluntary case under any chapter of the federal Bankruptcy Code, or shall consent to (or fail to controvert in a timely manner) the commencement of an involuntary case against Delano Energy, the Owner Trustee or the Owner Participant under said Code. 6.1.4. Delano Energy, the Owner Trustee or the Owner Participant shall institute proceedings for liquidation, rehabilitation, readjustment or composition (or for any related or similar purpose) under any law (other than the federal Bankruptcy Code) relating to financially distressed debtors, their creditors or property, or shall consent to (or fail to controvert in a timely manner) the institution of any such proceedings against Delano Energy, the Owner Trustee or the Owner Participant. 6.1.5. Delano Energy, the Owner Trustee or the Owner Participant shall make an assignment for the benefit of creditors or enter into any arrangement for the adjustment or composition of debts or claims or consent to the appointment of a custodian, receiver, trustee or other officer with similar powers for itself or any of its property. 6.1.6. A court or other governmental authority or agency having jurisdiction shall enter a decree or order (a) for the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of Delano Energy, the Owner Trustee or the Owner Participant, or of any part of the 67 property of such person or for the winding-up or liquidation of the affairs of such person, and such decree or order shall remain in force undischarged and unstayed for a period of more than 60 days, or (b) for the sequestration or attachment of any property of Delano Energy, the Owner Trustee or the Owner Participant without its unconditional return to the possession of such Person, or its unconditional release from such sequestration or attachment, within 30 days thereafter. 6.1.7. A court having jurisdiction shall enter an order for relief in any involuntary case commenced against Delano Energy, the Owner Trustee or the Owner Participant for relief in any involuntary case commenced against Delano Energy, the Owner Trustee or the Owner Participant under the federal Bankruptcy Code, and such order shall remain in force undischarged and unstayed for a period of more than 30 days. 6.1.8. The Bond Trustee shall have drawn upon any of the Letters of Credit to redeem any of the Bonds in full on account of the acceleration of the stated maturity of any of the Bonds under Article VII of either of the Bond Indentures. 6.1.9. Any representation or warranty made by Delano Energy herein or in any other Basic Document shall have been or shall be incorrect or misleading in any material respect when made, and the same shall have a material adverse effect on Delano Energy, the Facility or Delano Energy's ability to perform its obligations hereunder or under any Basic Document. 6.1.10. Any Lease Event of Default shall occur and be continuing. 6.1.11. The Owner Participant shall make any transfer of all or any portion of its beneficial interest, or Delano Energy shall make any transfer of all or any portion of its interest in the Facility, other than in accordance with Section 19 of the Participation Agreement. 6.1.12. The Facility shall at any time cease to be a Qualifying Facility. Section 6.2. Remedies upon Event of Default. Upon the occurrence of an Event of Default and in each and every such case, (a) the Agent may (and, upon the request of the Required Banks, shall) proceed to protect and enforce your and its rights by suit in equity, action at law and/or other appropriate proceeding either for specific performance of any covenant or condition contained in this Agreement or any other Bank Agreement or in any instrument or assignment delivered to the Agent pursuant to this Agreement or any other Bank Agreement, or in aid of the exercise of any power 68 granted in this Agreement or any other Bank Agreement or any such instrument or assignment, (b) the Issuing Bank may (and, upon the request of the Required Banks, shall) give notice to the Bond Trustee of the occurrence of an Event of Default for the purpose of terminating the Letters of Credit, in which event all of the unpaid balance of the Bank Obligations then outstanding shall automatically become due and payable immediately upon the making of the Drawings under the Letters of Credit required to be made by the Bond Trustee as the result of such notice, (c) if there shall have occurred an Event of Default under Section 6.1.8 hereof, the unpaid balance of the Bank Obligations shall automatically become due and payable, and (d) the Agent may (and, upon the request of the Required Banks, shall) by notice in writing to the Borrowers declare the unpaid balance of the Liquidity Advances , if any, and all other Bank Obligations then outstanding to be forthwith due and payable; provided, however, that those Bank Obligations consisting of obligations to make reimbursement payments under Section 2.1 hereof with respect to any Drawing shall not become due and payable until payment shall be made with respect to said Drawing under a Letter of Credit. Immediately upon the occurrence of the events described in clause (b), (c) or (d) above (but, in the case of clause (d), subject to the proviso stated therein), all of the Bank Obligations at the time outstanding, including without limitation all principal of and accrued interest on any Liquidity Advance at the time outstanding and all other reimbursement obligations, shall become due and payable in full without presentation, protest or further demand or notice of any kind, all of which are hereby expressly waived, your obligations to extend credit hereunder shall terminate, the Agent may proceed to enforce payment of the Bank Obligations in such manner as it may elect and to realize upon any and all rights in the Bank Security, including without limitation to exercise any and all rights under the Lessor Security Documents and the Security Documents or any of them, and each of you may offset and apply toward the payment of the Bank Obligations any Indebtedness from such one of you to the Borrowers or to any other obligor on the Bank Obligations, including without limitation any Indebtedness represented by deposits in any general or special account maintained with such one of you. It is expressly understood that no remedy conferred under this Agreement or any other Bank Agreement is intended to be exclusive of any other remedy or remedies, but each and every remedy shall be cumulative and shall be in addition to every other remedy given herein or therein or now or hereafter existing at law or in equity or by statute. 69 Section 6.3. Annulment of Defaults. An Event of Default shall not be deemed to be in existence for any purpose of this Agreement if the Agent shall have waived such event in writing or stated in writing that the same has been cured to its reasonable satisfaction (subject to the requirements of Section 10.5, to the extent that the consent of the Required Banks or of the holders of a stated percentage of the Percentage Interests may be required), but no such waiver shall extend to or affect any subsequent Event of Default or impair any rights of the Agent or any Bank upon the occurrence thereof. Section 6.4. Waivers. The Borrowers hereby waive to the extent not prohibited by applicable law (a) all presentments, demands for performance, notices of nonperformance (except to the extent required by the provisions hereof or of any other Bank Agreement), protests, notices of protest, notices of intent to accelerate and notices of dishonor in connection with any of the Bank Obligations, (b) any requirement of diligence or promptness on the part of the Agent or any of you in the enforcement of its or your rights under the provisions of this Agreement or any Bank Agreement, (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law and (d) any defense of any kind (except payment) which it may now or hereafter have with respect to its liability under this Agreement or with respect to the Bank Obligations. Section 6.5. Course of Dealing. No course of dealing between the Borrowers and the Agent or any Bank shall operate as a waiver of any of the rights of the Agent or any Bank under this Agreement or any Bank Agreement or with respect to any of the Bank Obligations. No delay or omission on the part of the Agent or any Bank in exercising any right under this Agreement or any Bank Agreement or with respect to any of the Bank Obligations shall operate as a waiver of such right or any other right hereunder. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. No waiver or consent shall be binding unless it is in writing and signed by the Agent or such one or more of the Banks as may be required by the provisions of this Agreement. The issuance of any Letter of Credit or the making of any other extension of credit hereunder during the existence of a Default shall not constitute a waiver thereof. The giving, taking or enforcement of any other additional security, collateral or guaranty for the payment of the Bank Obligations shall not operate to prejudice, waive or affect the security under any of the Bank Agreements or any rights, powers or remedies hereunder or thereunder, nor shall the Agent or any Bank be required to first look to, enforce or exhaust such other or additional security, collateral or guaranties. Section 6.6. Application of Proceeds. The proceeds of all sales and collections, and any other moneys (including any cash contained in the Bank Security) held or realized by the Agent as 70 the result of its exercise of remedies hereunder and under the other Bank Agreements following the occurrence of any Event of Default the application of which is not otherwise herein provided for shall be applied as follows: First, to the payment of the costs and expenses of such sale or sales and collections, and the reasonable compensation of the Agent and your counsel. Second, any surplus then remaining to the payment of the Bank Obligations then due and payable secured by such Bank Security in such order and manner as the Agent may in its sole discretion determine, consistent with the provisions of Section 10.2 hereof. Third, in the event that the maturity of the Bank Obligations shall not have been accelerated under clause (b), (c) or (d) of Section 6.2, any surplus then remaining to the performance of the Bank Obligations which remain unperformed pursuant to clause First or Second of this Section 6.6, consistent with the provisions of the Lessor Security Documents and the Security Documents. Fourth, any surplus then remaining shall be deposited in the account of the Borrowers, subject, however, to the rights of the holders of any then existing Liens on the Owner Trust Estate and/or the Facility of which the Agent has actual notice. Section 6.7. [RESERVED] Section 6.8. Defaults Under Bond Documents. Upon three days' prior notice to the Borrowers, except in an emergency in which case notice shall be promptly given after cure, the Agent may cure any Event of Default under either Bond Indenture specified by the Bond Trustee; provided, however, that nothing contained herein shall obligate the Agent to cure such an Event of Default. SECTION 7. DEFINITIONS. For purposes of this Agreement: Section 7.1. Cross References. Capitalized terms used in this Agreement without specific definition herein shall have the meanings assigned or referred to in the Glossary attached as Appendix A to the Participation Agreement. Section 7.2. Bank Agreement. The term "Bank Agreement" shall include this Agreement, the Participation Agreement, each Lessor Security Document, each Security Document, the Swap Agreements, each Joinder Agreement, the TE Support Agreements, each Bond Document to which the Agent or any Bank is a party and any other present or future agreement from time to time entered into between Delano Energy, the Owner Trustee, the Owner 71 Participant, Thermo Systems or Thermo Electron and the Agent in its capacity as Agent under this Agreement for all of the Banks or between Delano Energy, the Owner Trustee, the Owner Participant, Thermo Systems or Thermo Electron and the Agent or any Bank so long as such agreement either relates to any of the above or is stated to be a Bank Agreement, each as from time to time amended or modified, and all statements, reports or certificates delivered by Delano Energy, the Owner Trustee, the Owner Participant, Thermo Systems or Thermo Electron to the Agent or any of the Banks in connection herewith or therewith. Section 7.3. Bank Obligations. The term "Bank Obligations" shall mean all present and future obligations and Indebtedness of the Borrowers owing to any of the Banks under this Agreement, the Swap Agreements or any other Bank Agreement, as from time to time amended or modified, including without limitation (i) the obligation to pay the Liquidity Advances, (ii) any matured or contingent obligations of the Borrowers in respect of the Letters of Credit, including without limitation any obligation of the Borrowers under this Agreement or any other Bank Agreement to reimburse any of you for payments made under the Letters of Credit, (iii) any obligations owing to the Swap Bank under the Swap Agreements, and (iv) the obligations to pay interest, agency fees, commitment fees, Letter of Credit Fees, the fees described in Section 3.2 hereof and other amounts and charges from time to time owed hereunder or under any Bank Agreement or drafts presented under the Letters of Credit. Section 7.4. Bank Security. The term "Bank Security" shall mean all assets now or from time to time hereafter encumbered or subjected to a security interest or charge (or intended or required so to be) pursuant to this Agreement or any other Bank Agreement to secure the payment or performance of any of the Bank Obligations, including without limitation the assets described or referred to in the Lessor Security Documents and the Security Documents. Section 7.5. Co-Agents. The term "Co-Agents" shall mean ABN AMRO, FNBB, Societe Generale, Bank of Montreal and Barclays Bank PLC. Section 7.6. Default. The term "Default" shall mean an Event of Default as defined in Section 6.1 hereof or an event or condition which with the passage of time or giving of notice, or both, would become such an Event of Default. Section 7.7. Delano Energy Assignment of Leases. The term "Delano Energy Assignment of Leases" shall mean that certain Assignment of Leases and Rents dated as of December 31, 1993 from Delano Energy to the Agent for the benefit of the Banks. Section 7.8. Delano Energy Deed of Trust. The term "Delano Energy Deed of Trust" shall mean that certain Deed of 72 Trust dated as of December 31, 1993 from Delano Energy to the Agent for the benefit of the Banks. Section 7.9. Delano Energy Security Agreement. The term "Delano Energy Security Agreement" shall mean that certain Security Agreement dated as of December 31, 1993 from Delano Energy to the Agent for the benefit of the Banks. Section 7.10. Delano Energy Stock Pledge Agreement. The term "Delano Energy Stock Pledge Agreement" shall mean that certain Pledge Agreement dated as of December 31, 1993 from Thermo Systems to the Agent for the benefit of the Banks. Section 7.11. Facility. The term "Facility" shall mean the depreciable assets comprising a biomass-fired power plant in Delano, California conforming generally to the description contained in Exhibit 7.11 hereto. Section 7.12. Lead Manager. The term "Lead Manager" shall mean BayBank. Section 7.13. Phase I Land. The term "Phase I Land" shall mean the real property described in Exhibit 7.13 hereto. Section 7.14. Phase II Land. The term "Phase II Land" shall mean the real property described in Exhibit 7.14 hereto. Section 7.15. Security Documents. The term "Security Documents" shall mean, collectively, the Delano Energy Deed of Trust, the Delano Energy Assignment of Leases, the Delano Energy Stock Pledge Agreement and the Delano Energy Security Agreement. SECTION 8. EXPENSES; INDEMNITY; LIABILITY. Section 8.1. Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Borrowers will bear (a) all expenses (including the fees and disbursements of your special counsel, Chapman and Cutler, and such other counsel with whom the Agent may consult and the costs and expenses of printing this Agreement) in connection with the preparation and duplication of this Agreement and each other Bank Agreement, the transactions contemplated hereby and thereby and any amendment or modification hereof and thereof and operations hereunder and thereunder, (b) all taxes, including recording and filing fees and transfer and documentary stamp and similar taxes at any time payable in respect of this Agreement or any other Bank Agreement or the incurrence of the Bank Obligations or the taking of the Bank Security, (c) all expenses incurred by the Agent, any Bank or any other holder of any Bank Obligation in connection with the enforcement of any rights hereunder or under any Bank Agreement, including without limitation costs of collection and reasonable attorneys' fees and out-of-pocket expenses and (d) all reasonable costs, fees and expenses (including counsel fees) of the Banks 73 and the Revenue Trustee in connection with (i) any supplements, amendments or modifications to, or waivers of, or consents or other documents relating to the Overall Transaction, provided, that so long as no Default shall have occurred and be continuing or shall have given rise to the supplement, amendment, modification, waiver, consent or other document in question, and provided, further, that such supplement, amendment, modification, waiver or consent is not necessary or appropriate to secure for the requesting or initiating Person or Persons the benefits to be enjoyed by such Person or Persons in the Overall Transaction, Delano Energy shall only be required to pay such costs, fees and expenses relating to supplements, amendments, modifications, waivers, or consents requested or initiated by Delano Energy. The obligations of Delano Energy under this Section 8.1 shall survive payment and performance in full of the Bank Obligations and termination of this Agreement. Section 8.2. Indemnity with Respect to Letters of Credit. To the extent not prohibited by applicable law, the Borrowers hereby indemnify and hold the Agent and each of the Banks harmless from and against any and all claims, damages, losses, liabilities, reasonable costs or expenses (including all reasonable and necessary counsel fees and expenses) which any of them may incur or which may be claimed against any of them by any Person by reason of or in connection with the execution and delivery or transfer of, or payment or failure to make lawful payment under, the Letters of Credit or the issuance, sale and delivery of the Bonds; provided, however, that the Borrowers shall not be required to indemnify the Agent or any Bank for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the gross negligence or willful misconduct of the Agent or such Bank in connection with its obligations hereunder. Section 8.3. Liability of Issuing Bank. (a) The Uniform Customs and Practice for Documentary Credits (1983 Revision), International Chamber of Commerce Publication No. 400 (the "Uniform Customs and Practice"), shall be binding on the parties except to the extent otherwise from time to time agreed by them in writing. As between the Borrowers and the Issuing Bank, the Borrowers assume all risks of the acts or omissions of the Bond Trustee and any transferee of any Letter of Credit with respect to the use of the Letters of Credit. In furtherance of, and not in limitation of, the rights and powers of the Issuing Bank under the Uniform Customs and Practice, but subject to all the other provisions of this Section 8.3, neither the Issuing Bank nor any of its officers, directors, employees or agents shall be liable or responsible for, and the Borrowers assume all responsibility for: (i) the use which may be made of the Letters of Credit and any acts or omissions of the Bond Trustee or any transferee in connection therewith; (ii) the validity, sufficiency or genuineness of documents, or of any 74 endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (iii) payment by the Issuing Bank against presentation of documents that do not comply with the terms of the Letters of Credit, including without limitation failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; (iv) the failure of any instrument to bear any reference or adequate reference to the relevant Letter of Credit or the failure of any person to surrender the Letters of Credit or to forward documents in the manner required by the Letters of Credit or otherwise to comply with the terms and conditions of the Letters of Credit; (v) the good faith or acts of any Person other than the Issuing Bank and its agents and employees; (vi) the existence, form, sufficiency or breach of or default under the Bond Indenture, any Bond, the Power Purchase Agreement, any other Basic Document, any Bank Agreement or any other agreement or instrument of any nature whatsoever; (vii) any delay in giving or failure to give any notice, demand or protest; (viii) any error, omission, delay in or nondelivery or any notice or other communication, however sent; or (ix) any other circumstances whatsoever in making or failing to making payment under the Letters of Credit; provided, however, that the Borrowers shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrowers, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by either of the Borrowers which such Borrower proves were caused by (x) the Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under the Letters of Credit comply with the terms of the Letters of Credit or (y) the Issuing Bank's willful failure to pay under any Letter of Credit after the presentation to it by the Bond Trustee (or a successor trustee to whom the applicable Letter of Credit has been transferred in accordance with its terms) of a sight draft and certificate strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. (b) The determination whether the required documents are presented prior to the expiration of the Letters of Credit and whether such other documents are in proper and sufficient form for compliance with the Letters of Credit shall be made by the Issuing Bank in its sole discretion, which determination shall be conclusive and binding upon the Borrowers. The Issuing Bank may honor, as complying with the terms of the applicable Letter of Credit and this Agreement, any documents otherwise in order signed or issued by a successor trustee under the Bond Indenture. Any action, inaction or omission on the part of the Issuing Bank under or in connection with the Letters of Credit or related instruments or documents, if in good faith and in conformity with such laws, regulations or commercial or banking customs as the Issuing Bank may deem to be applicable, shall be 75 binding upon the Borrowers, shall not place the Issuing Bank under any liability to the Borrowers, and shall not affect, impair or prevent the vesting of any of the rights or powers of the Issuing Bank hereunder or the Borrowers' obligation hereunder to make reimbursement. (c) If either Borrower requests or consents in writing to any modification or extension of any of the Letters of Credit or waives failure of any draft, certificate or other document to comply with the terms of any of the Letters of Credit, the Issuing Bank shall be deemed to have relied and be entitled to rely on such request, consent or waiver with respect to any action taken or omitted by the Issuing Bank pursuant thereto, and such modification, extension or waiver shall be binding upon the Borrowers. Section 8.4. Indemnity with Respect to Bank Security. The Borrowers will indemnify and save and hold the Agent and each Bank harmless from and against any and all claims, damages, loss, liability or judgments which may be incurred or sustained by the Agent or any Bank or asserted against the Agent or any Bank, directly or indirectly, in connection with the existence of or the exercise of any of the security rights with respect to the Bank Security, including without limitation any claim relating thereto asserted against the Agent or any Bank by any holder (other than the Agent or a Bank) of a security interest in any property included in the Bank Security; provided, however, that the foregoing shall not extend to actions not taken in good faith by the Agent or such Bank, any action or failure to act in accordance with an opinion of counsel to the Agent or such Bank being conclusively deemed to be in good faith, and shall not waive the obligations of the Agent to exercise remedies under the Lessor Security Documents in a commercially reasonable manner. The Agent shall have no duty as to the collection or protection of the Bank Security or any part thereof or any income thereon, or as to the preservation of any rights pertaining thereto, beyond the safe custody of any Bank Security actually in its possession. Section 8.5. Survival of Covenants. The covenants contained in Sections 8.1, 8.2, 8.3 and 8.4 shall survive the termination of this Agreement. SECTION 9. NOTICES. Any notice or other communication in connection with this Agreement shall be delivered as provided in Section 23 of the Participation Agreement. SECTION 10. OPERATIONS. The extension of credits and the operations under this Agreement shall be governed by the following provisions: 76 Section 10.1. Interests in Credits. The percentage interest of each of you in the credits extended under this Agreement shall be as follows: Percentage Name Interest Amount ---- ----------- ----------- ABN AMRO 25.0000002% $30,552,329 FNBB 25.0000002% $30,552,329 Societe Generale 15.6250004% $19,095,206 Bank of Montreal 13.2812495% $16,230,924 Barclays Bank PLC 13.2812495% $16,230,924 BayBank 7.8125002% $9,547,603 100% $122,209,315 adjusted as you may agree from time to time pursuant to any Joinder Agreement or otherwise among yourselves (the "Percentage Interests"). References in any Bank Agreement to your respective Percentage Interests are to such interests as from time to time in effect. Section 10.2. Payments. All payments and prepayments of principal and interest in respect of the Liquidity Advances and, except as otherwise specified in this Agreement, all other amounts owing hereunder shall, as a matter of convenience, be made to the Agent in immediately available funds at its principal banking office in Boston, Massachusetts and the shares thereof of the others of you shall be credited to you by the Agent and the applicable interest and other amounts shall be paid in proportion to your Percentage Interests, except that amounts paid in respect of the Bank Obligations described in Sections 2.3, 2.4, 3.1.3, 3.2, 3.4, 3.6 and 8 hereof shall be paid to such of you as are owed such amounts irrespective of your Percentage Interests and except as you may otherwise agree in writing. All proceeds of sales and collections and moneys applied to the payment of the Bank Obligations under Section 6.6 shall be paid to the Banks in proportion to the Percentage Interests, except that in the event there is owing to any of the Banks an amount of Bank Obligations (including without limitation Bank Obligations owing under Section 2.3, 2.4, 2.5, 3.1.3, 3.2, 3.4 or 8 hereof or under the Swap Agreements) that is not evidenced by the obligation to reimburse Drawings under the Letters of Credit, then for the purposes of this sentence the Percentage Interests shall be adjusted to reflect the actual percentage interest of each of the Banks in the aggregate amount of the Bank Obligations then outstanding. 77 Each of you other than the Issuing Bank shall participate with the Issuing Bank in each Letter of Credit to the extent of your respective Percentage Interests. In the event of a Drawing under any Letter of Credit that is not reimbursed in full in cash on or before 1:00 p.m., Boston time, on the date of such Drawing, each of you (other than the Issuing Bank) hereby authorizes and requests the Agent to advance to the Issuing Bank, pursuant to the terms hereof, its respective Percentage Interest in the Drawing; and each of you agrees forthwith to reimburse the Agent in immediately available funds at its principal banking office in Boston, Massachusetts for the amount of such Percentage Interest. The Agent may, in its sole discretion, apply any payment to which any of you is otherwise entitled pursuant to this Agreement to the payment of any obligations of such one of you to the Agent then due and payable under this Agreement. Any reimbursement amount not paid by any of you on the date the same is advanced by the Issuing Bank shall bear interest from such date until payment shall be made in full at a rate per annum equal to the Federal Funds Rate. Upon its subsequent receipt of any payment on account of such a Drawing from the Borrowers or any guarantor, the Agent as promptly as possible shall remit to each other of you its respective Percentage Interest in such payment. Each of you acknowledges and agrees that your obligation hereunder to pay the Agent any participation amount shall be absolute, irrevocable and unconditional and shall not be affected by any event or circumstance, whether occurring before or after the issuance of any Letter of Credit or the payment of a Drawing thereunder, including without limitation (a) the existence of any Default, (b) any change in the financial condition of Delano Energy, the Owner Trustee, the Owner Participant, Thermo Electron, Thermo Systems, any guarantor or any other Person or (c) any act or omission to act by the Agent, the Issuing Bank, Delano Energy, the Owner Participant, the Owner Trustee, Thermo Electron, Thermo Systems or any other Person. Section 10.3. Agent's Authority to Act. Each of you hereby appoints and authorizes the Agent to take such action as agent on your behalf (including on behalf of ABN AMRO in its capacity as Swap Bank), in part as successor Agent to FNBB (under the Phase I Reimbursement Agreement, and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. In holding any Bank Security and in acting hereunder and under any other Bank Agreement, the Agent is acting for its own account to the extent of its Percentage Interest and for the accounts of the other Banks to the extent of their interests in the Bank Obligations, and all action in connection with the enforcement or exercise of any remedies (other than your rights of set-off as provided in Section 6.2 hereof and the right of the Swap Bank to suspend or terminate its obligations under Section 6(a) of the Swap Agreements) in respect of the Bank Obligations, the Bank Security and the Bank Agreements, shall be taken by the 78 Agent; provided, that following the occurrence of an Event of Default, the Agent shall exercise such remedies as instructed by such of you as hold at least 51% of the Percentage Interests calculated as provided in the last sentence of the first paragraph of Section 10.2 hereof. Before taking any action as Agent hereunder, the Agent may request appropriate indemnity satisfactory to it from each other Bank and may, but shall not be obligated to, refuse to take any such action until it has received such indemnity from each other Bank. The Agent may rely on writings sent to it by telecopier in taking action under this Agreement. Section 10.4. Agent's Resignation. The Agent may resign at any time by giving at least 60 days' prior written notice of its intention to do so to each other Bank and to Delano Energy, the Owner Trustee and the Owner Participant, and upon the appointment by the Required Banks of a successor Agent satisfactory to the Borrowers. The Agent shall resign if, at any time, (i) as a result of a transfer of a portion of its Participation Interest, its remaining Participation Interest is lower than any other LC Banks' Participation Interest (provided, however, that the Agent shall not be under such obligation to resign if the reason that its Participation Interest has become lower than any other LC Bank's Participation Interest is because such LC Bank has acquired an additional Participation Interest from another existing LC Bank) and (ii) the Majority Banks have requested in writing that the Agent so resign. If no successor Agent shall have been appointed as provided above and shall have accepted such appointment within 45 days after the retiring Agent's giving of such notice of resignation, then the retiring Agent may with the consent of the Borrowers, which shall not be unreasonably withheld, appoint a successor Agent which shall be a bank or a trust company organized under the laws of the United States of America or any state thereof and having a combined capital, surplus and undivided profits of at least $100,000,000. Any successor Agent appointed hereunder may be removed upon the written request of the Required Banks, which request shall also appoint a successor Agent satisfactory to the Borrowers. No resignation or removal of the Agent or any successor Agent shall be effective until a new Agent shall have been appointed in the manner provided in this Section 10.4 and shall have accepted, in writing, such appointment. Upon the appointment of a new Agent hereunder and the acceptance of such appointment by the new Agent, the term "Agent" for all purposes of this Agreement and the other Bank Agreements thereafter shall mean such successor. After any retiring Agent's resignation hereunder as Agent, or the removal hereunder of any successor Agent, the provisions of this Agreement shall continue to inure to the benefit of such Agent as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. On the date of the resignation or removal of the Agent or any successor Agent under this Section 10.4, such Agent shall be paid its Agent's fees under Section 3.2 79 hereof accrued to the effective date of such resignation or removal. Section 10.5. Amendments, Consents, Waivers, etc. Except as hereinafter set forth, the Agent with, but only with, the written consent of the Required Banks may take or refrain from taking any action under this Agreement or any other Bank Agreement (other than the Swap Agreements), including without limitation giving written consent to any modification of or amendment to and waiving in writing compliance with any covenant or condition in this Agreement or any other Bank Agreement or any Default or Event of Default hereunder or thereunder, and may dispose of, compromise or otherwise deal with all or any part of the Bank Security as it may deem proper, all of which actions shall be binding upon all of you; provided, however, that without the written consent of such of you as own 100% of the Percentage Interests: (a) no reduction in the interest rate on, or the Letter of Credit Fees relating to, the Bank Obligations shall be made; (b) no extension or postponement of the stated time of payment of or reduction of any amount constituting Bank Obligations (including without limitation the reimbursement obligations provided for in Sections 2.1 and 2.2 hereof) shall be made (except in the case of Bank Obligations owing to only one of you under Section 2.3, 2.4, 3.4 or 8 or the Swap Agreements, in which event only the consent of such one of you shall be required); (c) no extension or postponement of the time for redemptions of the Bonds and prepayments of the Liquidity Advances set forth in Section 5.6 hereof shall be made; (d) no increase in the amount, or extension of the term, of your commitment beyond that provided for under Sections 2 and 10.1 hereof shall be made; (e) no alteration of your rights of set-off contained in Section 6.2 hereof shall be made; (f) no item of Bank Security (including the proceeds thereof) shall be released except in accordance with the express terms of the applicable Bank Agreement; (g) no consent of the Agent provided for under Sections 5.3 or 5.16.1 hereof shall be given; and (h) neither (i) this Section 10.5 nor (ii) the definition of "Required Banks" contained in Section 10.12 hereof nor (iii) any provision of this Agreement relating to the amount of Percentage Interests the holders of which are 80 required in order to take or refrain from taking any action under this Agreement or any other Bank Agreement shall be modified or amended. Upon receipt of any written notice of a Default from Delano Energy, the Owner Trustee or the Owner Participant, any written request of the Borrowers for consent to any modification to or amendment of or waiver of compliance with any covenant or condition in this Agreement or any other Bank Agreement or any Default or Event of Default hereunder or thereunder or any written request of the Borrowers for release of all or any part of the Bank Security, the Agent promptly shall give written notice thereof to each of you. Contemporaneously with the giving of any written notice from the Agent to the Borrowers asserting that a Default exists, the Agent shall deliver a copy thereof to each of you. In addition to the foregoing, no amendment to Sections 14.1, 14.2 or 14.3 hereof shall be effective without the consent of the Issuing Bank. Section 10.6. Payments, etc. The Borrowers shall be fully protected in making all payments to the Agent and in dealing with the Agent hereunder as provided in this Agreement. Section 10.7. Concerning the Agent. The following provisions shall apply to the Agent and the conduct of the Agent's duties hereunder: 10.7.1. Action in Good Faith, etc. The Agent and its officers, directors, employees and agents shall be under no liability to any of you, to any future holder of any interest in the Bank Obligations or to the Borrowers for any action or failure to act taken or suffered in good faith and without gross negligence or for any action or failure to act taken or suffered in good faith in accordance with an opinion of its counsel. The Agent shall in all cases be entitled to rely, and shall be fully protected in relying, on instructions given to the Agent by the required holders of Percentage Interests as provided in this Agreement. 10.7.2. No Implied Duties, etc. The Agent shall have and may exercise such powers as are specifically delegated to the Agent under this Agreement or any other Bank Agreement together with all other powers as may be incidental thereto. The Agent shall have no implied duties to any Person or any obligation to take any action under this Agreement or any other Bank Agreement except for any action which this Agreement or any other Bank Agreement specifically provides shall be taken by the Agent. Before taking any action under this Agreement or any other Bank Agreement, the Agent may request an appropriate specific indemnity satisfactory to it from each of you in addition to the general indemnity provided for in Section 10.9, and until the 81 Agent has received such specific indemnity, the Agent shall not be obligated to take (although it may in its sole discretion take) any such action under this Agreement or any other Bank Agreement. The Agent agrees that it shall, upon the request of any Bank, (i) request any documents or other information from the Borrowers which it is permitted to request hereunder or under any other Basic Document and (ii) provide to such Bank copies of any specific written materials which the Agent has received from the Borrowers. 10.7.3. Validity, etc. The Agent shall not be responsible to any of you or any future holder of any interest in the Bank Obligations (i) for the legality, validity, enforceability or effectiveness of this Agreement or any other Bank Agreement, (ii) for any recitals, reports, representations, warranties or statements contained in or made in connection with this Agreement or any other Bank Agreement, (iii) for the existence or value of any assets included in the Bank Security or (iv) for the specification or failure to specify any particular assets to be included in the Bank Security. 10.7.4. Compliance. The Agent shall not be obligated to ascertain or inquire as to the performance or observance of any of the terms of this Agreement or any other Bank Agreement; and in connection with any extension of credit under this Agreement or any other Bank Agreement, the Agent shall be fully protected in relying on a certificate of either Borrower as to the fulfillment by such Borrower of any conditions to such extension of credit. 10.7.5. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent under this Agreement or any other Bank Agreement by or through employees, agents and attorneys-in-fact and shall not be answerable to any of you or the Borrowers (except as to money or securities received by the Agent or the Agent's authorized agents) for the default or misconduct of any such employees, agents or attorneys-in-fact selected by the Agent with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder. 10.7.6. Reliance on Documents and Counsel. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any affidavit, certificate, cablegram, consent, instrument, letter, notice, order, document, statement, telecopy, telex or teletype message or writing believed in good faith by the Agent to be genuine and correct and to have been signed, sent or made by the Person or Persons and, with respect to legal matters, upon the opinion of counsel selected by the Agent. 10.7.7. Agent's Reimbursement. Each of you severally agrees to reimburse the Agent in the amount of your Percentage Interest thereof for any expenses not reimbursed by the Borrowers 82 (without limiting its obligation to make such reimbursement): (i) for which the Agent is entitled to reimbursement by the Borrowers under this Agreement or any other Bank Agreement (or which this Agreement or any other Bank Agreement provides is to be paid by, or is to be to the account of, the Banks, including, without limitation, reimbursement for the Independent Engineers' expenses which the Borrowers are not, by the terms hereof, liable for), and (ii) after the occurrence of a Default, for any other reasonable expenses incurred by the Agent on your behalf in connection with the enforcement of your rights under this Agreement or any other Bank Agreement. The covenants contained in this Section 10.7.7 shall survive the termination of the other provisions of this Agreement. 10.7.8. Rights as Credit Provider. With respect to any credit extended by it hereunder, ABN AMRO shall have the same rights and powers hereunder as any other of you and may exercise such rights and powers as though it were not the Agent, and unless the context otherwise specifies, ABN AMRO shall be treated in its individual capacity as though it were not the Agent hereunder. Without limiting the generality of the foregoing, the Percentage Interest of ABN AMRO shall be included in any computations hereunder of Percentage Interests. ABN AMRO and its affiliates may accept deposits from, lend money to, act as trustee for and generally engage in any kind of banking or trust business with Delano Energy, the Owner Trustee, the Owner Participant, Thermo Electron, Thermo Systems and any Person who may do business with or own an equity interest in any of them, all as if ABN AMRO were not the Agent and without any duty to account therefor to the others of you. Section 10.8. Independent Credit Decision. Each of you acknowledges that you have independently and without reliance upon the Agent, based on such information with respect to Delano Energy, the Owner Trustee, the Owner Participant, Thermo Electron, Thermo Systems and the Facility as you have deemed appropriate, made your own credit analysis and decision to enter into this Agreement and extend the credits provided for hereunder. Each of you represents to the Agent that you will continue to make your own independent credit and other decisions in taking or not taking action under this Agreement or any other Bank Agreement. Each of you expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to such one of you, and no act by the Agent taken under this Agreement or any other Bank Agreement, including without limitation any review of the affairs of Delano Energy, the Owner Trustee, the Owner Participant, Thermo Electron or Thermo Systems, shall be deemed to constitute any representation or warranty by the Agent. Except for notices, reports and other documents expressly required to be furnished to each of you by the Agent under this Agreement or any other Bank Agreement, the Agent shall not have any duty or responsibility to provide any of 83 you with any credit or other information concerning the business, operations, property, condition, financial or otherwise, or creditworthiness of Delano Energy, the Owner Trustee, the Owner Participant, Thermo Electron or Thermo Systems which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. Section 10.9. Indemnification. The holders of the Bank Obligations hereby agree to indemnify the Agent (to the extent not reimbursed by or on behalf of the Borrowers and without limiting its obligation to do so), ratably according to their Percentage Interests, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments and suits, and any and all reasonable costs, expenses or disbursements, of any kind whatsoever which may at any time be imposed on, incurred by or asserted against the Agent relating to or arising out of this Agreement, any other Bank Agreement, the transactions contemplated hereby or thereby, or any action taken or omitted by the Agent in connection with any of the foregoing; provided, however, that the foregoing shall not extend to actions or omissions which were not taken in good faith or which were taken with gross negligence by the Agent. The covenants contained in this Section 10.9 shall survive the termination of the other provisions of this Agreement. Section 10.10. Amendments to Section 10. Any of the provisions of this Section 10 (other than those of Sections 10.5 and 10.6 and this Section 10.10) may be amended or waived in a manner which does not affect the rights or obligations of the Borrowers hereunder by the agreement of such of you as hold 100% of the Percentage Interests without prior notice to the Borrowers; provided, however, that prompt notice of any such amendment shall be given to the Borrowers. Sections 10.5 and 10.6 and this Section 10.10 may be amended only with the consent of all of you and the Borrowers. Section 10.11. Actions Under Bond Documents. The Issuing Bank shall exercise the rights and remedies accorded to it as "Credit Bank" under the Bond Indentures and the CPC Loan Agreements upon the instructions of the Required Banks (which may include the Issuing Bank). Before taking action hereunder, the Issuing Bank may request appropriate indemnity satisfactory to it from the other Banks, ratably according to their respective Percentage Interests, and may, but shall not be obligated to, refuse to take any such action until it has received such indemnity from each other Bank. Section 10.12. Required Banks. For purposes of this Agreement the term "Required Banks" shall mean such of you as shall hold in the aggregate not less than 66 2/3% of the Percentage Interests. 84 SECTION 11. SHARING OF PAYMENTS, ETC. If any of you shall obtain, at a time when an Event of Default has occurred and is continuing, any payment (whether voluntary, involuntary, through the exercise of any right of set-off or otherwise) on account of the Bank Obligations in excess of the Percentage Interest of such one of you (calculated as provided in the last sentence of the first paragraph of Section 10.2 hereof) in all payments on account of the Bank Obligations that have been made since the occurrence of such Event of Default, then such one of you shall purchase from the rest of you such participation in the Bank Obligations held by each other of you as shall be necessary to cause such purchaser to share the excess payment ratably with each other of you; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchases, then such purchases shall be rescinded and the purchase prices restored to the extent of such recovery, but without interest. The Borrowers agree that any one of you so purchasing a participation from another of you pursuant to this Section 11 may exercise all rights of payment (including the right of set-off) with respect to such participation as fully as if such one of you were the direct creditor of the Borrowers in the amount of such participation. SECTION 12. SURVIVAL OF COVENANTS. All covenants, agreements, representations and warranties made herein or in any other Bank Agreement and in certificates delivered pursuant hereto or thereto shall be deemed to have been material and relied on by you, notwithstanding any investigation made by you or on your behalf, and shall survive the execution and delivery to you hereof and thereof. SECTION 13. DISCHARGE. If the Borrowers shall pay in full the Bank Obligations or cause them to be paid in full, or if the Bank Obligations shall otherwise have been paid in full and if at the time each of the Letters of Credit shall have been terminated in accordance with their respective terms and none of the Banks is any longer under any obligation under any Letter of Credit, this Agreement, the Swap Agreements or any other Bank Agreement (or such obligation has been duly waived in writing), then this Agreement and the rights hereby granted shall cease, terminate and be void (except as set forth in Sections 2.4, 3.1.3, 3.4, 8.5, 10.7.7 and 10.9 hereof), and at the request of the Borrowers, and at their expense, you and the Agent shall release and discharge your rights hereunder and release and discharge all of the Bank Security without recourse against you or the Agent and to that end shall execute and deliver to the Borrowers at their own expense such releases, reassignments and other documents (or cause the same to be done) as the Borrowers shall reasonably 85 request (including, without limitation, the written notice described in Section 12.1(i) of the Revenue Trust Agreement), and you and the Agent shall pay over to the Borrowers any money and deliver to them any other property then held by you as Bank Security (or cause the same to be done). It is expressly understood and agreed that termination of the Letters of Credit and payment of the Bank Obligations other than those owing under the Swap Agreements (whether or not in connection with the provision of an Alternative Credit Facility) will not terminate the rights of the Agent or the Swap Bank with respect to the Bank Security under the Bank Agreements and will not terminate this Agreement. SECTION 14. SUCCESSORS AND ASSIGNS; BANK PARTICIPANTS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, including as such successors and assigns all holders of any Bank Obligation, except that (i) the Borrowers may not assign their rights or obligations under this Agreement and (ii) none of you shall be entitled to assign your Percentage Interests in this Agreement or the credits extended hereunder except as set forth below in this Section 14. Section 14.1. Bank Participations. Each of you may at any time sell, assign, transfer, grant participations in or otherwise dispose of your Percentage Interest in the credits made hereunder and your right, title and interest therein and thereto (each such sale, assignment, transfer, grant or other disposition being referred to herein as a "Bank Participation") to any banks or other financial institutions (the "Bank Participants") so long as (i) such one of you shall remain liable to perform all of your obligations under this Agreement, (ii) any transfer of rights by any of you to a Bank Participant with respect to any credit hereunder shall state that such rights shall exist solely as a result of the agreement between such Bank Participant and such one of you, (iii) the documents evidencing such Bank Participation shall provide that the Bank Participant will not grant further participations, (iv) except as provided in Section 14.2, the documents evidencing such Bank Participation shall not confer on any Person (other than the parties hereto) (a) any right to vote on, approve or sign amendments or waivers, (b) any other independent benefit or (c) any legal or equitable right, remedy or other claim under this Agreement or the Bank Agreements, (v) none of you shall participate more than 45% of your interest in the Bank Obligations and (vi) no Bank Participation shall be for less than $5,000,000 of the Bank Obligations and commitments hereunder. Promptly after granting any Bank Participation, such one of you shall inform Delano Energy, the Owner Trustee, the Owner Participant and the Agent of the identity of the Bank Participant. The Agent and the Borrowers may for all purposes of this Agreement and the other Bank Agreements, including for purposes of any payment or 86 indemnification due hereunder or thereunder, treat each of you as the holder of your respective Percentage Interest in the credits extended hereunder, notwithstanding any Bank Participation. Nothing in this Section 14 shall restrict any of you (1) from granting participations in all or any portion of your Percentage Interest in the credits extended hereunder to any corporate affiliate of such one of you or (2) from assigning all or any part of the credits extended hereunder or any other Bank Agreement (x) to any corporate affiliate of such one of you which assumes all your obligations with respect hereto and thereto, or (y) to any other of you in accordance with Section 10. Section 14.2. Certain Rights of Bank Participants. Notwithstanding Section 14.1 above, the documents evidencing any Bank Participation may provide that such one of you party thereto will not consent to (i) the reduction in or forgiveness of the stated principal of or rate of interest on or fee with respect to any credit extended hereunder, or (ii) the extension or postponement of any stated date for payment of principal, interest or fee or of any letter of credit termination date fixed with respect to any credit extended hereunder for more than 90 days, except in each case with the consent of the Bank Participant party to such Bank Participation. Section 14.3. Transfer of Percentage Interests. (a)(i) With the prior written consent of the Agent (which shall not be unreasonably withheld), any LC Bank may transfer all or any portion (provided; that in the case of a partial transfer, the transfering Bank retains at least $5,000,000 of Bank Obligations) of its respective Percentage Interest in the credits extended hereunder and all or such portion of its obligations hereunder to any other LC Bank or (ii) with the prior written consent of the Agent (which shall not be unreasonably withheld), any LC Bank may transfer all or a portion consisting of at least $5,000,000 of Bank Obligations (provided; that in the case of a partial transfer, the transfering Bank retains at least $5,000,000 of Bank Obligations) of its respective Percentage Interest in the credits extended hereunder and all or such portion of its obligations hereunder to any bank or (iii) with the prior written consent of the Agent and each LC Bank (which shall not be unreasonably withheld, except as set forth in the proviso to the following sentence), any LC Bank may transfer all or a portion of its respective Percentage Interest in a manner other than those described in the preceding clauses (i) and (ii). In each case involving an assignment to a bank not presently an LC Bank, such assignee bank shall execute an agreement in the form of Exhibit 14.3 hereto (a "Joinder Agreement") adding such bank as a party to this Agreement and adjusting the Percentage Interests accordingly; provided, however, that the Issuing Bank must approve all such assignees, and may withhold its consent in its sole discretion if the proposed assignee does not meet the minimum requirements for assignees as set forth in the Issuing Bank's internal policies as may then be in effect. No such 87 transfer to a bank not already a party to this Agreement shall take effect unless and until a Joinder Agreement has been executed and delivered by the Borrowers, the Agent, the Issuing Bank, each LC Bank and such bank (provided, however, that the failure of any LC Bank to execute such Joinder Agreement shall not affect the validity of such Joinder Agreement if such LC Bank's consent was not required for the respective transfer); and the Borrowers agree to execute and deliver such Joinder Agreement when and as so requested by the Agent; provided that such Joinder Agreement does not adversely affect the duties of the Borrowers hereunder. In the event of a transfer from one LC Bank to another LC Bank, the parties shall execute appropriate amendments of Section 10.1 hereof. In the event that the transferor is not an Issuing Bank and is transferring all of its right and obligations hereunder pursuant to such Joinder Agreement, the parties shall execute and deliver an appropriate release and discharge of the transferor's rights and obligations hereunder. (b) In the event that any Bank's commercial paper or certificate of deposit rating is at any time (i) lower than "A-1" by Standard & Poor's Corporation and (ii) lower than "P-1 " by Moody's Investors Service, then in such case the Issuing Bank shall have the right, but not the obligation, to cause such Bank to transfer all of its Percentage Interest to a bank selected by the Agent in the manner set forth in the preceding clause (a). Such new bank may be an LC Bank (including the Agent). SECTION 15. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, THE BORROWERS HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR ANY OTHER BANK AGREEMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY BANK OBLIGATION OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE AGENT, ANY OF THE BANKS, OR THE BORROWERS IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THE BORROWERS ACKNOWLEDGE THAT THEY HAVE BEEN INFORMED BY THE AGENT AND THE BANKS THAT THE PROVISIONS OF THIS SECTION 15 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THEY HAVE RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT OR ANY OTHER BANK AGREEMENT. The Agent, any Bank or the Borrowers may file an original counterpart or a copy of this Section 15 with any court as written evidence of the consent of the Borrowers, the Agent and any Bank to the waiver of its rights to trial by jury. 88 SECTION 16. PAYMENTS FROM OWNER TRUST ESTATE ONLY. All payments to be made by the Owner Trustee with respect to the Bank Obligations and with respect to any indemnity pursuant to Section 8 herein shall be made only from the Owner Trust Estate. The Agent and each of you agree that the Owner Trustee shall not be personally liable for any of the Bank Obligations. Delano Energy hereby confirms to each Bank that no limitation on the liability of, or recourse to, the Owner Trustee shall in any way limit or restrict the joint and several liability of Delano Energy for the repayment in full of the Bank Obligations. Anything in this Agreement or any other Bank Agreement to the contrary notwithstanding, each and all of the representations, undertakings and agreements herein or therein made on the part of the Owner Trustee are made and intended not as personal representations, undertakings and agreements by or for the purpose or with the intention of binding it personally but are made and intended for the purpose of binding only the Owner Trust Estate; this Agreement and the other Bank Agreements to which the Owner Trustee is a party are executed and delivered by CTCC solely in the exercise of the powers expressly conferred upon it as trustee under the Owner Trust Agreement and not in its individual capacity; and, except as expressly provided in the Participation Agreement, no personal liability or responsibility is assumed hereunder or thereunder by or shall at any time be enforceable against CTCC in its individual capacity on account of any representation, undertaking or agreement hereunder or thereunder of the Owner Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the Agent, by each Bank and by all Persons claiming by, through or under the Agent or any Bank; provided, however, that the Agent, each Bank and any Person claiming by, through or under any of you, making claim under this Agreement or under any other Bank Agreement may look to the Owner Trust Estate for satisfaction of same. The Owner Trustee may seek instructions from the Owner Participant in exercising its rights or performing its duties hereunder. The foregoing limitation on recourse against the Owner Trustee shall not in any way be deemed to limit, restrict or diminish the liability of Delano Energy hereunder to the Agent and/or the Banks. SECTION 17. [RESERVED] SECTION 18. MISCELLANEOUS. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. References to Sections are to the corresponding provisions of this Agreement unless otherwise expressly stated. This Agreement may be executed in any number of counterparts which together shall constitute one 89 instrument and shall be governed by and construed in accordance with the laws (other than the conflicts of laws rules) of The Commonwealth of Massachusetts. All obligations of the Borrowers hereunder shall be joint and several. SECTION 19. DISCLAIMER OF WARRANTIES. NO BANK MAKES, NOR SHALL ANY SUCH BANK BE DEEMED TO HAVE MADE (I) ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE DESIGN OR CONDITION OF, OR AS TO THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, OR AS TO THE SUITABILITY FOR ANY PURPOSE OF, THE FACILITY OR ANY PART THEREOF OR AS TO THE ABILITY OF THE FACILITY TO PERFORM ANY FUNCTION, OR (II) ANY WARRANTY OF MERCHANTABILITY OR FITNESS OF THE FACILITY OR ANY PART FOR ANY PARTICULAR PURPOSE OR AS TO THE TITLE OR ANY INTEREST IN THE FACILITY OR ANY PART OR AS TO ANY OTHER MATTER RELATING TO THE FACILITY, IT BEING AGREED THAT ALL SUCH RISKS AS BETWEEN DELANO ENERGY AND EACH BANK ARE TO BE BORNE BY DELANO ENERGY, AND THE BENEFITS OF ANY AND ALL IMPLIED WARRANTIES AND REPRESENTATIONS OF ANY BANK ARE HEREBY WAIVED BY DELANO ENERGY. DELANO ENERGY CONFIRMS THAT IT HAS SELECTED THE FACILITY AND EACH PART ON THE BASIS OF ITS OWN JUDGMENT, ACKNOWLEDGES THAT THE FACILITY AND EACH PART THEREOF IS OF A DESIGN, CAPACITY AND MANUFACTURE SELECTED BY DELANO ENERGY AND DETERMINED BY DELANO ENERGY TO BE SUITABLE FOR ITS PURPOSES, EXPRESSLY DISCLAIMS RELIANCE UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY ANY BANK, AND ACKNOWLEDGES THAT NO BANK IS A MANUFACTURER OR VENDOR OF THE FACILITY OR OF ANY PART OR AN AGENT OF ANY MANUFACTURER OR VENDOR OF THE FACILITY OR OF ANY PART. SECTION 20. BANK SUBSTITUTION. Prior to the Document Delivery Date, The Bank of Tokyo Trust Company was a "Bank" under the Reimbursement Agreement dated as of October 1, 1991 among Delano Biomass, ABN AMRO, as Facility Agent and ABN AMRO Bank N.V., New York Branch, as Administrative Agent (the "1991 Reimbursement Agreement"). As of the Document Delivery Date and its receipt on the Document Delivery Date of payment of the fees, and of any other amounts, payable to it under the 1991 Reimbursement Agreement on the Document Delivery Date, The Bank of Tokyo Trust Company shall no longer be a Bank and shall have no obligations or rights under this Amended and Restated Reimbursement Agreement, and the Banks signatory hereto shall, as of the Document Delivery Date, be the Banks hereunder with the respective Percentage Interests set forth in Section 10.1 hereof. If the foregoing corresponds with your understanding of our agreement, kindly sign this letter and the accompanying copies thereof in the appropriate space below and return the same to the undersigned. This letter shall become a binding agreement among you and between each of you and the Borrowers when each of the 90 Borrowers and the Agent shall have one or more copies hereof executed by each of the undersigned and each of you. Very truly yours, Chemical Trust Company of California, not in its individual capacity but solely as Owner Trustee By /s/ Rose T. Maravilla Assistant Vice President Delano Energy Company Inc., a Delaware corporation By /s/ Parimal S. Patel Vice President The foregoing Agreement is hereby accepted and agreed to: ABN AMRO Bank N.V., for Itself and as Agent By /s/ Brian G. Slayne Assistant Vice President By /s/ R. E. James Hunter Vice President The First National Bank of Boston By /s/ Stefan Breuer Vice President Bank of Montreal By /s/ Lawrence E. Jones, P.E. Director Barclays Bank PLC By /s/ Mark Tuminello Director By /s/ Alistair Buchan Associate Director 91 Societe Generale By /s/ William G. Schmid Vice President By /s/ Salvatore Galatioto Vice President BayBank By /s/ Timothy M. Laurion Loan Officer (Special) The foregoing Agreement is hereby accepted: ABN AMRO Bank N.V., Cayman Islands Branch By /s/ Brian G. Slayne Assistant Vice President By /s/ R. E. James Hunter Vice President 92 Exhibit 5.6.1 Scheduled Redemptions of 1989 Bonds ----------------------------------- Redemption Date Amount --------------- ----------- 12-31-94 $ 0 12-31-95 4,000,000 6-30-96 200,000 12-31-96 4,000,000 6-30-97 0 12-31-97 3,300,000 6-30-98 0 12-31-98 4,000,000 6-30-99 0 12-31-99 6,300,000 6-30-00 0 12-31-00 7,100,000 ----------- Total: $28,900,000 93 Exhibit 5.6.2 Scheduled Redemptions of 1990 Bonds ----------------------------------- Redemption Date Amount --------------- ----------- 12-31-94 $ 3,400,000 12-31-95 3,300,000 6-30-96 400,000 12-31-96 4,500,000 6-30-97 0 12-31-97 3,800,000 6-30-98 0 12-31-98 4,400,000 6-30-99 0 12-31-99 6,400,000 6-30-00 0 12-31-00 7,400,000 ----------- Total: $33,600,000 Exhibit 5.6.2.1 Scheduled Redemptions of 1991 Bonds ----------------------------------- Redemption Date Amount --------------- ----------- 2-31-94 $ 7,800,000 12-31-95 6,200,000 6-30-96 0 12-31-96 7,500,000 6-30-97 800,000 12-31-97 11,300,000 6-30-98 7,700,000 12-31-98 5,800,000 6-30-99 3,900,000 12-31-99 5,500,000 6-30-00 1,000,000 12-31-00 0 ----------- Total: $57,500,000 Exhibit 14.3 Form of Joinder Agreement ------------------------- As of ______________, ____ ABN AMRO Bank N.V., Boston Branch, for Itself and as Agent Exchange Place, 53 State Street Boston, Massachusetts 02109 Chemical Trust Company of California, as Owner Trustee under the Owner Trust Agreement 50 California Street San Francisco, California 94111 Delano Energy Company Inc. 81 Wyman Street Waltham, Massachusetts 02254-9046 Ladies and Gentlemen: The undersigned _____________________________, a ________________ (as from time to time in effect, the "New Bank"), hereby agrees with each of you as follows: 1. Reference; Definitions. Reference is made to the Amended and Restated Reimbursement Agreement dated as of December 31, 1993 (as from time to time in effect, the "Reimbursement Agreement") by and among Chemical Trust Company of California, not in its individual capacity but solely as owner trustee under the Owner Trust Agreement therein referred to (the "Owner Trustee"), Delano Energy Company Inc., and ABN AMRO Bank N.V., Boston Branch, for Itself and as Agent (collectively, the "Existing Banks"). Terms defined in the Reimbursement Agreement as amended hereby or the Participation Agreement referred to therein and not otherwise defined in this Agreement are used in this Agreement as so defined. 2. Joinder. Effective as of _________________, ____ (the "Effective Date"), the New Bank hereby joins in and becomes a party to the Reimbursement Agreement as a credit provider having a _____% Percentage Interest in the Letter of Credit Facility established under Section 2 of the Reimbursement Agreement. From and after the Effective Date the New Bank will be entitled to the rights and benefits of a credit provider under the Reimbursement Agreement as amended hereby and will be bound by and will perform all obligations of a credit provider under the Reimbursement Agreement as amended hereby pursuant to the respective terms and conditions thereof. [Add provisions for adjustment of letter of credit fees, as applicable.] [Add provisions releasing transferor bank, if applicable.] 3. Amendment of Section 10.01. Section 10.1 of the Reimbursement Agreement is amended, effective the Effective Date, to read in its entirety as follows: 10.1. Interests in Credits. The percentage interest of each of you in the credits extended under this Agreement shall be as follows: Percentage Name Interest Amount - ---- ---------- ------ ____100% $________ adjusted as you may agree from time to time pursuant to any Joinder Agreement or otherwise among yourselves (the "Percentage Interests"). Reference in any Bank Agreement to your respective Percentage Interests are to such interests as from time to time in effect. 4. Representations and Acknowledgments of New Bank. Without limiting the generality of the joinder contained in Section 2 hereof, the New Bank specifically joins in the representations and acknowledgments contained in Section 10.8 of the Reimbursement Agreement, acknowledges that it has reviewed the Bank Agreements, the Basic Documents and such financial and other information as it deems necessary to make the decision to join the Reimbursement Agreement and the credits thereunder and confirms its obligation to indemnify the Agent as provided in Section 10.9 of the Reimbursement Agreement. The New Bank acknowledges that the transfer of credit hereunder by the [transferor bank(s)] to the New Bank is made without recourse or warranty of any kind on the part of any Existing Bank. 5. Notice Address. For the purpose of Section 9 of the Reimbursement Agreement and Section 23 of the Participation Agreement, the initial notice address of the New Bank will be as follows: ____________________________ ____________________________ ____________________________ ____________________________ 6. Nonrecourse. Anything in this Agreement or any other Bank Agreement to the contrary notwithstanding, each and all of the representations, undertakings and agreements herein or therein made on the part of the Owner Trustee are made and intended not as personal representations, undertakings and agreements by or for the purpose or with the intention of binding it personally but are made and intended for the purpose of binding only the Owner Trust Estate; this Agreement and the other Bank Agreements to which the Owner Trustee is a party are executed and delivered by Chemical Trust Company of California solely in the exercise of the powers expressly conferred upon it as trustee under the Owner Trust Agreement and not in its individual capacity; and no personal liability or responsibility is assumed hereunder or thereunder by or shall at any time be enforceable against Chemical Trust Company of California in its individual capacity or the Owner Participant on account of any representation, undertaking or agreement hereunder or thereunder of the Owner Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the Existing Banks and the New Bank and by all Persons claiming by, through or under the Existing Banks or the New Bank; provided, however, that the Existing Banks and the New Bank and any Person claiming by, through or under the Existing Banks or the New Bank making claim under this Agreement or under any other Bank Agreement may look to the Owner Trust Estate for satisfaction of same. The Owner Trustee may seek instructions from the Owner Participant in exercising its rights or performing its duties hereunder. 7. Miscellaneous. The Reimbursement Agreement as amended hereby and each of the other Bank Agreements are each confirmed in full force and effect. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof or thereof. The headings of this Agreement are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts which together shall constitute one instrument, shall be governed by and construed in accordance with the laws (other than the conflicts of law rules) of The Commonwealth of Massachusetts and shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. If the foregoing corresponds with your understanding of our agreement, kindly sign this letter and the accompanying copies thereof in the appropriate space below and return the same to the undersigned. This letter shall become a binding agreement between each of you and the undersigned as of the date hereof when so accepted and agreed to by each of you. Very truly yours, [Name of New Bank] By: Title: Accepted and Agreed to: Chemical Trust Company of California, not in its individual capacity but solely as Owner Trustee By: ____________________________ Title: Delano Energy Company Inc. By: ____________________________ Title: ABN AMRO Bank N.V., Boston Branch, for Itself and as Agent By: ____________________________ Title: By: ____________________________ Title: ABN AMRO Bank N.V., Boston Branch, as Issuing Bank By: ____________________________ Title: By: Title: [Add other Banks, if appropriate] EX-10.6 4 THERMO ELECTRON 1993 10-K/EXHIBIT 10.6 Exhibit 10.6 AMENDED AND RESTATED PARTICIPATION AGREEMENT dated as of December 31, 1993 Among DELANO ENERGY COMPANY INC., as Lessee, THERMO ENERGY SYSTEMS CORPORATION, Individually and as Owner Participant, CHEMICAL TRUST COMPANY OF CALIFORNIA, as Owner Trustee, ABN AMRO BANK N.V., BOSTON BRANCH, for itself and as Agent, THE FIRST NATIONAL BANK OF BOSTON, as Co-Agent, BANK OF MONTREAL, as Co-Agent, BARCLAYS BANK PLC, as Co-Agent, SOCIETE GENERALE, as Co-Agent, BAYBANK as Lead Manager, and ABN AMRO BANK N.V., CAYMAN ISLANDS BRANCH, the Swap Bank and joined in by THERMO ELECTRON CORPORATION Relating to the 48.1 Mw (net) biomass-fired Power Plant Located in Delano, California TABLE OF CONTENTS PAGE Witnesseth ............................................... 1 Section 1. Definitions ............................. 2 Section 2. Commitment of the Owner Participant ..... 2 Section 3. Closing ................................. 3 Section 3.1. Document Delivery Date .................. 3 Section 3.2. [Reserved] .............................. 3 Section 3.3. [Reserved] .............................. 3 Section 3.4. Conditions Precedent to be Satisfied by the Owner Participant. .................. 3 Section 3.5. Conditions Precedent to be Satisfied by the Banks ............................... 4 Section 3.6. [Reserved] .............................. 4 Section 4. Collateral Support Agreements ........... 4 Section 4.1. TE Support Agreements ................... 4 Section 4.2. Other Support ........................... 5 Section 4.3. Assignments of Support .................. 5 Section 5. [Reserved] .............................. 5 Section 6. Representations and Warranties of Thermo Systems ................................. 5 Section 6.1. Corporate Existence ..................... 5 Section 6.2. Power and Authorization ................. 5 Section 6.3. Execution, Delivery and Enforceability .. 6 Section 6.4. No Legal Bar ............................ 6 Section 6.5. Litigation .............................. 6 Section 6.6. FERC Qualification ...................... 6 Section 6.7. No Lessor Liens ......................... 7 Section 6.8. Employee Retirement Income Security Act of 1974 ................................. 7 Section 6.9. Securities Act .......................... 7 Section 6.10 Knowledge of Defaults ................... 7 Section 7. Representations and Warranties of Thermo Electron ................................ 7 Section 7.1. Corporate Existence ..................... 7 Section 7.2. Power, Authorization and Net Worth ...... 7 Section 7.3. Execution, Delivery and Enforceability .. 8 Section 7.4. No Legal Bar ............................ 8 Section 7.5. Litigation .............................. 8 Section 7.6. Financial Statements .................... 9 Section 7.7. Securities Act .......................... 9 Section 7.8. Disclosure .............................. 9 Section 8. [Reserved] .............................. 9 Section 9. [Reserved] .............................. 9 PAGE Section 10. [Reserved] .............................. 9 Section 11. [Reserved] .............................. 9 Section 12. [Reserved] .............................. 9 Section 13. Continuing Covenants of Thermo Systems .. 9 Section 13.1. Financial Statements and Other Information ............................. 10 Section 13.2. Maintenance of Office ................... 10 Section 13.3. Business and Corporate Existence ........ 10 Section 13.4. Maintenance of Ownership ................ 10 Section 13.5. Compliance with Certain Support Documents ............................... 11 Section 14. Continuing Covenants of Thermo Electron . 11 Section 14.1. Financial Statements and Other Information ............................. 11 Section 14.2. Maintenance of Office ................... 11 Section 14.3. Business; Corporate Existence and Net Worth ................................... 12 Section 14.4. Maintenance of Ownership ................ 12 Section 14.5. Compliance with Certain Support Documents ............................... 12 Section 15. [Reserved] .............................. 12 Section 16. Indemnity Provisions .................... 12 Section 16.1. General Indemnity ....................... 12 Section 16.2. Notice; Right to Contest Claim .......... 13 Section 16.3. General Tax Indemnity ................... 14 Section 16.4. Tax Contests ............................ 17 Section 16.5. [Reserved] .............................. 19 Section 16.6. Survival and Effect of Indemnities ...... 19 Section 17. Transaction Costs; Ongoing Expenses and Fees .................................... 19 Section 17.1. [Reserved] .............................. 19 Section 17.2. [Reserved] .............................. 19 Section 17.3. [Reserved] .............................. 19 Section 17.4. [Reserved] .............................. 19 Section 17.5. Trustees' Fees and Expenses ............. 19 Section 17.6. [Reserved] .............................. 19 Section 17.7. [Reserved] .............................. 19 Section 17.8. Certain Adjustments ..................... 19 Section 17.9. Late Payments ........................... 20 Section 18. [Reserved] .............................. 20 Section 19 Transfer of Owner Participant's Interest 20 Section 19.1. Transfer by Owner Participant ........... 20 Section 19.2. Notice to Delano Energy ................. 21 Section 19.3. Release ................................. 21 PAGE Section 20. Indemnification and Other Covenants and Rights .................................. 21 Section 21 Liabilities of Participants and Trustees 22 Section 22 [Reserved] .............................. 22 Section 23 Notices ................................. 22 Section 24. Miscellaneous ........................... 24 Section 24.1. Nonrecourse ............................. 24 Section 24.2. Severability ............................ 24 Section 24.3. Waivers; Modifications .................. 24 Section 24.4. Binding Effect; Successors and Assigns .. 25 Section 24.5. Reproduction of Documents ............... 25 Section 24.6. Survival of Agreement, etc. ............. 25 Section 24.7. Brokers ................................. 26 Section 24.8. Captions; References .................... 26 Section 24.9. Execution in Counterparts ............... 26 Section 24.10. Governing Law ........................... 26 Section 24.11. Integration ............................. 26 Section 24.12. Rights of Owner Participant ............. 26 Section 24.13. Lessor Liens ............................ 26 Section 24.14. Compliance with Owner Trust Agreement ... 27 Section 24.15. Tax-Exempt Status of Bonds .............. 27 Section 24.16. Replacement of Owner Trustee ............ 27 Section 24.17. Payments From Owner Trust Estate Only ... 27 LIST OF ATTACHMENTS APPENDIX A, Glossary AMENDED AND RESTATED PARTICIPATION AGREEMENT This AMENDED AND RESTATED PARTICIPATION AGREEMENT is dated as of December 31, 1993, among (i) Delano Energy Company Inc., a Delaware corporation, (ii) Thermo Energy Systems Corporation, a Delaware corporation, individually and in its capacity as Owner Participant, (iii) Chemical Trust Company of California, a California company (successor-by-merger to Manufacturers Hanover Trust Company of California), not in its individual capacity (except as otherwise expressly provided herein) but solely as Owner Trustee under the Owner Trust Agreement referred to herein, (iv) ABN AMRO Bank N.V., Boston Branch (formerly known as Algemene Bank Nederland N.V., Boston Branch), for itself and as agent for the Banks (and, in its capacity as such agent, as successor to FNBB), (v) The First National Bank of Boston, a national banking association, (vi) Bank of Montreal, a chartered bank of Canada acting through its Los Angeles Branch, (vii) Barclays Bank PLC, an English corporation acting through its New York Branch, (viii) BayBank, a national banking association, (ix) Societe Generale, a French banking organization and (x) ABN AMRO Bank N.V., Cayman Islands Branch (formerly known as Algemene Bank Nederland N.V., Cayman Islands Branch), and joined in by Thermo Electron Corporation, a Delaware corporation. A.Delano Energy, Thermo Systems, Owner Participant, the Owner Trustee, FNBB as Agent, ABN AMRO and the Swap Bank entered into a Participation Agreement dated as of December 3, 1990 (the "1990 Participation Agreement") joined in by Thermo Electron, pertaining to the financing of Phase I pursuant to which the Owner Trustee purchased all of Delano Energy's right, title and interest in Phase I and leased Phase I back to Delano Energy. B.Prior to the execution and delivery of the 1990 Participation Agreement, Delano Energy arranged long-term debt financing for Phase I through the issuance of the 1989 Bonds and the 1990 Bonds by the CPCFA. The proceeds of the 1989 Bonds and 1990 Bonds were loaned by the CPCFA to Delano Energy pursuant to a Loan Agreement dated as of August 1, 1989, as supplemented by the First Supplemental Loan Agreement dated as of November 15, 1990 between the CPCFA and Delano Energy (the "CPC Phase I Loan Agreement"). C.The obligation of the CPCFA to pay principal and interest on the 1989 Bonds and 1990 Bonds was backed by the 1989 Tax-exempt Financing Credit and the 1990 Tax-exempt Financing Credit, each in favor of the Bond Trustee, as indenture trustee for the holders of the 1989 Bonds and 1990 Bonds, for the account of Delano Energy under the Construction Loan Agreement. 1 D.Prior to or concurrently with the acquisition of Phase I by the Owner Trustee, (1) the obligations of Delano Energy under the CPC Phase I Loan Agreement were assigned to and assumed by the Owner Trustee on a non-recourse basis, (2) all of the obligations of Delano Energy under the Construction Loan Agreement were paid in full and the commitments thereunder of FNBB and ABN AMRO were terminated, except that the 1989 Tax-exempt Financing Credit and the 1990 Tax-exempt Financing Credit remained outstanding, (3) the Construction Loan Agreement was amended and restated as a Reimbursement Agreement among the Owner Trustee, FNBB, for itself and as Agent, ABN AMRO and ABN AMRO as Swap Bank (the "Phase I Reimbursement Agreement"), and (4) in consideration of the credit support provided by FNBB and ABN AMRO and the interest rate protection provided by the Swap Bank with respect to the 1989 Bonds and 1990 Bonds, substantially all of the rights of the Owner Trustee in Phase I and under various related agreements were Granted by the Owner Trustee to FNBB, as Agent for the benefit of the Banks, as security for the payment and performance of the obligations of the Owner Trustee to FNBB as Agent, FNBB, ABN AMRO and the Swap Bank under various agreements entered into in connection with the 1990 Participation Agreement. E.Delano Biomass Energy Company, Inc., a California corporation ("Delano Biomass") has (i) built Phase II, (ii) transferred all of its right, title and interest in Phase II to Delano Energy and (iii) merged into Delano Energy with Delano Energy being the surviving corporation. F.Delano Energy, Thermo Systems, the Owner Participant, the Owner Trustee, ABN AMRO, FNBB, Societe Generale, Southwest Agency, Bank of Montreal, Barclays Bank, PLC, BayBank and the Swap Bank propose to enter into this Amended and Restated Participation Agreement, to be joined in by Thermo Electron, in order to modify the 1990 Participation Agreement as more fully set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS Capitalized terms used in this Agreement without specific definition herein shall have the meanings assigned or referred to in the Glossary attached as Appendix A hereto. SECTION 2. COMMITMENT OF THE OWNER PARTICIPANT (a) On the 1990 Closing Date with respect to Phase I, the Owner Participant (i) entered into the Owner Trust Agreement with the Owner Trustee, (ii) made an equity investment in the beneficial ownership of the Facility consisting of $19,000,000 in 2 immediately available funds and (iii) caused the Owner Trustee(A) to apply the equity investment referred to in clause (ii) above and to assume on a non-recourse basis $72,000,000 principal amount of long-term debt under the CPC Phase I Loan Agreement in order to purchase Phase I and (B) to enter into the 1990 Participation Agreement and each of the other Basic Documents (with respect to Phase I) to which the Owner Trustee is a party. (b) Subject to the terms and conditions of this Agreement, on the Closing Date referred to in Section 3.1 hereof, the Owner Participant shall cause the Owner Trustee to enter into this Agreement and each of the other Basic Documents to which the Owner Trustee is to become a party, or which is being amended or amended and restated in connection herewith. SECTION 3. CLOSING Section 3.1. Document Delivery Date. Subject to the satisfaction by Delano Energy (or the waiver thereof by the Owner Participant and the Agent) on or before the Document Delivery Date of each of the conditions precedent listed in Section 2A.1 of the Reimbursement Agreement, subject to the satisfaction by the Owner Trustee (or the waiver thereof by the Owner Participant, Delano Energy and the Agent) of the conditions precedent listed in Section 2A.3 of the Reimbursement Agreement, subject to the satisfaction by the Owner Participant (or the waiver thereof by Delano Energy and the Agent) of the conditions precedent listed in Section 3.4 hereof, subject to the satisfaction by the Agent and the Banks (or the waiver thereof by the Owner Participant and Delano Energy) of the conditions precedent listed in Section 3.5 hereof, and subject to the satisfaction (or waiver by the Person in whose favor the condition is granted) of the conditions set forth in Section 2A.4 of the Reimbursement Agreement, and to the receipt by the Owner Participant, Delano Energy or the Agent, as the case may be, of such evidence of the satisfaction of such conditions as such Person may reasonably request, the closing shall take place at 1:00 p.m. (Chicago time) on December 31, 1993, at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, or at such other time as the parties hereto may mutually agree. Section 3.2. [RESERVED] Section 3.3. [RESERVED] Section 3.4. Conditions Precedent to be Satisfied by the Owner Participant. 3.4.1. Each of the Basic Documents to which the Owner Participant is a party shall have been duly authorized, executed and delivered by the Owner Participant, shall be satisfactory in form and substance to the Agent, and shall be in 3 full force and effect; and no default or event of default, or event, which with notice or lapse of time or both would constitute a default or event of default, shall exist under any of said Basic Documents then in effect or in the performance by the Owner Participant of any of its obligations thereunder, or would exist under any of said Basic Documents or in the performance by the Owner Participant of any of its obligations thereunder after giving effect to the transactions to occur on the Closing Date as contemplated hereby and thereby. 3.4.2. The representations and warranties of the Owner Participant contained in Section 6 hereof or made in writing by the Owner Participant or any of its officers in connection with the transactions contemplated hereby or thereby shall be true and correct on and as of the Closing Date with the same effect as if made on and as of such date (unless any such representation or warranty is stated to be true and correct on and as of another date, in which case such representation or warranty shall be true and correct as of the date as of which made); and the Owner Participant shall have performed and complied with all agreements and conditions contained herein required to be performed or complied with by it prior to or on the Closing Date. Section 3.5. Conditions Precedent to be Satisfied by the Banks. Each of the Basic Documents to which any Bank is a party shall have been duly authorized, executed and delivered by such Bank, shall be satisfactory in form and substance to the Owner Participant, Delano Energy and each Bank, and shall be in full force and effect; and no default or event of default, or event, which with notice or lapse of time or both would constitute a default or event of default on the part of the Banks, shall exist under any of said Basic Documents then in effect or in the performance by any Bank of any of its obligations thereunder, after giving effect to the transactions to occur on the Closing Date as contemplated hereby and thereby. Section 3.6. [RESERVED] SECTION 4. COLLATERAL SUPPORT AGREEMENTS The following collateral support agreements are collectively referred to as the "Support Documents": Section 4.1. TE Support Agreements. 4.1.1. The Operating Standards Support Agreement; 4.1.2. The Construction Contracts; and 4.1.3. The Thermo Fuel Contract. 4 Section 4.2. Other Support. 4.2.1. The Fuel Supply Contracts; 4.2.2. The Power Purchase Agreement and the following related contracts: (i) the Interconnection Facilities Agreement - Added Facilities Basis dated as of August 15, 1988 (the "Interconnection Agreement") between SCE and Delano Energy, and (ii) each other related contract (if any) pertaining to the production of electrical power by the Facility (each of the Interconnection Agreement and each such other contract being herein referred to individually as an "Ancillary Power Contract" and collectively as the "Ancillary Power Contracts"); 4.2.3. The Subordination Agreement; and 4.2.4. The Ash Disposal Contract. Section 4.3. Assignments of Support. 4.3.1. The SCE Consent; 4.3.2. The Fuel Contractor Consents; and 4.3.3. The Ash Disposal Consent. SECTION 5. [RESERVED] SECTION 6. REPRESENTATIONS AND WARRANTIES OF THERMO SYSTEMS Thermo Systems hereby represents and warrants that: Section 6.1. Corporate Existence. Thermo Systems is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power and authority to own its assets and to transact its business as now conducted and as presently proposed to be conducted by it. Thermo Systems is duly licensed or qualified and is in good standing as a foreign corporation in the State of California and in each other jurisdiction in which licensing or qualification is necessary to transact its business as now conducted or as presently proposed to be conducted by it. Section 6.2. Power and Authorization. Thermo Systems has full power, authority and legal right to execute, deliver and perform this Agreement, the Owner Trust Agreement, the Subordination Agreement, the Delano Energy Stock Pledge Agreement, the Thermo Fuel Contract, the Fuel Contractor Consent relating to the Thermo Fuel Contract and each other Basic Document to which it is or is to become a party (each individually a "Thermo Systems Document" and collectively, the "Thermo Systems Documents"), and the execution, delivery and 5 performance by Thermo Systems of the Thermo Systems Documents have been duly authorized by all necessary action on the part of Thermo Systems, and do not require any shareholder approval or the approval or consent of any trustee or holder of any indebtedness or obligations of Thermo Systems. There is no fact which Thermo Systems has not disclosed to the parties hereto in writing prior to the date hereof which materially adversely affects or, so far as Thermo Systems can now reasonably foresee, will materially adversely affect the ability of Thermo Systems to perform its obligations under any of the Thermo Systems Documents. Section 6.3. Execution, Delivery and Enforceability. This Agreement has been duly executed and delivered by Thermo Systems and constitutes, and each other Thermo Systems Document will upon execution and delivery thereof by Thermo Systems constitute, legal, valid and binding obligations of Thermo Systems enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditors' rights. Section 6.4. No Legal Bar. The execution, delivery and performance by Thermo Systems of the Thermo Systems Documents (i) will not violate any provision of any applicable law or regulation or any order, writ, judgment or decree of any court, arbitrator or governmental authority applicable to Thermo Systems or to any of its assets, (ii) will not violate any provision of its corporate charter or by-laws, and (iii) will not violate any provision of, or constitute a default under, or result in the creation or imposition of any Lien on any of the assets of Thermo Systems or on the Owner Trust Estate pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking of which Thermo Systems is a party or which purports to be binding upon Thermo Systems or upon any of its assets. Section 6.5. Litigation. There are no actions, suits, investigations or proceedings (whether or not purportedly on behalf of Delano Energy) pending or, to the best knowledge of Thermo Systems, threatened against or affecting Thermo Systems or any of its properties, which, if adversely determined, might either in any case or in the aggregate have a material adverse effect (i) on the Thermo Systems' ability to deliver, or perform its obligations under any Thermo Systems Document or (ii) on the properties, business, prospects or financial condition of Thermo Systems. Section 6.6. FERC Qualification. Thermo Systems does not own, for purposes of 18 C.F.R. Section 292.204(a)(2), another small power production facility located within one mile of the Facility. Thermo Systems is not a person primarily engaged in the generation or sale of electric power (other than electric power solely from co-generation facilities or small power 6 production facilities), within the meaning of 18 C.F.R. Section 292.206. Section 6.7. No Lessor Liens. There are no Lessor Liens affecting the title of the Owner Trustee to the Facility. Section 6.8. Employee Retirement Income Security Act of 1974. Thermo Systems has acquired its beneficial interest in the Facility for its own account and with its general corporate assets and not with the assets of any employee benefit plan or any separate account in which any employee benefit plan has any interest, or with assets deemed to be the assets of any employee benefit plan. As used in this Section 6.8, the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in ERISA. Section 6.9. Securities Act. Neither Thermo Systems nor anyone authorized to act on its behalf has directly or indirectly offered any interest in the Owner Trust Estate, the Facility, the Bonds or any similar securities for sale to, or solicited any offer to acquire any of the same from, anyone in a manner which would result in a violation of the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder, and Thermo Systems has acquired its interest in the Owner Trust Estate created under the Owner Trust Agreement in a manner which has not resulted in a violation of said Act or the rules and regulations promulgated thereunder. Section 6.10. Knowledge of Defaults. To the knowledge of Thermo Systems, no Lease Default or Lease Event of Default has occurred and is continuing. Thermo Systems is not in violation of any term of this Agreement or any other Basic Document. SECTION 7. REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON Thermo Electron hereby represents and warrants that: Section 7.1. Corporate Existence. Thermo Electron is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power and authority to own its assets and to transact its business as now conducted and as presently proposed to be conducted by it. Thermo Electron is duly licensed or qualified and is in good standing as a foreign corporation in the State of California and in each other jurisdiction in which licensing or qualification is necessary to transact its business as now conducted or as presently proposed to be conducted by it. Section 7.2. Power, Authorization and Net Worth. Thermo Electron has full power, authority and legal right to execute, deliver and perform this Agreement, the Operating Standards Support Agreement, the Subordination Agreement, the 7 Thermo Fuel Contract, the Fuel Contractor Consent relating to the Thermo Fuel Contract and each other Basic Document to which it is or is to become a party (each individually a "Thermo Electron Document" and collectively, the "Thermo Electron Documents"), and the execution, delivery and performance by Thermo Electron of the Thermo Electron Documents have been duly authorized by all necessary action on the part of Thermo Electron, and do not require any shareholder approval or the approval or consent of any trustee or holder of any indebtedness or obligations of Thermo Electron. Thermo Electron has a net worth of at least $75,000,000 on the Closing Date. There is no fact which Thermo Electron has not disclosed to the parties hereto in writing prior to the date hereof which materially adversely affects or, so far as Thermo Electron can now reasonably foresee, will materially adversely affect the ability of Thermo Electron to perform its obligations under any of the Thermo Electron Documents. Section 7.3. Execution, Delivery and Enforceability. This Agreement has been duly executed and delivered by Thermo Electron and constitutes, and each other Thermo Electron Document will upon execution and delivery thereof by Thermo Electron constitute, legal, valid and binding obligations of Thermo Electron enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditors' rights. Section 7.4. No Legal Bar. The execution, delivery and performance by Thermo Electron of the Thermo Electron Documents (i) will not violate any provision of any applicable law or regulation or any order, writ, judgment or decree of any court, arbitrator or governmental authority applicable to Thermo Electron or to any of its assets, (ii) will not violate any provision of its corporate charter or by-laws, and (iii) will not violate any provision of, or constitute a default under, or result in the creation or imposition of any Lien on any of the assets of Thermo Electron pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking of which Thermo Electron is a party or which purports to be binding upon Thermo Electron or upon any of its assets. Section 7.5. Litigation. There are no actions, suits, investigations or proceedings (whether or not purportedly on behalf of Delano Energy) pending or, to the best knowledge of Thermo Electron, threatened against or affecting Thermo Electron or any of its properties, which, if adversely determined, might either in any case or in the aggregate have a material adverse effect (i) on Thermo Electron's ability to deliver, or perform its obligations under any Thermo Electron Document or (ii) on the properties, business, prospects or financial condition of Thermo Electron. 8 Section 7.6. Financial Statements. The financial statements of Thermo Electron for its fiscal year ended January 2, 1993, including its balance sheet and related statements of income and of cash flows have been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly present its financial position as at that date and for the fiscal period then ended; and since the date of such financial statements there has been no material adverse change in its financial position. Section 7.7. Securities Act. Neither Thermo Electron nor anyone acting on its behalf has directly or indirectly offered any interest in the Owner Trust Estate, the Facility, the Bonds or any similar securities for sale to, or solicited any offer to acquire any of the same from, anyone in a manner which would result in a violation of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Section 7.8. Disclosure. Neither Thermo Electron nor any Affiliate of Thermo Electron, nor any Person acting on behalf of Thermo Electron, shall furnish or has furnished any information contained in or to be contained in an official statement or other disclosure document used or to be used by the Remarketing Agent in connection with the offering of the Bonds for sale, whether such official statement or disclosure document was prepared in accordance with Section 3 of the Remarketing Agreement, any comparable section of a predecessor or successor agreement to the Remarketing Agreement or was otherwise prepared and distributed by the Remarketing Agent, which information contains any untrue statement of a material fact or omission to state any material fact necessary to make such statements not misleading, in light of the circumstances under which they were made. SECTION 8. [RESERVED] SECTION 9. [RESERVED] SECTION 10. [RESERVED] SECTION 11. [RESERVED] SECTION 12. [RESERVED] SECTION 13. CONTINUING COVENANTS OF THERMO SYSTEMS Except as otherwise consented to by the Agent in writing, Thermo Systems covenants and agrees that so long as the Facility is leased under the Lease or any liability of Delano Energy or any of its Affiliates hereunder or under any of the other Basic Documents remains unpaid or unperformed, and undischarged: 9 Section 13.1. Financial Statements and Other Information. Thermo Systems will at all times keep proper books of record and account in which full, true and correct entries shall be made and will furnish to the Agent: (i) as soon as available, and in any event within 120 days after the end of each fiscal year of Thermo Systems, the balance sheet of Thermo Systems as of the end of such fiscal year and related statements of income, stockholders' equity and cash flows of Thermo Systems for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles applied on a basis consistently maintained throughout the period involved, unless any inconsistency therein is approved in writing by the accountants reviewing or certifying such financial statements and, until such time as separately certified financial statements are available, certified by the Chief Financial Officer of Thermo Systems, and thereafter certified by Arthur Andersen & Co. or other independent certified public accountants reasonably acceptable to the Agent; and (ii) with reasonable promptness, such other information respecting the business, assets, financial condition and results of operations of Thermo Systems as the Agent may from time to time reasonably request. Section 13.2. Maintenance of Office. Thermo Systems will maintain an office in Waltham, Massachusetts, or at such other place in the United States of America as Thermo Systems shall designate not less than thirty days prior to any change of such office by written notice, addressed as provided in Section 23 hereof, where notices, presentations and demands to or upon Thermo Systems may be given or made. Section 13.3. Business and Corporate Existence. Thermo Systems will (i) keep in full force and effect its separate corporate existence and all rights, licenses, leases and franchises reasonably necessary to the conduct of its business, and (ii) comply with (a) the applicable laws and regulations wherever its business is conducted, (b) the provisions of its corporate charter or by-laws, and (c) all agreements and instruments by which it or any of its properties may be bound and all applicable decrees, orders and judgments in such manner that there will not result in the imposition of substantial penalties or a material and adverse effect on the financial condition, properties or business of Thermo Systems. Section 13.4. Maintenance of Ownership. Thermo Systems alone will maintain direct ownership of 100% of the issued and outstanding capital stock of Delano Energy. 10 Section 13.5. Compliance with Certain Support Documents. Thermo Systems shall (i) duly perform all obligations to be performed by it under the Thermo Systems Documents, and (ii) use its best efforts to obtain all orders, consents, permits, licenses and approvals, and make all registrations, declarations and filings, necessary to keep the Thermo Systems Documents in full force and effect. SECTION 14. CONTINUING COVENANTS OF THERMO ELECTRON Except as otherwise consented to by the Owner Participant and the Agent in writing, Thermo Electron covenants and agrees that so long as the Facility is leased under the Lease or any liability of Delano Energy or any of its Affiliates hereunder or under any of the other Basic Documents remains unpaid or unperformed, and undischarged: Section 14.1. Financial Statements and Other Information. Thermo Electron will at all times keep proper books of record and account in which full, true and correct entries shall be made and will furnish to the Owner Participant and each Bank: (i) as soon as available, and in any event within 120 days after the end of each fiscal year of Thermo Electron, the consolidated balance sheet of Thermo Electron as of the end of such fiscal year and related consolidated statements of income, stockholders' equity and cash flows of Thermo Electron for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles applied on a basis consistently maintained throughout the period involved, unless any inconsistency therein is approved in writing by the accountants certifying such financial statements, and certified by Arthur Andersen & Co. or other independent certified public accountants reasonably acceptable to the Owner Participant and the Agent; and (ii) with reasonable promptness, such other information respecting the business, assets, financial condition and results of operations of Thermo Electron as the Owner Participant and the Agent may from time to time reasonably request. Section 14.2. Maintenance of Office. Thermo Electron will maintain an office in Waltham, Massachusetts, or at such other place in the United States of America as Thermo Electron shall designate not less than thirty days prior to any change of such office by written notice, addressed as provided in Section 23 hereof, where notices, presentations and demands to or upon Thermo Electron may be given or made. 11 Section 14.3. Business; Corporate Existence and Net Worth. Thermo Electron will (i) keep in full force and effect its separate corporate existence and all rights, licenses, leases and franchises reasonably necessary to the conduct of its business, (ii) comply with (a) the applicable laws and regulations wherever its business is conducted, (b) the provisions of its corporate charter or by-laws, and (c) all agreements and instruments by which it or any of its properties may be bound and all applicable decrees, orders and judgments in such manner that there will not result in a material and adverse effect on the financial condition, properties or business of Thermo Electron such that Thermo Electron shall be unable to fulfill its obligations under any Basic Document, and (iii) so long as Thermo Electron has continuing obligations under any Basic Document, maintain a net worth of not less than $75,000,000. Section 14.4. Maintenance of Ownership. Thermo Systems alone will maintain direct ownership of 100% of the issued and outstanding capital stock of Delano Energy and Thermo Electron will maintain direct ownership of at least 51% of the issued and outstanding capital stock of Thermo Systems. Section 14.5. Compliance with Certain Support Documents. Thermo Electron shall duly perform all obligations to be performed by it under the TE Support Agreements. SECTION 15. [RESERVED] SECTION 16. INDEMNITY PROVISIONS Section 16.1. General Indemnity. Delano Energy and the Owner Trustee do hereby jointly and severally assume liability for, and do hereby jointly and severally agree on written demand to indemnify, protect, save and hold harmless each Indemnitee and its agents, directors, officers and employees from and against, any and all liabilities, obligations, losses, damages, penalties, claims (whether founded or unfounded), actions, suits, judgments (wherever awarded and without any limitation as to amount), costs (including costs of enforcement of the Reimbursement Agreement, the Lease or any of the other Basic Documents against Delano Energy resulting from the breach thereof by Delano Energy), expenses and disbursements (including legal fees and expenses and costs of investigation), of whatsoever kind and nature (herein collectively called "Liabilities"), whether or not any of the transactions contemplated hereby are consummated, which may be imposed on, incurred by or asserted against any Indemnitee in any way relating to or arising out of: (i) the manufacture, installation, purchase, delivery, ownership, lease, sublease, possession, rental, use, condition, operation, transportation, 12 return, sale, replacement, storage or disposition of the Facility or any Part (including, without limitation, Liabilities in any way relating to or arising out of injury to persons, property or the environment, patent or invention rights, or common law or strict liability in tort or the negligence of such Indemnitee); (ii) Delano Energy's failure to comply with any environmental, health, safety or sanitation law, code, ordinance, rule or regulation or any interpretation or order of any regulatory or administrative authority with respect thereto; (iii) any release, use, generation, treatment or storage of oil or Hazardous Materials or substances on, upon or into the Land or located at the Facility; (iv) any and all damage to natural resources or real property and/or harm or injury to Persons resulting or alleged to have resulted from such failure to comply and/or release of oil or Hazardous Materials or substances; or (v) this Agreement, the 1990 Participation Agreement or any of the other Basic Documents or any of the transactions contemplated hereby or thereby, or any part hereof or thereof, or any other document or instrument hereafter executed and delivered pursuant to the terms hereof or thereof, or the enforcement of any of the terms of this Agreement, any of the other Basic Documents or any other document or instrument hereafter executed and delivered pursuant to the terms hereof or thereof, or the enforcement of any agreement, restriction or legal requirement affecting the Facility or any part thereof, or the ownership, operation or use of the Facility or any Part, except that the items or events covered by this clause (v) shall not include any items or events covered by clauses (i), (ii), (iii) or (iv) of this Section 16.1; provided, that Delano Energy and the Owner Trustee shall not be required to indemnify any Indemnitee for (a) Liabilities resulting from the gross negligence of such Indemnitee or from the willful misconduct of any Indemnitee, or (b) any expenses to be borne by such Indemnitee pursuant to the express provisions hereof or of the Reimbursement Agreement or the Lease. Delano Energy's and the Owner Trustee's indemnification obligations under clause (v) of this Section 16.1 shall not terminate with respect to any such act or event occurring prior to the payment and performance in full of all Bank Obligations). Upon the payment in full of any Liability by Delano Energy and/or the Owner Trustee in accordance with this 13 Section 16.1, Delano Energy and/or the Owner Trustee, as the case may be, shall be subrogated to any right of such Indemnitee in respect of the matter against which indemnity has been given. Notwithstanding the foregoing provisions of this Section 16.1, Delano Energy and the Owner Trustee assume no liability for taxes, levies, assessments, imposts, duties, charges and withholdings (and penalties, fines and interest thereon) except as specifically provided in Section 16.3 hereof. Section 16.2. Notice; Right to Contest Claim. If any claim is made against any Indemnitee on account of any Liability indemnified against under Section 16.1 hereof, such Indemnitee shall, upon its receipt of written notice of such claim, give prompt written notice thereof to Delano Energy and the Owner Trustee. Any failure to so notify Delano Energy and/or the Owner Trustee shall not discharge, diminish or relieve Delano Energy or the Owner Trustee, as the case may be, from any indemnification obligations set forth in Section 16.1 hereof, and any payment by Delano Energy or the Owner Trustee to an Indemnitee pursuant to Section 16.1 hereof shall not be deemed to constitute a waiver or release of any right or remedy (including any remedy of damages) which Delano Energy or the Owner Trustee, as the case may be, may have against such Indemnitee as a result of any failure by such Indemnitee to give Delano Energy and/or the Owner Trustee notice of any claim in the manner provided in the first sentence of this Section 16.2, provided that Delano Energy and the Owner Trustee shall have no such right or remedy unless such failure of such Indemnitee to give notice of such claim caused Delano Energy and/or the Owner Trustee, as the case may be, to be unable to contest the Liability indemnified against. Delano Energy and the Owner Trustee, at their sole cost and expense, may contest in good faith any Liability indemnified against under Section 16.1 hereof, provided that (i) such contest will not involve any danger of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on, the Facility or any Part or any interest therein, or of any impairment of the payment of Rent by Delano Energy or the payment of Bank Obligations by Delano Energy or the Owner Trustee; (ii) such contest will not adversely affect the Facility or any Part, or any property, assets or rights of an Indemnitee; and (iii) such Liability does not relate in any way to the business of any Indemnitee other than the ownership, leasing and financing of the Facility. If the Liability relates to the business of an Indemnitee other than the ownership, leasing and financing of the Facility and such Indemnitee does not consent to the contest thereof by Delano Energy and/or the Owner Trustee, or if the Liability must under applicable law be contested by the Indemnitee, Delano Energy or the Owner Trustee may request such Indemnitee to contest such Liability and such Indemnitee will contest such Liability in good faith, provided that (a) Delano Energy and the Owner Trustee shall furnish such Indemnitee with an opinion of independent counsel reasonably satisfactory to such Indemnitee to the effect 14 that there exists a reasonable basis for contesting such Liability, (b) such Indemnitee may determine the court of competent jurisdiction in which to contest such Liability, (c) the conduct of the litigation shall remain within the sole discretion of such Indemnitee (but such Indemnitee will keep Delano Energy and the Owner Trustee informed as to the progress of such litigation and will consult with Delano Energy's and the Owner Trustee's counsel if requested), (d) such Indemnitee shall not be required to undertake judicial proceedings if the Liability being contested is less than $25,000, (e) the conditions set forth in clauses (i) and (ii) of the proviso to the preceding sentence shall be satisfied, and (f) Delano Energy and the Owner Trustee shall have agreed to indemnify such Indemnitee in a manner satisfactory to such Indemnitee and shall have provided such Indemnitee with reasonable evidence of Delano Energy's and the Owner Trustee's ability to pay such Indemnitee for any liability or loss which such Indemnitee may incur as a result of contesting such Liability and shall have agreed to pay such Indemnitee on demand all costs and expenses that it may incur in connection with contesting such Liability, including, without limitation, reasonable attorneys', accountants', engineers' and like professional fees and disbursements, the reasonable fees and expenses of attorneys in the regular employ of such Indemnitee and the amount of any interest or penalty that may be payable as a result of contesting such Liability. If an Indemnitee is contesting a Liability pursuant to the foregoing sentence solely because such Liability must under applicable law be contested by it and such Liability does not relate to the business of such Indemnitee other than the ownership, leasing and financing of the Facility, a settlement of such contest by such Indemnitee without Delano Energy's and the Owner Trustee's consent (which consent shall not be unreasonably withheld) shall constitute a release of Delano Energy's and the Owner Trustee's indemnity obligations with respect to such Liability. Section 16.3. General Tax Indemnity. Delano Energy and the Owner Trustee shall pay, and shall indemnify, protect, save and keep harmless each Indemnitee from and against, all license and registration fees and all taxes (including, without limitation, income, franchise, excise, sales, use, occupational, personal or real property and stamp taxes), levies, assessments, imposts, duties, charges or withholdings of any nature whatsoever, together with any penalties, fines or interest thereon, imposed against such Indemnitee, Delano Energy, the Owner Trustee or any of them or the Facility, any Part or the Land by any Federal, state or local government or taxing authority in the United States upon or with respect to the Facility, any Part or the Land or any interest in any thereof, or upon or with respect to the manufacture, installation, purchase, delivery, ownership, warranty, lease, sublease, financing, possession, rental, use, operations, transportation, return, sale, replacement, storage or disposition of any thereof, or upon or with respect to the Rent, receipts, earnings or gains arising 15 from the Facility, any Part or the Land or the income or proceeds with respect to any such property or upon or with respect to this Agreement, the Reimbursement Agreement, the Lease, or any other Basic Document (including the performance of any of the transactions contemplated hereby or thereby) (herein collectively called "Taxes," and individually, a "Tax"), excluding, however: (i) Federal taxes, fees or other charges that are based on, or measured by, net income; (ii) taxes imposed by the State of California that are based on, or measured by, net income; and (iii) other taxes, fees or other charges that are based on, or measured by, net income to the extent imposed by the state, city or municipality in which the principal office of the Indemnitee is located or by any political subdivision of such state, city or municipality; provided, that Delano Energy and the Owner Trustee shall and hereby do agree to pay any such Taxes referred to in the foregoing clauses (i) through (iii) that are based on, or measured by, Rent payable under the Lease or the net income therefrom which are in substitution for or relieve Delano Energy and/or the Owner Trustee from any taxes, fees or other charges which Delano Energy or the Owner Trustee would otherwise be obligated to pay under the terms of this Section 16.3. In case any report or return is required to be made with respect to any taxes, fees or other charges indemnified against by Delano Energy and the Owner Trustee under this Section 16.3, (a) where legally permissible Delano Energy will make such report or return when and as required under applicable laws or regulations setting forth therein the Owner Trustee's ownership of Phase I and send a copy of such report or return to each of the Owner Participant, the Owner Trustee and the Agent, (b) in other cases, will notify the Owner Trustee of such requirement at least 60 days prior to the date such report or return is required to be made or promptly upon Delano Energy's first obtaining knowledge of the requirement of such report or return, whichever is later, and make such report or return in a manner satisfactory to the Owner Participant and the Agent, provided that Delano Energy shall not be obligated to make any report or return with respect to a Tax that is not related to the financing, ownership, operation or leasing of the Facility. 16.3.1. If, prior to the payment by such Indemnitee of any Tax indemnified against, Delano Energy shall not have provided such Indemnitee with sufficient funds to pay such Tax, the amount of such Tax paid by the Indemnitee shall bear interest from the date of payment thereof by such Indemnitee to the date of reimbursement therefor by Delano Energy at the Delay Rate. 16 16.3.2. Delano Energy shall be obligated under this Section 16.3 irrespective of whether such Indemnitee shall also be indemnified with respect to any such Tax elsewhere under the Lease, the Reimbursement Agreement or under any other Basic Document or by any other Person, and such Indemnitee may proceed directly against Delano Energy and/or the Owner Trustee under this Section 16.3 without first resorting to any such other rights of indemnification. Upon payment in full of any indemnities by Delano Energy and/or the Owner Trustee in accordance with this Section 16.3, Delano Energy and/or the Owner Trustee, as the case may be, shall be subrogated to any right of such Indemnitee in respect of the matter against which indemnity has been given. 16.3.3. All amounts payable by Delano Energy and the Owner Trustee pursuant to this Section 16.3 shall be payable directly to the Person entitled to payment or indemnification. Section 16.4. Tax Contests. If any claim is made against any Indemnitee for any Tax indemnified against under Section 16.3, such Indemnitee shall, upon its receipt of written notice of such claim, given prompt written notice thereof to Delano Energy and the Owner Trustee. Delano Energy and/or the Owner Trustee, at their sole cost and expense, may contest in good faith any taxes, fees or other charges indemnified against under Section 16.3, provided that (i) such contest will not involve any danger of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on, the Facility, any Part or any interest therein, or of any impairment of the payment of Bank Obligations by Delano Energy and/or the Owner Trustee, (ii) such contest will not adversely affect the Facility or any Part, or any other property, assets or rights of an Indemnitee, and (iii) such Taxes do not relate in any way to the business of any Indemnitee other than the ownership, leasing and financing of the Facility. 16.4.1. If any Tax relates to the business of an Indemnitee other than the ownership, leasing and financing of the Facility and such Indemnitee does not consent to the contest thereof by Delano Energy and/or the Owner Trustee, or if the Tax must under applicable law be contested by the Indemnitee, Delano Energy and/or the Owner Trustee, as the case may be, may request such Indemnitee to contest such Tax whereupon such Indemnitee shall contest the same in good faith, but only if the following conditions are met: (i) Delano Energy and/or the Owner Trustee, as the case may be, shall furnish such Indemnitee with an opinion of independent counsel reasonably satisfactory to such Indemnitee to the effect that a reasonable basis as set forth in A.B.A. Opinion 85-352 for contesting such Tax exists, (ii) such Indemnitee may determine the court of competent jurisdiction or other forum in which to contest such Tax, (iii) the conduct of the proceedings shall remain within the sole discretion of such Indemnitee (but such Indemnitee will keep Delano Energy and/or 17 the Owner Trustee, as the case may be, informed as to the progress thereof and will consult with Delano Energy's or the Owner Trustee's counsel if requested), (iv) such Indemnitee shall not be required to undertake judicial proceedings if the amount of the Tax or Taxes to be contested is less than $25,000 (and for this purpose any contest that relates to an issue that would affect more than one taxable year shall be treated as involving the total potential undiscounted Taxes, taking into account all taxable years to which the issue could relate), (v) the conditions set forth in clauses (i) and (ii) of Section 16.4 hereof shall be satisfied, (vi) Delano Energy and/or the Owner Trustee, as the case may be, shall have agreed to indemnify such Indemnitee in a manner, and with security, satisfactory to such Indemnitee for any liability or loss which such Indemnitee may incur as a result of contesting such Tax and shall have agreed to pay such Indemnitee on demand all costs and expenses that it may incur in connection with contesting such Tax, including, without limitation, reasonable fees and expenses of attorneys', accountants', engineers', and like professional fees and disbursements, the reasonable fees and expenses of attorneys in the regular employ of such Indemnitee and the amount of any interest or penalty that may be payable as a result of contesting such Tax, and (vii) if such Indemnitee shall elect to contest such Tax by paying the amount claimed and seeking a refund, Delano Energy and/or the Owner Trustee, as the case may be, shall have provided such Indemnitee with sufficient funds to pay the Tax so claimed or, if such Indemnitee shall have paid the Tax indemnified against and shall thereafter have demanded from Delano Energy and/or the Owner Trustee, as the case may be, the payment or indemnity provided for in Section 16.3, promptly following such demand Delano Energy and/or the Owner Trustee, as the case may be, shall have paid to such Indemnitee all amounts (including interest) required to be paid under Section 16.3. If Delano Energy and/or the Owner Trustee provide funds to such Indemnitee in an amount sufficient to pay the Tax and requests that such Indemnitee contest the proposed adjustment by seeking a refund of such Tax, then upon receipt by such Indemnitee of a refund (or credit against tax which does not result in a refund because it is applied against any tax deficiencies of such Indemnitee) of any Taxes paid with funds so provided by Delano Energy and/or the Owner Trustee, such Indemnitee shall forthwith pay to Delano Energy and/or the Owner Trustee, as the case may be, the amount so provided by Delano Energy and/or the Owner Trustee and subsequently refunded or credited to such Indemnitee, together with any interest thereon that has been paid or credited to such Indemnitee in respect to such refund or credit. If an Indemnitee is contesting a Tax pursuant to the foregoing provisions of this Section 16.4 solely because such Tax must under applicable laws be contested by it and such Tax does not relate solely to the Indemnitee's ownership, leasing or financing of the Facility, the Indemnitee may make a settlement of such contest without Delano Energy's or the Owner Trustee's consent in which event Delano Energy and the Owner Trustee shall not be 18 obligated to make any indemnification payment to such Indemnitee in respect of the Tax in question. Section 16.5. [Reserved] Section 16.6. Survival and Effect of Indemnities. The indemnities of Delano Energy and the Owner Trustee provided for in this Agreement and Delano Energy's and the Owner Trustee's obligations under any and all thereof, including specifically the indemnities provided for in Sections 16.1 and 16.3 hereof, shall survive any investigation or any other action taken by any Indemnitee and the expiration or other termination of this Agreement or any other Basic Document. Delano Energy's and the Owner Trustee's obligations under the indemnities provided for in this Agreement shall be those of a primary obligor (and not of a guarantor or surety) whether or not the Indemnitee shall also be indemnified with respect to the same matter under the terms of any other document or instrument or by any other Person, and any Indemnitee seeking indemnification from Delano Energy and/or the Owner Trustee pursuant to any provision of this Agreement may proceed directly against Delano Energy and/or the Owner Trustee without first seeking to enforce any other right of indemnification. SECTION 17. TRANSACTION COSTS; ONGOING EXPENSES AND FEES Section 17.1. [Reserved] Section 17.2. [Reserved] Section 17.3. [Reserved] Section 17.4. [Reserved] Section 17.5. Trustees' Fees and Expenses. Delano Energy shall pay, promptly upon demand therefor, the continuing annual administration fees and all filing, recording, registration and other fees and out-of-pocket expenses of the Owner Trustee, the Agent, the Revenue Trustee, the Bond Trustee and the "Registrar" and the "Paying Agent" under the Bond Indenture in connection with the Overall Transactions. Section 17.6. [Reserved] Section 17.7. [Reserved] Section 17.8. Certain Adjustments. The Borrowers shall pay to the Revenue Trustee for deposit in the Supplemental Reserve Fund an amount equal to the positive difference, if any, between the amount paid by the Swap Bank to the Issuing Bank pursuant to Section 2 of the Swap Agreements less the interest due on the Bonds on the same date such amount was due under the Swap Agreements. 19 Section 17.9. Late Payments. If payment of any amount due hereunder is not paid in full when due, and remains unpaid five days after demand therefor by the party entitled thereto, such overdue amount, including, to the extent permitted by law, overdue interest, shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate equal to the Delay Rate. SECTION 18. [RESERVED] SECTION 19. TRANSFER OF OWNER PARTICIPANT'S INTEREST Section 19.1. Transfer by Owner Participant. The Owner Participant shall not assign (except to the Agent to secure payment and performance of the Secured Obligations), convey or otherwise transfer, voluntarily or involuntarily, any of its beneficial interest in and to the Facility, this Agreement, the Lease or any other Basic Document or Support Document, or its leasehold interest in the Land, except on the conditions set forth in this Section 19. The Owner Participant may transfer to one, but not more than one, other Person (herein referred to as the "Transferee"), after the Closing Date, all or any proportionate part of such aggregate beneficial interest, subject to the conditions that: (i) the Transferee shall have the requisite power and authority to enter into and carry out the transactions contemplated by this Agreement and the other Basic Documents; (ii) the Transferee shall enter into an agreement or agreements, in form and substance reasonably satisfactory to Delano Energy, and the Agent, and for so long as any Bonds are outstanding under the Bond Indentures, CPCFA (as evidenced by the written consent of CPCFA, which consent may, in CPCFA's sole discretion, be conditioned upon the credit rating on the Bonds as determined by Standard & Poor's Corporation or Moody's Investors Service, remaining at substantially the same rating level of the Bonds immediately prior to the effective date of such sale or transfer), whereby the Transferee confirms that it shall be deemed a party to this Agreement and each other Basic Document to which the Owner Participant is a party, and agrees to provide all of the representations, warranties and agreements of the Owner Participant under Section 6 hereof and to be bound by all of the terms of, and to undertake all the obligations of, the Owner Participant contained in the Basic Documents to which it is a party, including being the beneficial owner of the Facility under the terms of 20 the Owner Trust Agreement and this Agreement; and the Transferee and the Owner Participant shall enter into such agreements, in form and substance reasonably satisfactory to Delano Energy, the Agent, and CPCFA to transfer such right, title or interest to the Transferee; and CPCFA (as evidenced by CPCFA's written approval), (iii) the Transferee shall be either (A) a bank, trust company or insurance company, pension trust, credit or finance corporation or other financial institution organized under the laws of the United States or any State thereof with capital and surplus of at least $50,000,000, or (B) a business corporation or leasing corporation or any other entity experienced in transactions of the type contemplated by this Agreement, organized and operating under the laws of any State of the United States with a net worth of at least $50,000,000, or (C) a subsidiary of any Person described in clause (A) or (B) above whose obligations under the Basic Documents are guaranteed by such Person by instruments reasonably satisfactory in form and substance to the Owner Trustee and the Agent, or (D) an Affiliate of the Owner Participant whose obligations are guaranteed by the Owner Participant. Upon any transfer permitted by this Section 19, except as otherwise expressly provided herein, each reference herein to the Owner Participant shall thereafter be deemed to be a reference to the Transferee. Section 19.2. Notice to Delano Energy. If the Owner Participant proposes to transfer all or any portion of its interest hereunder pursuant to this Section 19, it shall give written notice to Delano Energy, the Owner Trustee, each Bank and CPCFA specifying the name and address of the proposed Transferee and specifying the facts necessary to determine compliance with this Section 19. Section 19.3. Release. The parties hereto agree that, upon the transfer of all or any portion of the Owner Participant's interest pursuant to this Section 19, the Owner Participant shall be thereby released from all of its future obligations under this Agreement and the other Basic Documents with respect to the interest so transferred, except for accrued obligations and those attributable to periods prior to such transfer. SECTION 20. INDEMNIFICATION AND OTHER COVENANTS AND RIGHTS If any of the Owner Participant, the Owner Trustee or the Agent shall be requested by Delano Energy to take or refrain from 21 taking any action in connection with the transactions contemplated hereby, which such Person has not expressly agreed to take or refrain from taking in the Lease or this Agreement, Delano Energy shall furnish such reasonable indemnity as may be requested by such Person. SECTION 21. LIABILITIES OF PARTICIPANTS AND TRUSTEES Neither the Owner Participant, the Owner Trustee nor any Bank shall have any obligation or duty to Delano Energy or any other Person with respect to the transactions contemplated hereby, except those obligations or duties expressly set forth in this Agreement and in each of the other Basic Documents to which such Person is a party. SECTION 22. [RESERVED] SECTION 23. NOTICES All notices, requests, demands and other communications required or contemplated by the provisions hereof or of any other Basic Document shall refer on their face to the "Delano Energy Project" (although failure to do so shall not make such notice ineffective), shall, unless otherwise specified, be in writing or by telex or telegraph, and shall be deemed to have been given when received, if addressed as follows: If to the Owner Participant: Thermo Energy Systems Corporation 81 Wyman Street Waltham, MA 02254-9046 Attn: Mr. Parimal Patel If to the Owner Trustee: Chemical Trust Company of California 50 California Street 10th Floor San Francisco, CA 94111 Attn: Rose Maravilla If to the Agent or to ABN AMRO Bank N.V., Boston Branch, or to ABN AMRO Bank N.V., Cayman Islands Branch: ABN AMRO Bank N.V., Boston Branch Exchange Place 53 State Street, 19th Floor Boston, Massachusetts 02109 Attn: Vice President and Manager 22 With a copy to: ABN AMRO Bank N.V. 135 South LaSalle Street, Suite 560 Chicago, Illinois 60603 Attn: Project Finance Group Re: Delano Energy Co., Inc. If to FNBB: The First National Bank of Boston 100 Federal Street Boston, Massachusetts 02110 Attn: Stefan Breuer, Vice President, Energy and Utilities Division If to Bank of Montreal: 707 Wilshire Blvd., Suite 4840 Los Angeles, CA 90017 Attn: Lawrence E. Jones, P.E., Director, Natural Resources If to Barclays Bank PLC: 222 Broadway, 11th Floor New York, NY 10038 Attn: Mark Tuminello Project Finance Group 222 Broadway, 11th Floor New York, NY 10038 Attn: Stephanie Gledhill Client Service Representative If to Societe Generale: 1111 Bagby, Suite 2020 Houston, TX 77002 Attn: Stephen W. Warfel U.S. Project Finance If to BayBank: 175 Federal Street Boston, MA 02110 Attn: Timothy M. Laurion If to Delano Energy: Delano Energy Company Inc. 81 Wyman Street Waltham, MA 02254-9046 Attn: Mr. Parimal Patel 23 If to Thermo Electron or to Thermo Systems: Thermo Electron Corporation 81 Wyman Street Waltham, MA 02254-9046 Attn: Mr. Parimal Patel or, as to any of such Persons, to such other address as such Persons may from time to time specify to the parties hereto in writing. SECTION 24. MISCELLANEOUS Section 24.1. Nonrecourse. Except as expressly provided herein, each and all of the representations, undertakings and agreements herein made on the part of the Owner Trustee are made and intended not as personal representations, undertakings and agreements by or for the purpose or with the intention of binding it or the Owner Participant personally but are made and intended for the purpose of binding only the Owner Trust Estate, and this Agreement, except as expressly provided herein, is executed and delivered by CTCC solely in the exercise of the powers expressly conferred upon it as trustee under the Owner Trust Agreement and not in its individual capacity; and no personal liability or responsibility is assumed hereunder by or shall at any time be enforceable against CTCC in its individual capacity or Owner Participant on account of any representation, undertaking or agreement hereunder of the Owner Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the parties hereto and by all Persons claiming by, through or under the parties hereto; provided, however, that the parties hereto or any Person claiming by, through or under the parties hereto, making claim hereunder, may look to the Owner Trust Estate for satisfaction of same. The Owner Trustee may seek instructions from the Owner Participant in exercising its rights or performing its duties hereunder. Section 24.2. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not of itself invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Delano Energy hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect. Section 24.3. Waivers; Modifications. No term or provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, 24 discharge or termination is sought; and no such instrument shall be effective, unless a signed copy thereof shall have been delivered to the Owner Participant, the Owner Trustee and the Agent. Section 24.4. Binding Effect; Successors and Assigns. The terms and provisions of this Agreement and the respective rights and obligations of the parties hereunder shall be binding upon, and inure to the benefit of, their respective successors and assigns, provided that Delano Energy shall not assign any of its rights or obligations hereunder without the prior written consent of the other parties hereto; and Thermo Electron shall not assign any of its obligations hereunder without the prior written consent of the other parties hereto. Section 24.5. Reproduction of Documents. This Agreement and all documents relating hereto, including, without limitation, (i) consents, waivers and modifications which may hereafter be executed, (ii) documents received by the Lessor, the Owner Participant or the Indenture Trustee on the Closing Date, and (iii) financial statements, certificates and other information previously or hereafter furnished to the parties, may be reproduced by the parties hereto, by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and the parties may destroy any original document so reproduced. Each party hereto stipulates that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business), and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Section 24.6. Survival of Agreement, etc. All agreements, representations and warranties contained herein or made in writing by or on behalf of any party hereto in connection with the transactions contemplated hereby shall survive the execution and delivery of this Agreement and each other document and instrument delivered in connection with the consummation of the transactions contemplated hereby, any investigation at any time made by a party hereto or on behalf of a party hereto. All statements contained in any certificate or other instrument delivered by or on behalf of any party hereto pursuant hereto or in connection with the transactions contemplated hereby shall be deemed representations and warranties by such party hereunder. No termination of the Lease for any reason shall release Delano Energy from any liabilities it may have to any other Person whether explicitly set forth herein or arising from any misrepresentation by Delano Energy herein contained or any breach by Delano Energy of its warranties or covenants herein contained. 25 Section 24.7. Brokers. No broker, finder, investment broker or intermediary has been retained by any of the parties to this Agreement. Section 24.8. Captions; References. The captions in this Agreement and in the table of contents are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. Reference herein to sections and subsections without reference to the document in which they are contained are references to this Agreement. Section 24.9. Execution in Counterparts. This Agreement may be executed by the parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Section 24.10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of The Commonwealth of Massachusetts. This Agreement is being made and delivered in The Commonwealth of Massachusetts. Section 24.11. Integration. This Agreement contains or expressly incorporates by reference the entire and exclusive agreement of the parties with respect to the matters contemplated herein and supersedes all prior negotiations related thereto; provided, however, that nothing herein shall be deemed to extinguish, waive, release or terminate, in whole or in part, any obligations or liabilities created under the 1990 Participation Agreement which remain unsatisfied as of the Closing Date. Section 24.12. Rights of Owner Participant. Notwithstanding anything to the contrary contained herein, in the Reimbursement Agreement or in any other Basic Document, so long as the Owner Participant is an Affiliate of Thermo Electron and/or Delano Energy, the Owner Participant shall have no right to take or withhold any action, or give or withhold any consent, if the effect thereof is to prevent the Agent and/or the Banks from taking or withholding any action, or giving or withholding any consent hereunder which action or consent, as the case may be, would have ordinarily required the consent or action of the Owner Participant in concert with the Agent, under the Reimbursement Agreement or under any other Basic Document. Section 24.13. Lessor Liens. Neither the Owner Participant, CTCC, in its individual capacity, nor the Owner Trustee, as the case may be, shall cause or permit to exist at any time any Lessor Lien arising by, through and under such Person, and each of them shall, at its own expense, promptly take such action as may be necessary to discharge any such Lessor Lien. Each of the Owner Participant, CTCC, in its individual capacity, and the Owner Trustee agrees severally but not jointly to indemnify each Bank from and against all liabilities, 26 obligations, losses and damages of every kind and nature imposed on incurred by or asserted against any Bank arising out of the imposition of any Lessor Lien created by the Person in question. Section 24.14. Compliance with Owner Trust Agreement. Each of the Owner Participant and the Owner Trustee shall comply with the terms of the Owner Trust Agreement (as the same may be hereinafter supplemented, modified or amended from time to time in accordance with the terms thereof), and neither the Owner Participant nor the Owner Trustee shall amend, supplement or otherwise modify any provision of the Owner Trust Agreement in any manner adversely affecting any party to this Agreement without the prior written consent of such party. The Owner Participant shall not terminate the Owner Trust Agreement and revoke the trusts created thereby, so long as any obligations remain outstanding under the Letters of Credit or the Reimbursement Agreement unless the Agent shall have given its prior written consent to such termination. Section 24.15. Tax-Exempt Status of Bonds. It is the intention of the parties hereto that interest on the Bonds shall be and remain tax-exempt. To that end the Owner Participant agrees that all funds invested under any Basic Document shall be invested in accordance with instructions of nationally recognized bond counsel acceptable to the Agent so that no such investment shall cause any of the Bonds to lose their status as tax-exempt. The Owner Participant shall cooperate to ensure that the provisions of Section 148 of the Code are complied with in respect of all such investments. Section 24.16. Replacement of Owner Trustee. No successor to the Owner Trustee (other than a successor by merger or consolidation of Owner Trustee with or into another Person) shall be substituted pursuant to the terms of the Owner Trust Agreement without the prior approval of the Agent, which approval shall not be unreasonably withheld. Section 24.17. Payments From Owner Trust Estate Only. All payments to be made by the Owner Trustee hereunder shall be made only from the Owner Trust Estate. The parties hereto agree that the Owner Trustee shall not be personally liable for any of its obligations hereunder. Delano Energy hereby confirms to each Bank that no limitation on the liability of, or recourse to, the Owner Trustee shall in any way limit or restrict the joint and several liability of Delano Energy for the repayment in full of the Bank Obligations. Anything in this Agreement or any other Bank Agreement to the contrary notwithstanding, each and all of the representations, undertakings and agreements herein or therein made on the part of the Owner Trustee are made and intended not as personal representations, undertakings and agreements by or for the purpose or with the intention of binding it personally but are made and intended for the purpose of binding only the Owner Trust Estate; this Agreement and the other 27 Bank Agreements to which the Owner Trustee is a party are executed and delivered by CTCC solely in the exercise of the powers expressly conferred upon it as trustee under the Owner Trust Agreement and not in its individual capacity; and, except as expressly provided in the Participation Agreement, no personal liability or responsibility is assumed hereunder or thereunder by or shall at any time be enforceable against CTCC in its individual capacity on account of any representation, undertaking or agreement hereunder or thereunder of the Owner Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the Agent, by each Bank and by all Persons claiming by, through or under the Agent or any Bank; provided, however, that the Agent, each Bank and any Person claiming by, through or under any of you, making claim under this Agreement or under any other Bank Agreement may look to the Owner Trust Estate for satisfaction of same. The Owner Trustee may seek instructions from the Owner Participant in exercising its rights or performing its duties hereunder. The foregoing limitation on recourse against the Owner Trustee shall not in any way be deemed to limit, restrict or diminish the liability of Delano Energy hereunder to the Agent and/or the Banks. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as an instrument under seal by their respective officers thereunto duly authorized as of the day and year first above written. DELANO ENERGY COMPANY INC. By /s/ Parimal Patel Title: Vice President THERMO ENERGY SYSTEMS CORPORATION, INDIVIDUALLY AND IN ITS CAPACITY AS OWNER PARTICIPANT By /s/ Parimal Patel Title: Vice President THERMO ELECTRON CORPORATION By /s/ Parimal Patel Title: Vice President 28 CHEMICAL TRUST COMPANY OF CALIFORNIA, AS OWNER TRUSTEE, AND, TO THE EXTENT INDICATED, IN ITS INDIVIDUAL CAPACITY By /s/ Rose Maravilla Title: Assistant Vice President ABN AMRO Bank N.V., Boston Branch, for itself and as Agent By /s/ Brian G. Slayne Title: Assistant Vice President By /s/ R. E. James Hunter Title: Senior Vice President The First National Bank of Boston By /s/ Stefan Breuer Title: Vice President Bank of Montreal By /s/ Lawrence E. Jones Title: Director Barclays Bank PLC By /s/ Mark Tuminello Title: Director By /s/ Alistair Buchan Title: Associate Director Societe Generale By /s/ William G. Schmidt Title: Vice President 29 BayBank By /s/ Timothy M. Laurion Title: Loan Officer (Special) ABN AMRO Bank N.V., Cayman Islands Branch By /s/ R. E. James Hunter Title: Vice President By /s/ Brian G. Slayne Title: Assistant Vice President 30 Appendix A Glossary Each of the following terms shall have the following meanings (such definitions to be equally applicable to both singular and plural forms of the terms defined), except as otherwise expressly provided in the agreement to which this Glossary is attached or referred to: "ABN AMRO" shall mean ABN AMRO Bank N.V., Boston Branch and its successors and assigns. "Acceleration" as applied to the Bank Obligations shall mean any part of the Bank Obligations becoming immediately due and payable as provided in Section 6.2 of the Reimbursement Agreement. "Act" as defined in Section 5.26.2 of the Reimbursement Agreement. "Actual Output" as defined in Section 1 of the Operating Standards Support Agreement. "Adjusted Available Funds" as defined in Section 1 of the Operating Standards Support Agreement. "Affiliate" of any Person shall mean any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. For purposes of this definition the term "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Agency Agreements" shall mean, collectively, (i) the Agency Agreement executed by the Bond Trustee and the 1989-90 Collateral Agent dated as of August 1, 1989, and (ii) the Agency Agreement executed by the Bond Trustee and the 1991 Collateral Agent dated as of October 1, 1991, each as in effect on the Closing Date and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Agent" shall mean ABN AMRO, in its capacity as administrative agent under the Reimbursement Agreement for itself and the Banks, and for any other banks from time to time party to the Reimbursement Agreement and any successor agent under the Reimbursement Agreement. 31 "Agreement," "hereto," "hereof," "hereunder" and words of similar import when used in any agreement to which this Glossary is attached shall mean such agreement, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "All-in Rate" shall mean (a) with respect to the 1989 Bonds and the 1990 Bonds 7.72% per annum which is the sum of (i) the "Fixed Rate" in the Confirmation to the Swap Agreement of 6.65% per annum plus (ii) the initial Letter of Credit Fee Rate of 1.07% per annum (expressed as a percentage of the outstanding principal amount of the 1989 Bonds and 1990 Bonds without including the "Investment Component" of the respective Letters of Credit) plus (iii) the fee of the Remarketing Agent under Section 6(a) of the Remarketing Agreement of 0.125% per annum and (b) with respect to the 1991 Bonds 5.38% per annum which is the sum of (i) the "Fixed Rate" in the Confirmation to the Swap Agreement of 3.60% per annum plus (ii) the initial Letter of Credit Fee Rate of 1.78% per annum (expressed as a percentage of the outstanding principal amount of the 1991 Bonds without including the "Investment Component" of the respective Letter of Credit) plus (iii) the fee of the Remarketing Agent under Section 6(a) of the Remarketing Agreement of 0.125% per annum. "Alternative Credit Facility" shall have the meaning assigned to the term "Security Arrangement" in the Bond Indentures. "Ancillary Power Contracts" as defined in Section 4.2.2 of the Participation Agreement. "Anticipated Output" as defined in Section 1 of the Operating Standards Support Agreement. "Anticipated Peak Month Output" as defined in Section 1 of the Operating Standards Support Agreement. "Applicable Rate" as defined in Section 1 of the Operating Standards Support Agreement. "Ash Disposal Consent" shall mean the Ash Disposal Consent dated as of January 8, 1994 among the Lessor, the Agent and Hondo Chemical, as the same may from time to time be amended, modified, supplemented in accordance with the term thereof. "Ash Disposal Contract" shall mean the Ash Management Contract dated as of January 8, 1994 between Delano Energy and Hondo Chemical, as the same may from time to time be amended, modified, supplemented in accordance with the term thereof. "Assigned Property" as defined in Section 2 of the Assignment of Leases. 32 "Assignment of Leases" shall mean the Assignment of Leases and Rents dated as of December 3, 1990, as amended by that First Amendment to Assignment of Leases and Rents dated as of December 31, 1993, by the Lessor to the Agent, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Available Cash" as defined in Section 1 of the Operating Standards Support Agreement. "Available Funds" as defined in Section 1 of the Operating Standards Support Agreement. "Available Reserves" shall mean, as of any date, the assets held by the Revenue Trustee in the General Revenue Fund pursuant to the Revenue Trust Agreement. "Banks" shall mean the LC Banks and the Swap Bank. "Bank Agreements" as defined in Section 7 of the Reimbursement Agreement. "Bank Obligations" as defined in Section 7 of the Reimbursement Agreement. "Bank Participant" as defined in Section 14.1 of the Reimbursement Agreement. "Bank Participation" as defined in Section 14.1 of the Reimbursement Agreement. "Bank Security" as collectively defined in Section 2 of the Lessor Security Agreement and in Section 7 of the Reimbursement Agreement. "Base Case Pro Forma" shall mean the Base Case Pro Forma set forth as Exhibit) 5A.24 to the Reimbursement Agreement. "Base Lease Term" shall mean the period beginning on January 1, 1991 and ending on January 1, 2001. "Base Rate" as defined in Section 3.1.2(b) of the Reimbursement Agreement. "Base Rent" shall mean the Rent payable pursuant to Section 3.2 of the Lease with respect to the Base Lease Term. "Basic Documents" shall mean the Participation Agreement, the Owner Trust Agreement, the Bill of Sale, the Lease, the Revenue Trust Agreement, the CPC Assignment and Assumption Agreements, the Restatement Agreement, the Reimbursement Agreement, Delano Energy Security Agreement, Delano Energy Deed of Trust, the Delano Energy Stock Pledge Agreement, the Delano Energy Assignment of Leases, the Lessee Security Agreement, the 33 Implementation Agreement, the Option to Acquire Stock Agreement, the Lessor Security Agreement, the Lessor Deed of Trust, the Assignment of Leases, the Consent to Assignment of Leases, the Support Documents, the Letters of Credit, the Bonds, the Bond Documents, the Swap Agreements and the Remarketing Agreements (and any amendments, modifications and/or supplements to any of the foregoing which may from time to time be entered into), and shall also mean any other instrument or document which, with the consent or agreement of Delano Energy, states that it is a Basic Document as said term is used in the Participation Agreement. "Beneficiary" as defined in the preamble to the Revenue Trust Agreement. "Bill of Sale" shall mean the instrument delivered on or prior to the 1990 Closing Date conveying from Delano Energy to the Lessor all of the property constituting Phase I. "Bond Documents" shall mean the Bonds, the CPC Loan Agreements, the Bond Indentures, the Agency Agreements, the Bond Pledge Agreements, the Intercreditor Agreements and the Remarketing Agreements relating to the Bonds. "Bond Indentures" shall mean, collectively, (i) the Indenture of Trust dated as of August 1, 1989, as supplemented by the First Supplemental Indenture of Trust dated as of May 1, 1990 between the CPCFA and the Bond Trustee (the "1989-90 Bond Indenture"), and (ii) the Indenture of Trust dated as of October 1, 1991 between the CPCFA and the Bond Trustee (the "1991 Bond Indenture"), each as in effect on the Closing Date and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Bond Pledge Agreements" shall mean, collectively, (i) the Pledge and Security Agreement executed by Delano Energy in favor of the 1989-90 Collateral Agent dated as of August 1, 1989, and (ii) the Bond Pledge and Security Agreement executed by Delano Biomass in favor of the 1991 Collateral Agent, dated as of October 1, 1991, each as assigned to and assumed by the Owner Trustee under the Participation Agreement and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Bond Trustee" shall mean Bankers Trust Company as the trustee under the Bond Indentures, or any of its successors, in such capacity. "Bonds" shall mean shall mean the 1989 Bonds, the 1990 Bonds and the 1991 Bonds. "Breakage Fee" shall mean the amounts payable pursuant to Section 6(e) of the Swap Agreements. 34 "Business Day" shall mean any day other than a Saturday, a Sunday or any other day on which banking institutions in Illinois, Massachusetts or New York are required or authorized by law to be closed or any day on which the New York Stock Exchange is closed. "Closing Date" shall mean December 31, 1993. "Co-Agents" as defined in Section 7 of the Reimbursement Agreement. "Code" shall mean the Internal Revenue Code of 1986, as from time to time amended, and any redesignated or successor provisions, and those provisions of the Internal Revenue Code of 1954 as remain applicable to the Facility and the transactions contemplated by the Basic Documents pursuant to Sections 203, 204 and 211 of the Tax Reform Act of 1986. For clarity, certain references to specific sections of the Code, as that term is defined herein, may be specifically designated as provisions of the "1954 Code." "Collateral" as defined in Section 2.1 of Delano Energy Security Agreement. "Completion" shall mean the occurrence of the events described in Section 5A.16 of the Reimbursement Agreement. "Confirmations" shall mean, collectively, the 1990 Confirmation and the 1993 Confirmation. "Consent to Assignment of Leases" shall mean the Consent to Assignment of Leases by Delano Energy, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Construction Contracts" shall mean, collectively, the Phase I Construction Contract and the Phase II Construction Contract. "Construction Loan Agreement" shall mean the Construction Loan Agreement, dated as of December 22, 1988 among Lessee, FNBB and ABN AMRO, as in effect on the 1990 Closing Date. "Contractor" shall mean Thermo Electron. "CPC Assignment and Assumption Agreements" shall mean, collectively, (i) the Assignment and Assumption Agreement dated as of December 3, 1990 among Lessor, Lessee, the Bond Trustee and the CPCFA, and (ii) the Assignment and Assumption Agreement dated as of December 1, 1993 among Delano Biomass, Delano Energy, the Bond Trustee and the CPCFA, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "CPC Loan Agreements" shall mean, collectively, the CPC Phase I Loan Agreement and the CPC Phase II Loan Agreement. 35 "CPC Phase I Loan Agreement" shall mean the Loan Agreement dated as of August 1, 1989, as supplemented by the First Supplemental Loan Agreement dated as of May 1, 1990, and a Second Supplemental Loan Agreement dated as of November 15, 1990 between the CPCFA and Delano Energy, as assigned to and assumed by the Owner Trustee under the Participation Agreement, as in effect on the Closing Date and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "CPC Phase II Loan Agreement" shall mean the Loan Agreement dated as of October 1, 1991 between the CPCFA and Delano Energy, as successor-by-merger to Delano Biomass, as in effect on the Closing Date and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "CPCFA" shall mean the California Pollution Control Financing Authority, or any successor agency. "CPI" shall mean, for any year X the amount determined in accordance with the following formula: CPI = CPx - CPy + 1 --------- CPy Where CP = Consumer Price Index for all Urban Consumers, seasonally adjusted, as published by the United States Department of Labor, or a substitute index acceptable to Delano Energy and the Agent if such index is no longer published or the method of computation thereof is substantially modified to result in a Consumer Price Index for any given period which is materially different from the Consumer Price Index that would result under the prior method of computation for the same period. CPx = CP as of June 30 of calendar year X. CPy = CP as of June 30, 1993. "CTCC" shall mean Chemical Trust Company of California, in its individual capacity. "Deemed Equity Return" as defined in Article 5 of the Revenue Trust Agreement. "Default" shall mean an Event of Default as defined in Section 6.1 of the Reimbursement Agreement or an event or 36 condition which with the passage of time or giving of notice, or both, would become such an Event of Default. "Delano Biomass" shall mean Delano Biomass Energy Company, Inc., a California corporation. "Delano Energy" shall mean Delano Energy Company, Inc., a Delaware corporation. "Delano Energy Assignment of Leases" as defined in Section 7 of the Reimbursement Agreement. "Delano Energy Deed of Trust" as defined in Section 7 of the Reimbursement Agreement. "Delano Energy Security Agreement" as defined in Section 7 of the Reimbursement Agreement. "Delano Energy Stock Pledge Agreement" as defined in Section 7 of the Reimbursement Agreement. "Delay Rate" shall mean the greater of (i) a rate per annum equal to the Base Rate plus three and one-half percent (3-1/2%) or (ii) the All-in Rate with respect to the 1989 Bonds and the 1990 Bonds, provided, however, that the Delay Rate shall not exceed the highest rate allowed by applicable law. All computations of the Delay Rate shall be made on a daily basis and on the basis of a 360-day year and compounded monthly. "Disbursement Account" shall mean checking account number 520-98598 (or any other account in substitution therefor) which Delano Energy maintains at FNBB and operates in accordance with Section 5.17.5 of the Reimbursement Agreement. "Distributed Amounts" as defined in Section 3.3.2 of the Revenue Trust Agreement. "Distribution Amount" as defined in Section 3.3.2 of the Revenue Trust Agreement. "Distribution Date" as defined in Section 3.3.2 of the Revenue Trust Agreement. "Document Delivery Date" as defined in the Escrow Agreement. "Drawing" shall have the meaning provided therefor in the Letters of Credit. "Effective Rate" as defined in Section 3.1.2 of the Reimbursement Agreement. "Efficiency Standard" as defined in Section 1 of the Operating Standards Support Agreement. 37 "Engineer" shall mean an individual who is an engineer or a partnership or a corporation engaged in an engineering business, who or which may be employed by Delano Energy, and in any case who or which is generally accepted as being qualified as to any matters as to which such individual or entity may be certifying or opining. "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1986 ("CERCLA"), 42 U.S.C. Section 2601 et seq., the Hazardous Substances Account Act ("HSAA"), California Health and Safety Code Section 2300 et seq., the Toxic Substance Control Act ("TSCA"), 15 U.S.C. Section 2601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1802, the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 9601 et seq., the Porter-Cologne Water Quality Control Act, California Water Code Section 13000, et seq., the Clean Water Act, 33 U.S.C. 1251 et seq. and Clean Air Act, 42 U.S.C. Section 7401 et seq., and any rules, regulations or ordinances adopted, or other criteria and guidelines promulgated pursuant to the preceding laws and any other similar federal, state or local laws, rules, regulations and ordinances now or hereafter in effect. "Environmental Variances Report" as defined in Section 5.17.4 of the Reimbursement Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agreement" shall mean the Escrow Agreement dated as of December 31, 1993 among Delano Energy, Thermo Systems, Thermo Electron, the Agent, the Swap Bank and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., as escrow Agent, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Essential Operating Expenses" shall mean the operating expenses of Delano Energy (or other similar operator in possession of the Facility) that are reasonably required to maintain, operate, and administer the maintenance and operation of, the Facility, whether owed to Thermo Electron or its Affiliates or to any other Person but specifically excluding Base Rent, management fees and expenses paid or payable to Thermo Systems or Thermo Electron, Income Tax Payments and Indemnity Deferrals. Essential Operating Expenses shall also include (i) the Special Distribution upon satisfaction of the conditions in Section 5.14 of the Reimbursement Agreement, (ii) transaction expenses paid by Delano Energy on the Document Delivery Date which are approved in writing by the Agent and (iii) state taxes paid directly by Delano Energy. "Event of Default" as defined in Section 6.1 of the Reimbursement Agreement. 38 "Event of Loss" shall mean any of the following events or conditions: (i) the actual or constructive total loss of all or substantially all of the Facility or the Parts, occurring through any cause whatsoever; or (ii) all or substantially all of the Facility or the Parts shall become lost, stolen, destroyed, damaged beyond repair and/or permanently rendered unfit for normal use as a consequence of any event whatsoever; or (iii) the condemnation, confiscation or seizure of, or other requisition of title to, or use of, all or substantially all of the Facility or the Parts (including the taking of title to, or use of, all or substantially all of the Facility or the Parts under power of eminent domain or by forfeiture pursuant to any proceeding commenced under any provision of law providing for escheat), provided that, in the case of a requisition of use of all or substantially all of the Facility or the Parts by a governmental authority, such requisition shall have resulted in the loss of use by Delano Energy of the Facility or such Parts for a period (a) of at least 180 consecutive days or (b) extending beyond the Lease Term; or (iv) the occurrence of one or more events of the type described in paragraphs (i) through (iii) above with respect to Parts (constituting less than substantially all of the Parts) the aggregate original cost of which exceeds 50% of the then current fair market value of the Facility as determined by the Agent, and which the Agent elects to treat as an Event of Loss by giving notice of such election to Delano Energy within 90 days after the Agent is notified of such Event of Loss by Delano Energy; or (v) the occurrence of one or more events of the type described in paragraphs (i) through (iii) above with respect to one or more Parts (but less than substantially all of the Parts) which Delano Energy determines, subject to the reasonable concurrence of the Agent, renders the Facility useless or incapable of performing under the Power Purchase Agreement or which cannot be repaired in a manner that will permit Delano Energy to perform its obligations under the Lease and the Reimbursement Agreement; or (vi) the occurrence of a casualty, or any other event, which results in an insurance settlement on the basis of a total loss or constructive total loss of the Facility. The date of occurrence of any Event of Loss shall be the date of the casualty or other occurrence specified above giving rise to such Event of Loss. If the date of such casualty or such other occurrence shall be uncertain, such date shall be the date on 39 which either Delano Energy first became aware of, or reasonably should first have become aware of, such casualty or other occurrence. "Excess Balance" as defined in Section 3.3.2 of the Revenue Trust Agreement. "Facility" shall mean the depreciable assets comprising a biomass-fired power plant in Delano, California conforming generally to the description contained in Exhibit 7.11 to the Reimbursement Agreement. "Facility Cash Flow" as defined in Section 1 of the Operating Standards Support Agreement. "Facility Revenues" as defined in Section 1 of the Operating Standards Support Agreement. "Federal Bankruptcy Code" shall mean the Federal Bankruptcy Code, 11 U.S.C. Section 101 et seq., as amended. "Federal Funds Rate" as defined in Section 3.1.2(c) of the Reimbursement Agreement. "Federal Tax Laws" at any date or with respect to any period, means and includes (i) all federal tax statutes, including without limitation (A) the Internal Revenue Code of 1954 (the "1954 Code"), (B) the 1954 Code as amended through October 21, 1986 (the "Old Code"), (C) the Code, (D) any redesignation of the Code and (E) all other federal tax statutes, such as but not limited to Revenue Acts and also including any federal tax provisions included in any Public Law or other federal statute, that are in force and effect and applicable to such date of period; and (ii) all rules and regulations, including without limitation Treasury Regulations and Temporary Regulations, whether legislative regulations, statutorily authorized implementing regulations, interpretive rules or regulations, or procedural rules, regulations, or amendments that may at any time be promulgated, adopted or published and applicable or to be applicable to such date or period, under a federal tax statute that is applicable or to be applicable to such date or period, and includes, without limitation, revenue rulings that may be cited as precedent. "FERC" shall mean the Federal Energy Regulatory Commission, or any successor federal agency. "Final Punch List" as defined in Section 5.17.7 of the Reimbursement Agreement. "Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of (x) the sum of (a) Facility Cash Flow for such period plus (b) the Deemed Equity Return and all Bank Obligations 40 deducted in computing Facility Cash Flow for such period to (y) the amount referred to in clause (b). "FNBB" shall mean The First National Bank of Boston, a national banking association, and its successors and assigns. "Force Majeure" as defined in Section 1 of the Operating Standards Support Agreement. "Fronting Fees" as defined in Section 3.6 of the Reimbursement Agreement. "Fuel Contractor" shall mean a supplier of fuel under any Fuel Supply Contract; or, in the event that another supplier of fuel shall at any time be substituted for such supplier, or any other prior substitute supplier, such substitute supplier. "Fuel Contractor Consents" shall mean the Agreement and Consents to Security Interests, each among Delano Energy, the Agent and a Fuel Contractor, as the same may be amended, modified or supplemented in accordance with the terms thereof. "Fuel Supply Contracts" shall mean each of the fuel supply and transportation contracts and any substitutions therefor entered into pursuant to Section 5.16.3 of the Reimbursement Agreement. "General Revenue Fund" shall mean the General Revenue Fund established in accordance with the provisions of the Revenue Trust Agreement. "Governmental Actions" shall mean all authorizations, consents, approvals, waivers, exemptions, variances, franchises permissions, permits and licenses of, filings and declarations with, and submissions to, federal, state, local and other governmental authorities, including, without limitation, each public utility regulatory commission having jurisdiction over Delano Energy including without limitation the Governmental Actions described on Exhibit 2A.1.7 to the Reimbursement Agreement. "Grant" with respect to any property or right shall mean mortgage, hypothecate, pledge and assign, and create a security interest in, the same; and the term "Granted" with respect thereto shall mean mortgaged, hypothecated, pledged and assigned, and created a security interest in, the same. "Grantor" as defined in the preamble to the Revenue Trust Agreement. "Hazardous Materials" shall mean, without limitation, (a) any hazardous materials, hazardous wastes, air pollutants, toxic wastes or other hazardous substances which are regulated pursuant to any Environmental Law, and (b) any asbestos or 41 asbestos-containing substances whether or not the same are defined as hazardous, toxic, dangerous waste, dangerous substance or dangerous material under any environmental laws. "Holding Company Act" shall mean the Public Utility Holding Company Act of 1935, as amended. "Hondo Chemical" shall mean Hondo Chemical, a California corporation. "Income Tax Payments" shall mean an amount, determined on any Distribution Date, which is deemed to be equal to the federal and state income taxes which Delano Energy would be required to pay if Delano Energy were an independent entity and which shall be calculated as of any Distribution Date pursuant to the following formula: (Power Revenues minus the amounts described in Sections 3.3.1 and 3.3.1.1 of the Revenue Trust Agreement) times 0.392. "Indebtedness" shall mean all obligations, whether now existing or hereafter created, contingent and otherwise, which, in accordance with generally accepted accounting principles, should be classified as liabilities upon the balance sheet of an obligor under the accrual method of accounting, or to which reference should be made by footnotes thereto, including, without limitation, in any event and whether or not so classified: (i) all debt and similar monetary obligations, whether direct or indirect; (ii) all liabilities secured by any mortgage, pledge, security interest, lien, charges, or other encumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; (iii) all liabilities and obligations under sales and leasebacks, or other leases; (iv) all guarantees, endorsements, and other contingent obligations, whether direct or indirect, in respect of indebtedness of others, including any obligation to supply funds in any manner, to invest, directly or indirectly, in the debtor, or to purchase Indebtedness, or to assure the owner of Indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the Indebtedness held by such owner, or otherwise; and (v) all obligations incurred, including obligations of reimbursement, under any letter of credit. "Indemnitees" shall mean the Owner Trustee, CTCC, the Revenue Trustee, each Bank and their respective successors and assigns. "Independent Engineers" shall mean Stone & Webster Engineering Corporation, or another engineer not an Affiliate of Delano Energy which is satisfactory to the Agent. "Interconnection Agreement" as defined in Section 4.2.2 of the Participation Agreement. 42 "Intercreditor Agreements" shall mean, collectively, (i) the Intercreditor Agreement executed by the CPCFA, the Bond Trustee and the Collateral Agent dated as of August 1, 1989, and (ii) the Intercreditor Agreement executed by the CPCFA, the Bond Trustee and ABN AMRO, as collateral agent, dated as of October 1, 1991, each as in effect on the Closing Date and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Investment" shall mean any expenditure made or any liability incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or loan, advance, capital contribution, or transfers or property to, or in respect of any guarantee, endorsement (other than endorsement of checks for deposit or collection), assumption of liability or other commitment in respect of any Indebtedness or other obligation of any other Person. "Investment Securities" shall mean (a) full faith and credit obligations of the United States Government maturing within three months from the date of original issuance thereof, (b) commercial paper rated at least "P-1" by Moody's Investors Service, Inc. or at least "A1" by Standard & Poor's Corporation (or comparably rated by either such organization or any successor thereto if the rating system of such organization shall have been changed or there shall have been such a successor) and having a remaining term until maturity of not more than 90 days from the date such investment is made, (c) certificates of deposit with a remaining term until maturity of not more than 90 days from the date such investment is made, issued by, or demand money market or sweep accounts in, any bank or trust company organized under the laws of the United States of America, any state thereof or the District of Columbia (provided, however, that such bank or trust company shall be a member of the Federal Reserve System whose outstanding commercial paper is rated at least P-2 by Moody's Investors Service, Inc. and at least A-2 by Standard & Poor's Corporation, and shall have a combined capital, surplus and undivided profits in excess of $300,000,000), (d) any money market fund registered under the Investment Company Act of 1940 (15 U.S.C. Section 809-1 et seq.) as from time to time amended, the portfolio of which consists of or is collateralized by United States government obligations and United States agency obligations and (e) Tax Exempt Investment Securities. "Issuing Bank" as defined in Section 2 of the Reimbursement Agreement. "Joinder Agreement" as defined in Section 14.3 of the Reimbursement Agreement. "Land" shall mean, collectively, (i) the Phase I Land and (ii) the Phase II Land. 43 "Laws" shall mean all laws, rules, regulations, ordinances, approvals, consents, authorizations, orders and other requirements of Federal, state and local governmental or regulatory agencies or authorities. "LC Banks" shall mean the Agent, the Issuing Bank, FNBB, ABN AMRO, Societe Generale, Bank of Montreal, Barclays Bank PLC, BayBank and any additional banks which may become parties to the Reimbursement Agreement or participants in the Letters of Credit. "LC Annexes" shall mean Annex K to each of the Letters of Credit. "Lead Manager" as defined in Section 7 of the Reimbursement Agreement. "Lease" shall mean the Amended and Restated Lease Agreement dated as of December 31, 1993 between Owner Trustee and Delano Energy, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Lease Default" shall mean (i) a Lease Event of Default or (ii) any event or condition which after the giving of notice or lapse of time or both would become such a Lease Event of Default. "Lease Event of Default" shall mean any event or condition defined as such in Section 16 of the Lease. "Lease Term" shall mean the Base Lease Term; provided, however, that the Lease Term shall end on the Lease Termination Date. "Lease Termination Date" shall mean the date on which the Lease terminates, whether at the end of the Lease Term or otherwise in accordance with the terms of the Lease. "Lessee" shall mean Delano Energy Company Inc., a Delaware corporation, and its successors and, to the extent permitted under the Lease, assigns. "Lessee Security Agreement" shall mean the Lessee Security Agreement dated as of December 3, 1990, as amended by that certain First Amendment to Lessee Security Agreement dated as of January 31, 1991 and as further amended by that certain Second Amendment to Lessee Security Agreement dated as of December 31, 1993, between Delano Energy and the Owner Trustee, as the same may from time to time be further amended, modified or supplemented in accordance with the terms thereof. "Lessor" shall mean the Owner Trustee, in its capacity as lessor under the Lease. "Lessor Deed of Trust" shall mean the Deed of Trust dated as of December 3, 1990, as amended by that certain First Amendment 44 to Deed of Trust dated as of December 31, 1993, from the Owner Trustee, as grantor, to Commonwealth Land Title Company, as trustee, for the benefit of the Agent, as beneficiary, as the same may from time to time be further amended, modified or supplemented in accordance with the terms thereof. "Lessor Liens" shall mean Unrelated Liens resulting from acts of or claims against the Owner Trustee, CTCC, or the Owner Participant. "Lessor Security Agreement" shall mean the Lessor Security Agreement and Grant of Lien dated as of December 3, 1990, as amended by that certain First Amendment to Lessor Security Agreement dated as of December 31, 1993, between the Owner Trustee and the Agent, as the same may from time to time be further amended, modified or supplemented in accordance with the terms thereof. "Lessor Security Documents" shall mean the Lessor Security Agreement, the Lessor Deed of Trust and the Assignment of Leases. "Letter of Credit Fee Rate" as defined in Section 3.5 of the Reimbursement Agreement. "Letter of Credit Fees" shall mean, collectively, the Letter of Credit fees described in Section 3.5 of the Reimbursement Agreement and the Fronting Fee described in Section 3.6 of the Reimbursement Agreement. "Letters of Credit" shall mean the 1989 Tax-exempt Financing Credit, the 1990 Tax-exempt Financing Credit and the 1991 Tax-exempt Financing Credit. "Liabilities" as defined in Section 16.1 of the Participation Agreement. "Liens" shall mean liens, mortgages, security interests, pledges, charges, easements or encumbrances of any kind, including those arising under conditional sale agreements or other title retention agreements. "Liquidity Advances" as defined in Section 2.2 of the Reimbursement Agreement. "Liquidity Drawing" as defined in Section 2.2 of the Reimbursement Agreement. "Major Maintenance Reserve Fund" shall mean the Major Maintenance Reserve Fund established in accordance with the provisions of the Revenue Trust Agreement. "Major Maintenance Reserve Required Amount" as defined in Section 5.21 of the Reimbursement Agreement. 45 "Negative Cash Flow" as defined in Section 1 of the Operating Standards Support Agreement. "Notional Amount" as defined in Section 3.3.1.1(1) of the Revenue Trust Agreement. "Obligations" shall mean all Indebtedness and other obligations now or hereafter owing by Delano Energy to the Owner Trustee under the Participation Agreement, the 1990 Participation Agreement, the Lease and any other Basic Document, including without limitation (i) the obligation to pay Rent under the Lease and (ii) the performance by Delano Energy of its obligations and agreements under the Participation Agreement, the 1990 Participation Agreement, the Lease and any other Basic Document. "Officer's Certificate" shall mean (i) with respect to Delano Energy, the Owner Trustee or the Revenue Trustee, a certificate signed by a Responsible Officer, and (ii) with respect to any other corporation or the corporate general partner of any other entity, a certificate signed by the President, any Vice-President or the Controller, Treasurer or any Assistant Treasurer of such corporation, and, with respect to any other entity, a certificate signed on behalf of such entity by any Person generally authorized to execute and deliver contracts on behalf of such entity. "Offset Fuel Requirements of the Facility" shall mean the quantity of offset fuel which provides 100% of the offset fuel credit, stated in pounds per year, required from time to time by the Kern County Air Pollution Control District in each of Delano Energy's Authority to Construct or Permit to Operate with respect to the Facility. "Operating Standards Support Agreement" shall mean the Amended and Restated Operating Standards Support Agreement dated as of December 31, 1993, between Delano Energy and Thermo Electron, as the same may be from time to time amended, modified or supplemented in accordance with the terms thereof. "Operation and Maintenance Manual" as defined in Section 5.26 of the Reimbursement Agreement. "Opinion of Counsel" shall mean an opinion or opinions in writing, signed by legal counsel, which opinion or opinions are addressed to, and which opinion or opinions and legal counsel are satisfactory to, the Person receiving such opinion or opinions. "Original Lease" as defined in Recital A of the Lease. "Overall Transaction" shall mean the transactions contemplated by the Participation Agreement and the other Basic Documents. "Owner Participant" shall mean Thermo Systems. 46 "Owner Trust Agreement" shall mean the Owner Trust Agreement dated as of December 3, 1990, as amended by that certain First Amendment to Owner Trust Agreement dated as of December 31, 1993, between CTCC and the Owner Participant, as the same may be from time to time amended, modified or supplemented in accordance with the terms thereof. "Owner Trust Estate" as defined in Section 1.03 of the Owner Trust Agreement. "Owner Trustee" shall mean Chemical Trust Company of California, a California corporation, solely in its capacity as Owner Trustee under the Owner Trust Agreement, and not in its individual capacity, and its successors and assigns. "Owner Trustee Documents" as defined in Section 5B.2 of the Reimbursement Agreement. "Part" shall mean any of the items of property constituting part of the Facility together with all substitutions for and replacements of such item of property. "Participation Agreement" shall mean the Amended and Restated Participation Agreement dated as of December 31, 1993 among Delano Energy, Thermo Systems, the Owner Participant, the Owner Trustee and the Banks, and joined in by Thermo Electron, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Percentage Interests" as defined in Section 10.1 of the Reimbursement Agreement. "Performance Guarantees" as described in Exhibit 5A.16 to the Reimbursement Agreement. "Performance Tests" as described in Exhibit 5A.16 to the Reimbursement Agreement. "Permitted Liens" shall mean (i) the respective rights and interests of Delano Energy, the Owner Trustee and the Owner Participant, as provided in the Basic Documents, (ii) Liens for taxes either not yet due or being contested in good faith by Delano Energy, (iii) materialmen's, mechanic's, workmen's, repairmen's, employees or other like Liens (a) arising out of the construction of the Facility, not to exceed $50,000 in the aggregate, (b) arising in the ordinary course of business securing obligations which are not more than 60 days overdue, or (c) which are being contested in good faith by Delano Energy by appropriate proceedings diligently prosecuted, provided that if at any time the aggregate amount of all such Liens being contested exceeds $50,000, Delano Energy shall have adequately bonded such excess or shall have deposited with the Agent an amount equal to such excess in escrow, (iv) Liens arising out of judgments or awards against Delano Energy with respect to which 47 at the time an appeal or proceeding for review is being diligently prosecuted in good faith and there shall have been secured a stay of execution pending such appeal of proceeding for review, and for the payment of which adequate reserves have been provided, (v) easements, rights-of-way, exceptions or reservations for the purpose of telephone lines, telegraph lines, power lines, pipelines, conveyors, roads, railroads, drains and sewers, and other like purposes, which do not impair the use or operating efficiency of the Facility for the purpose for which it is intended or materially detract from the value of the Facility, (vi) Title Report Liens, (vii) the Lien of the Lessor Security Documents, (viii) Liens on assets acquired with Indebtedness permitted by clause (ii) of Section 5.10 of the Reimbursement Agreement securing only the Indebtedness incurred to acquire the asset in question; provided, however, that no contest, appeal or proceeding referred to in clause (ii), (iii) or (iv) above shall involve any danger of the foreclosure, sale, forfeiture or loss of the Facility or any part thereof, and (ix) Liens in favor of the Agent and the Banks, as provided in the Security Documents. "Person" shall mean any individual, corporation, partnership, joint venture, business association, joint stock company, trust or unincorporated organization or any government or political subdivision thereof or any governmental agency. "Phase I" shall mean that portion of the Facility financed pursuant to the 1990 Participation Agreement "Phase I Construction Contract" shall mean the Agreement for Construction of a Wood and Agricultural Waste Fired Power Plant at Delano, California dated December 9, 1988 between Delano Energy and Thermo Electron, as in effect on the Closing Date and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Phase I Land" shall mean the real property described in Exhibit 7.13 to the Reimbursement Agreement. "Phase I Reimbursement Agreement" shall mean the Reimbursement Agreement dated as of December 3, 1990 among the Owner Trustee, FNBB, for itself and as Agent, ABN AMRO and ABN AMRO Bank N.V., Cayman Islands Branch, as Swap Bank. "Phase II" shall mean that portion of the Facility not constituting Phase I. "Phase II Construction Contact" shall mean the Agreement for Construction of a Wood and Agricultural Waste Fired Power Plant at Delano, California dated October 1, 1991 between Delano Energy, as successor-by-merger to Delano Biomass and Thermo Electron, as in effect on the Closing Date and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. 48 "Phase II Land" shall mean the real property described in Exhibit 7.14 to the Reimbursement Agreement. "Phase II Reimbursement Agreement" shall mean the Reimbursement Agreement dated as of October 1, 1991 among Delano Biomass, ABN AMRO as Facility Agent and ABN AMRO Bank N.V., New York Branch, as Administrative Agent. "Plan" as defined in Section 5A.30 of the Reimbursement Agreement. "Pledged Bonds" shall mean Bonds purchased pursuant to a Drawing under a Letter of Credit and not remarketed. "Power Contract" as defined in Section 5.15.4 of the Reimbursement Agreement. "Power Purchase Agreement" shall mean the Amended and Restated Power Purchase Contract executed on July 31, 1987 between SCE and Delano Energy (QFID No. 1023), as in effect on the Closing Date and as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof including, without limitation, the amendments entered into as of December 3, 1990, September 12, 1988. and December 3, 1993. "Power Revenues" shall mean all revenues generated or derived, or to be generated or derived, from the sale or other disposition of power generated or to be generated by the Facility, including, without limitation, all payments for electricity and other amounts paid or payable, or to be paid or payable, in respect of the Power Purchase Agreement, any other Power Contract, any other agreement, or any sale, disposition, or other transaction in respect of which revenues are, or are to be, generated or derived from such sale or other disposition of such power; and any amounts in lieu of, or in substitution for, any of the foregoing. "Pro Forma Cash Flow" as defined in Section 1 of the Operating Standards Support Agreement. "Property Report" shall mean a report which shall accompany the annual financial statements of Delano Energy delivered pursuant to Section 5.17.3 of the Reimbursement Agreement describing in reasonable detail (i) the status, condition and location of the Facility and the Parts, or stating that there has been no change in such status, condition or location since the previous year's report (or, in the case of the Property Report to be furnished in 1994 with respect to Phase II, since the Closing Date), (ii) any exercise by Delano Energy of rights under any Construction Contract or against any contractor, vendor, supplier, materialman or similar Person with respect to a Material Part or other material element of the Facility, (iii) any repair to the Facility or any Part at an actual or projected 49 cost exceeding $50,000 (iv) any period of ten (10) days or more during which the Facility was not in operation, whatever the reason, and (v) any material violation of Law involving the Land, the Facility, or the operation thereof, in each case during the period since the previous year's report (or, in the case of the Property Report to be furnished in 1994 with respect to Phase II, since the Closing Date). Each Property Report shall (i) state whether the Facility is in the condition required to be maintained by the Reimbursement Agreement, and if it is not, what action Delano Energy is taking or intends to take to correct the problem, and (ii) be certified as true and correct by a Responsible Officer of Delano Energy. "Qualifying Facility" shall mean a "qualifying facility" under Section 210 of the Public Utility Regulatory Policies Act of 1978, 16 U.S.C. 824a-3 and Section 228.5 of the California Public Utilities Code. "Quarterly Cash Report" as defined in Section 5.17.5.2 of the Reimbursement Agreement. "Quarterly Fuel Report" as defined in Section 5.17.4 of the Reimbursement Agreement. "Quarterly Operating and Generation Report" as defined in Section 5.17.4 of the Reimbursement Agreement. "Realty Rights" shall mean all rights and interests in and to the Land, and in and to any and all improvements thereto, therein, or thereon, at any time existing, and including without limitation rights under ground leases, easements, rights of way, and water rights, and all related or ancillary rights and interests in real property or fixtures that are necessary or appropriate for the use and operation of, and the quiet and peaceable enjoyment of, the Facility throughout its entire economic life. "Receivables" as defined in Section 2.1 of the Delano Energy Security Agreement. "Reimbursement Agreement" shall mean the Amended and Restated Reimbursement Agreement dated as of December 31, 1993 among the Lessor, Delano Energy and the LC Banks, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Release of Guaranty" shall mean the Release of Guaranty dated as of December 31, 1993 executed by ABN AMRO Bank N.V. in its capacity as Administrative Agent under the Phase II Reimbursement Agreement. "Remarketing Agent" shall mean, collectively, Hambro Resource Development Incorporated and Fleet Securities, Inc. and their successors and assigns. 50 "Remarketing Agreements" shall mean, collectively, (i) the Remarketing Agreement dated as of December 3, 1990 among the Remarketing Agent, Delano Energy and the Owner Trustee and (ii) the Remarketing Agreement dated as of October 1, 1991 among the Remarketing Agent, Delano Energy and the Owner Trustee, as the same may from time to time be amended, modified or supplemented in accordance with the terms hereof. "Rent" shall mean Base Rent. "Rent Payment Date" shall mean each June 30 and December 31 during the Lease Term. "Rental Period" shall mean each or any of the forty (40) successive semiannual periods included in the Base Lease Term, and the semiannual periods included in the Renewal Term, if any. "Reorganization" as defined in Section 5 of the Subordination Agreement. "Required Banks" as defined in Section 10.12 of the Reimbursement Agreement. "Report" as defined in Section 5.1 of the Lease. "Reserve Funds" shall mean all funds held by the Revenue Trustee under the Revenue Trust Agreement in the General Revenue Fund, the Supplemental Reserve Fund or the Major Maintenance Reserve Fund or funds otherwise held in or designated to be held in any of the foregoing Funds pursuant to the Revenue Trust Agreement. "Responsible Officer" shall mean, (i) with respect to the Owner Trustee or the Revenue Trustee, any officer or assistant officer in its department charged with corporate trust administration; (ii) with respect to Delano Energy, the President or a Vice President; and (iii) with respect to the Owner Participant, the President or a Vice President. "Restatement Agreement" shall mean the Restatement Agreement dated as of December 3, 1990 among Delano Energy, the Lessor and the LC Banks, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Restricted Distributions" as defined in Section 5.14 of the Reimbursement Agreement. "Retained Amount" as defined in Section 3.3.2 of the Revenue Trust Agreement. "Retained Amount Balance" as defined in Section 3.3.2 of the Revenue Trust Agreement. 51 "Revenue Trust Agreement" shall mean the Amended and Restated Revenue Trust Agreement dated as of December 31, 1993, among Delano Energy and the Owner Trustee, as Grantors, the Revenue Trustee and the Agent, as Beneficiary, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Revenue Trust Estate" as defined in Section 2.1 of the Revenue Trust Agreement. "Revenue Trustee" as defined in the preamble to the Revenue Trust Agreement. "SCE" shall mean Southern California Edison Company, a California corporation, and its successors and assigns. "SCE Consent" shall mean, collectively, (a) the Phase II Consent and Confirmation dated December 8, 1993 from SCE, (b) the Consent to Assignments and Agreement dated as of December 31, 1993, and (c) the Consent to Option and Assignments dated as of January 31, 1991, among Delano Energy, the Lessor, the Agent and SCE, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "SCE Credit" shall mean the Letter of Credit dated October 13, 1989 issued by FNBB to SCE for the account of Delano Energy in the stated amount of $1,733,796, which reimbursement obligations in respect thereof are presently guaranteed by Thermo Electron. "SEC" shall mean the Securities and Exchange Commission or any successor federal agency. "Secured Obligations" as defined in Section 3 of the Lessor Security Agreement. "Security Documents" as defined in Section 7 of the Reimbursement Agreement. "Senior Obligations" as defined in Section 2.1 of the Subordination Agreement. "Special Distribution" as defined in Section 5.14 of the Reimbursement Agreement. "Special Distribution Amount" shall mean $5,000,000. "Subject Land" as defined in Section B of Delano Energy Deed of Trust. "Subordinated Obligations" as defined in Section 2.1 of the Subordination Agreement. 52 "Subordination Agreement" shall mean the Subordination Agreement dated as of December 31, 1993 among Delano Energy, Thermo Systems, Thermo Electron and the Agent, as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Subsidiary" of any corporation shall mean any other corporation of which more than 50% of the outstanding voting shares of stock of each class having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) is at the time owned by such corporation and/or by one or more of its Subsidiaries. "Substitute Letter of Credit" shall have the meaning provided therefor in the Bond Indentures, and shall be substantially in the form of Exhibit 2 to the Reimbursement Agreement. "Supplemental Reserve Fund" shall mean the Supplemental Reserve Fund established in accordance with the provisions of the Revenue Trust Agreement. "Supplemental Reserve Required Amount" shall mean $100,000. "Support Documents" shall mean the Operating Standards Support Agreement, the Construction Contracts, the Power Purchase Agreement, the Ancillary Power Contracts, the Subordination Agreement, the Thermo Fuel Contract, the Fuel Supply Contracts, the Ash Disposal Contract, the SCE Consent, the Fuel Contractor Consents and the Ash Disposal Consent. "Swap Agreements" shall mean the Interest Rate and Currency Exchange Agreement dated as of December 3, 1990 between the Owner Trustee and Delano Energy and the Swap Bank (including the Confirmations), as the same may from time to time be amended, modified or supplemented in accordance with the terms thereof. "Swap Bank" shall mean ABN AMRO acting through its Cayman Islands Branch (or such other branch as ABN AMRO may from time to time designate), or any other LC Bank who may replace such Bank in such capacity. "Tax Exempt Investment Securities" shall mean (a) obligations of a state or local government, interest on which is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code, and for which a nationally recognized rating service is maintaining a rating within the top two rating categories of such rating service and (b) shares in a regulated investment company whose assets consist of such obligations, except as to rating requirements. 53 "Taxes" as defined in Section 5.23 of the Reimbursement Agreement. "Termination Date" as defined in Section 2 of the Reimbursement Agreement. "TE Support Agreements" as defined in Section 4.1 of the Participation Agreement. "Thermo Electron" shall mean Thermo Electron Corporation, a Delaware corporation. "Thermo Electron Documents" as defined in Section 7.2 of the Participation Agreement. "Thermo Fuel Contract" shall mean the Amended and Restated Thermo Fuel Contract dated as of December 31, 1993 between Delano Energy and Thermo Systems, and joined in by Thermo Electron. "Thermo Systems" shall mean Thermo Energy Systems Corporation, a Delaware corporation. "Thermo Systems Documents" as defined in Section 6.2 of the Participation Agreement. "Title Report Liens" shall mean the Liens and Encumbrances listed in Exhibit 2A.1.5 to the Reimbursement Agreement. "Transaction Costs" shall mean all fees, costs and expenses (other than fees, costs and expenses incurred by Delano Energy) associated with the negotiation, documentation and closing of the Overall Transaction, including the fees (including legal fees), expenses, and out-of-pocket fees and expenses of the Owner Trustee, the Revenue Trustee, ABN AMRO, FNBB, CPCFA and any other trustees, all appraisal, engineering and consulting fees and costs, the cost of title insurance, all recording fees and costs, state transfer taxes, costs of interest rate swap protection, document production costs and any other expenses reasonably incurred by any of the foregoing Persons (except Delano Energy) in connection with the negotiation, documentation and closing of the Overall Transaction. "Transferee" as defined in Section 19.1 of the Participation Agreement. "UCC" as defined in Section 1.3 of Delano Energy Security Agreement. "Uniform Customs and Practice" as defined in Section 8.3(a) of the Reimbursement Agreement. "Unrelated Liens" shall mean Liens resulting from acts of or claims against the Owner Trustee, CTCC, in its individual 54 capacity, the Owner Participant or any Bank arising out of events or conditions not related or connected to the ownership of the Facility, being Lessor under the Lease, or the Overall Transaction. "Withdrawn Funds" shall mean funds withdrawn from the Major Maintenance Reserve Fund in accordance with the provisions contained in Section 5A.4 of the Revenue Trust Agreement. "Working Capital" shall mean at any date as of which the amount thereof shall be determined the sum of (i) cash held in the Disbursement Account, (ii) Available Reserves, (iii) receivables and (iv) inventory, less (iv) current liabilities (excluding the current portion of long term debt). The amount of receivables, inventory and current liabilities shall be determined in accordance with generally accepted accounting principles. "Working Capital Requirement" as defined in Section 3.3.2 of the Revenue Trust Agreement. "Worth at the Time of Award" as defined in Section 17 of the Lease. "1989 Bonds" shall mean the Variable Rate Demand and Resource Recovery Revenue Bonds, Series 1989, issued by the CPCFA pursuant to the 1989-90 Bond Indenture on August 31, 1989. "1989 Tax-exempt Financing Credit" as defined in Section 2(a) of the Reimbursement Agreement. "1989-90 Collateral Agent" shall mean FNBB in its capacity as collateral agent for the Banks under the 1989-90 Bond Pledge Agreement. "1989-90 Notional Amount" as defined in Section 3.3.1.1(1) of the Revenue Trust Agreement. "1990 Bonds" shall mean the Variable Rate Demand and Resource Recovery Revenue Bonds, Series 1990, issued by the CPCFA pursuant to the 1989-90 Bond Indenture on May 24, 1990. "1990 Closing Date" shall mean December 3, 1990. "1990 Confirmation" shall mean the letter agreement dated December 3, 1990 between Delano Energy, the Owner Trustee and the Swap Bank. "1990 Participation Agreement" as defined in Recital A of the Participation Agreement. "1990 Revenue Trust Agreement" as defined in the Recitals of the Revenue Trust Agreement. 55 "1990 Tax-exempt Financing Credit" as defined in Section 2(b) of the Reimbursement Agreement. "1991 Bonds" shall mean the Variable Rate Demand and Resource Recovery Revenue Bonds, Series 1991, issued by the CPCFA pursuant to the 1991 Bond Indenture on October 17, 1991. "1991 Collateral Agent" shall mean ABN AMRO in its capacity as collateral agent for the Banks under the 1991 Bond Pledge Agreement. "1991 Notional Amount" as defined in Section 3.3.1.1(1) of the Revenue Trust Agreement. "1991 Tax-exempt Financing Credit" as defined in Section 2(c) of the Reimbursement Agreement. "1993 Confirmation" shall mean the letter agreement dated as of December 31, 1993 between Delano Energy, the Owner Trustee and the Swap Bank. 56 EX-11 5 THERMO ELECTRON 1993 10-K/EXHIBIT 11 Exhibit 11 Thermo Electron Corporation Computation of Earnings per Share 1993 1992 1991 ----------- ----------- ----------- Computation of Fully Diluted Earnings per Share Before Cumulative Effect of Change in Accounting Principle: Income: Income per primary computation $76,633,000 $60,594,000 $47,054,000 Add: Convertible debt interest, 10,273,000 6,010,000 4,166,000 net of tax ----------- ----------- ----------- Income applicable to common stock assuming full dilution (a) $86,906,000 $66,604,000 $51,220,000 ----------- ----------- ----------- Shares: Weighted average shares outstanding 43,779,422 40,049,444 35,836,484 Add: Shares issuable from assumed conversion of convertible debentures 11,256,368 6,483,917 5,027,151 Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 483,718 629,911 847,848 ----------- ----------- ----------- Weighted average shares outstanding, as adjusted (b) 55,519,508 47,163,272 41,711,483 ----------- ----------- ----------- Fully diluted earnings per share before cumulative effect of change in accounting principle (a) / (b) $ 1.57 $ 1.41 $ 1.23 =========== =========== =========== Thermo Electron Corporation Computation of Earnings per Share (continued) 1993 1992 1991 ----------- ----------- ----------- Computation of Fully Diluted Earnings per Share: Income: Income per primary computation $76,633,000 $59,156,000 $47,054,000 Add: Convertible debt interest, net of tax 10,273,000 6,010,000 4,166,000 ----------- ----------- ----------- Income applicable to common stock assuming full dilution (c) $86,906,000 $65,166,000 $51,220,000 ----------- ----------- ----------- Shares: Weighted average shares outstanding 43,779,422 40,049,444 35,836,484 Add: Shares issuable from assumed conversion of convertible debentures 11,256,368 6,483,917 5,027,151 Shares issuable from exercise of options (as determined by the application of the treasury stock method) 483,718 629,911 847,848 ----------- ----------- ----------- Weighted average shares outstanding, as adjusted (d) 55,519,508 47,163,272 41,711,483 ----------- ----------- ----------- Fully diluted earnings per share (c) / (d) $ 1.57 $ 1.38 $ 1.23 =========== =========== =========== EX-13 6 THERMO ELECTRON 1993 10-K/EXHIBIT 13 Exhibit 13 THERMO ELECTRON CORPORATION 1993 Financial Statements Thermo Electron Corporation Consolidated Statement of Income (In thousands except per share amounts) 1993 1992 1991 - ------------------------------------------------------------------------------ Revenues: Product sales and revenues $1,103,558 $ 808,928 $ 666,565 Service revenues 121,987 114,268 112,003 Research and development contract revenues 24,173 25,776 26,916 ---------- ---------- ---------- 1,249,718 948,972 805,484 ---------- ---------- ---------- Costs and Expenses: Cost of products 664,201 521,668 444,273 Cost of services 91,292 87,307 89,347 Expenses for research and development and new lines of business (a) 87,027 62,343 52,609 Selling, general and administrative expenses 283,590 209,392 177,304 Costs associated with divisional and product restructuring (Note 11) 8,261 - 3,709 ---------- ---------- ---------- 1,134,371 880,710 767,242 ---------- ---------- ---------- Gain on Issuance of Stock by Subsidiaries (Note 9) 39,863 30,212 27,367 Other Income (Expense), Net (Note 10) (24,091) 3,496 13,564 ---------- ---------- ---------- Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle 131,119 101,970 79,173 Provision for Income Taxes (Note 8) 33,400 27,474 24,850 Minority Interest Expense 21,086 13,902 7,269 ---------- ---------- ---------- Income Before Cumulative Effect of Change in Accounting Principle 76,633 60,594 47,054 Cumulative Effect of Change in Accounting Principle, Net of Tax (Note 7) - 1,438 - ---------- ---------- ---------- Net Income $ 76,633 $ 59,156 $ 47,054 ========== ========== ========== Before Cumulative Effect of Change in Accounting Principle: Primary earnings per share $ 1.75 $ 1.51 $ 1.31 Fully diluted earnings per share $ 1.57 $ 1.41 $ 1.23 Primary Earnings per Share $ 1.75 $ 1.48 $ 1.31 Fully Diluted Earnings per Share $ 1.57 $ 1.38 $ 1.23 Primary Weighted Average Shares 43,779 40,049 35,836 Fully Diluted Weighted Average Shares 55,520 47,163 41,711 1 Thermo Electron Corporation Consolidated Statement of Income (continued) (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------------ (a) Includes costs of: Research and development contracts $ 20,435 $ 19,426 $ 21,196 Internally funded research and development 58,943 38,675 26,171 Other expenses for new lines of business 7,649 4,242 5,242 ---------- ---------- ---------- $ 87,027 $ 62,343 $ 52,609 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 2 Thermo Electron Corporation Consolidated Balance Sheet (In thousands) 1993 1992 - ------------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 325,744 $ 190,601 Short-term investments, at cost (quoted market value of $377,183 and $180,060) 374,450 178,101 Accounts receivable, less allowances of $14,129 and $11,341 267,377 204,750 Unbilled contract costs and fees 32,574 25,941 Inventories: Work in process and finished goods 82,385 60,629 Raw materials and supplies 110,437 106,619 Prepaid income taxes (Note 8) 39,258 54,377 Prepaid expenses 12,318 8,716 ---------- ---------- 1,244,543 829,734 ---------- ---------- Assets Related to Projects Under Construction: Restricted funds (quoted market value of $34,100 and $95,639) 34,100 95,348 Facilities under construction 128,040 133,876 ---------- ---------- 162,140 229,224 ---------- ---------- Property, Plant and Equipment, at Cost: Land 40,570 35,729 Buildings 116,895 99,502 Alternative-energy facilities 199,800 30,554 Machinery, equipment and leasehold improvements 224,629 205,508 ---------- ---------- 581,894 371,293 Less: Accumulated depreciation and amortization 134,423 113,383 ---------- ---------- 447,471 257,910 ---------- ---------- Long-term Marketable Securities, at Cost (quoted market value of $45,125 and $45,731) 43,630 44,497 ---------- ---------- Other Assets 102,347 92,870 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Note 2) 473,579 364,030 ---------- ---------- $2,473,710 $1,818,265 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3 Thermo Electron Corporation Consolidated Balance Sheet (continued) (In thousands except share amounts) 1993 1992 - ------------------------------------------------------------------------------ Liabilities and Shareholders' Investment Current Liabilities: Notes payable $ 45,851 $ 22,034 Accounts payable 85,278 69,473 Billings in excess of contract costs and fees 8,564 7,987 Accrued payroll and employee benefits 49,029 45,115 Accrued income taxes (Note 8) 7,713 9,796 Accrued installation and warranty costs 26,049 17,179 Other accrued expenses (Note 2) 193,762 154,786 ---------- ---------- 416,246 326,370 ---------- ---------- Deferred Income Taxes (Note 8) 48,387 34,171 Other Deferred Items 58,152 35,500 Liabilities Related to Projects Under Construction (Note 5): Payables and accrued expenses 10,680 5,874 Tax-exempt obligations 142,069 199,536 ---------- ---------- 152,749 205,410 ---------- ---------- Long-term Obligations (Note 5): Senior convertible obligations 275,000 260,000 Subordinated convertible obligations 238,386 199,829 Nonrecourse tax-exempt obligations 108,800 - Other 25,275 34,323 ---------- ---------- 647,461 494,152 ---------- ---------- Minority Interest 277,681 164,293 Commitments and Contingencies (Note 6) Common Stock of Subsidiaries Subject to Redemption ($15,390 and $5,468 redemption values) 14,511 5,468 Shareholders' Investment (Notes 3 and 4): Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 100,000,000 shares authorized; 47,950,580 and 27,099,598 shares issued 47,951 27,100 Capital in excess of par value 467,076 257,105 Retained earnings 362,138 285,505 ---------- ---------- 877,165 569,710 Treasury stock at cost, 31,898 and 85,342 shares (1,212) (3,810) Cumulative translation adjustment (13,591) (7,949) Deferred compensation (Note 7) (3,839) (5,050) ---------- ---------- 858,523 552,901 ---------- ---------- $2,473,710 $1,818,265 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 4 Thermo Electron Corporation Consolidated Statement of Cash Flows (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------------ Operating Activities: Net income $ 76,633 $ 59,156 $ 47,054 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle (Note 7) - 1,438 - Depreciation and amortization 42,356 29,228 23,391 Costs associated with divisional and product restructuring (Note 11) 8,261 - 3,709 Equity in losses of unconsolidated subsidiaries 21,076 3,948 1,663 Provision for losses on accounts receivable 2,675 2,021 3,020 Increase in deferred income taxes 13,888 12,273 169 Gain on sale of investments (2,469) (4,968) (7,622) Gain on issuance of stock by subsidiaries (Note 9) (39,863) (30,212) (27,367) Minority interest expense 21,086 13,902 7,269 Other noncash expenses 7,850 11,549 6,804 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (43,171) (10,763) (10,220) Inventories (6,525) (4,753) 8,224 Other current assets (230) (9,860) 5,276 Accounts payable 10,014 (2,479) (10,140) Other current liabilities 15,355 (15,363) (11,684) Other (198) (175) (142) --------- --------- --------- Net cash provided by operating activities 126,738 54,942 39,404 --------- --------- --------- Investing Activities: Acquisitions, net of cash acquired (Note 2) (142,962) (251,738) (7,552) Purchases of property, plant and equipment (56,580) (60,007) (33,469) Purchases of long-term investments (20,573) (70,340) (21,278) Proceeds from sale of long-term investments 16,651 35,899 15,814 (Increase) decrease in short-term investments (193,894) 68,260 (175,701) Increase in assets related to construction projects (3,781) (132,971) (67,790) Other 1,848 313 (4,834) --------- --------- --------- Net cash used in investing activities $(399,291) $(410,584) $(294,810) --------- --------- --------- 5 Thermo Electron Corporation Consolidated Statement of Cash Flows (continued) (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------------ Financing Activities: Proceeds from issuance of long-term obligations $ 102,151 $ 255,694 $ 162,273 Repayment and repurchase of long-term obligations (11,732) (27,415) (10,493) Proceeds from issuance of tax-exempt obligations - 133,536 66,000 Proceeds from issuance of Company and subsidiary common stock 378,790 100,749 64,947 Purchases of Company and subsidiary common stock (57,198) (45,334) (11,663) Other (941) 485 (430) --------- --------- --------- Net cash provided by financing activities 411,070 417,715 270,634 --------- --------- --------- Exchange Rate Effect on Cash (3,374) (2,424) (2,499) --------- --------- --------- Increase in Cash and Cash Equivalents 135,143 59,649 12,729 Cash and Cash Equivalents at Beginning of Year 190,601 130,952 118,223 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 325,744 $ 190,601 $ 130,952 ========= ========= ========= Cash Paid For: Interest $ 29,438 $ 18,287 $ 15,426 Income taxes $ 9,699 $ 16,593 $ 15,723 Noncash Activities: Conversions of convertible obligations $ 50,403 $ 13,863 $ 109,865 Subsidiary stock issued for acquired business (Note 2) $ - $ 9,673 $ 1,026 Purchase of electric generating facility through assumption of debt $ 66,900 $ - $ - The accompanying notes are an integral part of these consolidated financial statements. 6 Thermo Electron Corporation Consolidated Statement of Shareholders' Investment Capital in Common Stock, Excess of Par Retained (In thousands) $1 Par Value Value Earnings - ------------------------------------------------------------------------------- Balance December 29, 1990 $ 21,878 $111,037 $175,850 Net income - - 47,054 Acquisition expenses paid by shareholders of International Technidyne Corporation - 1,135 - Purchases of Company common stock - - - Private placements of Company common stock 750 25,678 - Issuance of stock under employees' and directors' stock plans 412 8,804 - Conversions of convertible obligations 2,818 81,675 - Effect of majority-owned subsidiaries' common stock transactions - 1,922 3,445 Cumulative translation adjustment - - - Amortization of deferred compensation - - - -------- -------- -------- 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 (Note 3) 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' common stock 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 3) 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' common stock 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 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 7 Thermo Electron Corporation Consolidated Statement of Shareholders' Investment (continued) Cumulative Treasury Translation Deferred (In thousands) Stock Adjustment Compensation - ------------------------------------------------------------------------------- Balance December 29, 1990 $ (1,288) $9,381 $(6,646) Net income - - - Acquisition expenses paid by shareholders of International Technidyne Corporation - - - Purchases of Company common stock (8,236) - - Private placements of Company common stock - - - Issuance of stock under employees' and directors' stock plans 8,486 - - Conversions of convertible obligations - - - Effect of majority-owned subsidiaries' common stock transactions - - - Cumulative translation adjustment - (3,849) - Amortization of deferred compensation - - 636 -------- -------- -------- 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 (Note 3) - - - 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' common stock 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 3) - - - Issuance of stock under employees' and directors' stock plans 2,598 - - Conversion of convertible obligations - - - Effect of majority-owned subsidiaries' common stock 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) ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 8 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, and Thermo Fibertek Inc. 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. Thermo Energy Systems Corporation is a majority-owned, privately held subsidiary of the Company; ThermoLase Inc. is a majority-owned, privately held subsidiary of ThermoTrex; and J. Amerika N.V. is a majority-owned, privately held subsidiary of Thermo Process. The Company accounts for investments in businesses in which it owns between 20% and 50% under the equity method. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1993, 1992, and 1991 are for the fiscal years ended January 1, 1994, January 2, 1993, and December 28, 1991, respectively. Fiscal year 1993 and 1991 each included 52 weeks; 1992 included 53 weeks. Revenue Recognition For the majority of its operations, the Company recognizes revenues based upon shipment of its products or completion of services rendered. 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 $176,627,000 in 1993, $186,407,000 in 1992, and $173,210,000 in 1991. The percentage of completion is determined by relating either the actual costs or actual labor incurred 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," and amounts billed in excess of revenues earned are classified as "Billings in excess of 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. 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 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 9 transactions and the net effect of these transactions is reflected in the accompanying statement of shareholders' investment as "Effect of majority-owned subsidiaries' common stock transactions." Income Taxes The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," as of the beginning of 1992. Under SFAS No. 109, deferred income taxes are recognized 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. Prior to 1992, the Company recorded income taxes on timing differences between financial statement and tax treatment of income and expenses under Accounting Principles Board Opinion No. 11. The implementation of SFAS No. 109 and the effect of adoption were not material to the Company's financial statements. 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 effect of the conversion of the Company's dilutive convertible obligations and elimination of the related interest expense, the exercise of stock options, and their related income tax effects. Stock Splits All share and per share information has been restated to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, that was distributed in October 1993. In addition, all share and per share information pertaining to Thermedics, Thermo Instrument, ThermoTrex, and Thermo Voltek has been restated to reflect three-for-two stock splits, effected in the form of 50% stock dividends, that were distributed in 1993. All share and per share information pertaining to Thermo Cardiosystems and ThermoLase has been restated to reflect two-for-one stock splits, effected in the form of 100% stock dividends, that was distributed for Thermo Cardiosystems in 1993 and will be effected for ThermoLase on March 15, 1994. 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. The fair market value of cash and cash equivalents was $325,823,000 and $191,004,000 at January 1, 1994 and January 2, 1993, respectively. Short- and Long-term Investments Short- and long-term investments consist principally of corporate notes and U.S. government agency securities. Securities with an original maturity of greater than three months, which the Company intends to hold for less than one year, are classified as short-term. Securities that are intended to be held for more than one year are classified as long-term. These investments are carried at the lower of cost or market value. In May 1993, the Financial Accounting Standards Board issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that marketable equity and debt securities considered trading securities be accounted for at market value with the difference between cost and market value recorded currently in the statement of income; that securities considered available-for-sale be accounted for at market value, with the difference between cost and market value, net of related tax effects, recorded 10 currently as a component of shareholders' investment; and that debt securities considered held-to-maturity be recorded at amortized cost. The Company is required to adopt SFAS No. 115 at the beginning of fiscal 1994. Management believes that the marketable equity and debt securities in the accompanying balance sheet will be considered available-for-sale and that the adoption of SFAS No. 115 will result in a total increase to shareholders' investment of approximately $2,600,000. 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. 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 -- 10 to 40 years, alternative-energy facilities -- 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 1992 balance sheet included an alternative-energy facility that was under construction in Delano, California. This facility was completed in 1993 and is included in "Alternative-energy facilities" in the accompanying 1993 balance sheet. "Facilities under construction" in fiscal 1993 and 1992 include a waste-recycling facility located in San Diego County, California. Construction costs for this facility were capitalized as incurred. Construction was completed in early 1994. "Restricted funds" in the accompanying balance sheet represent unexpended proceeds from the issuance of tax-exempt obligations (Note 5), which are invested principally in U.S. government agency securities and municipal tax-exempt obligations. These investments are carried at the lower of cost or market value. 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 the power to be generated by the Company's 55-megawatt natural gas cogeneration facility under development on Staten Island, New York. Under the termination agreement, the Company received $9.0 million in August 1993, with subsequent payments to be made as follows: $3.6 million in 1994; $2.7 million in 1995; $1.8 million in 1996; and $0.9 million in 1997. The Company will be obligated to return $8.2 million of this settlement if the Company elects to proceed with the Staten Island 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 million and segment income of $5.4 million from the termination of the power sales agreement. Other Assets "Other assets" in the accompanying balance sheet includes capitalized costs associated with the Company's operation of certain alternative-energy power plants, as well as the cost of acquired trademarks, patents, and other identifiable intangible assets. These assets are being amortized using the straight-line method over their estimated useful lives, which range from 4 to 20 years. These assets were $41,252,000 and $49,646,000, net of accumulated amortization of $16,699,000 and $11,002,000, at year-end 1993 and 1992, respectively. 11 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 $32,439,000 and $20,954,000 at year-end 1993 and 1992, respectively. The Company continually assesses whether a change in circumstances has occurred subsequent to an acquisition that would indicate that the future useful life of the asset should be revised. The Company considers the future earnings potential of the acquired business in assessing the recoverability of this asset. Common Stock of Subsidiaries Subject to Redemption In March 1993, ThermoLase sold 3,078,000 units at $5 per unit, each unit consisting of one share of ThermoLase common stock and one redemption right. A redemption right allows holders to redeem ThermoLase common stock for $5 per share, and is exercisable in December 1996 and 1997. The redemption rights are guaranteed on a subordinated basis by the Company. "Common stock of subsidiaries subject to redemption" in the accompanying 1992 balance sheet represents amounts associated with redemption rights outstanding that were issued in connection with the Thermo Cardiosystems 1989 initial public offering and were guaranteed on a subordinated basis by the Company. These redemption rights expired at the end of 1993 and, as a result, the Company transferred $5,468,000 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 losses are included in the accompanying statement of income and are not material for the three years presented. Presentation Certain amounts in 1992 and 1991 have been reclassified to conform to the 1993 financial statement presentation. 2.Acquisitions In February 1993, Thermo Instrument acquired Spectra-Physics Analytical, a manufacturer of liquid chromatography and capillary electrophoresis analytical instruments, for $67.3 million in cash. In 1993, the Company's majority-owned subsidiaries made several other acquisitions for $76.5 million in cash. In 1992, Thermo Instrument acquired Nicolet Instrument Corporation. The total purchase price to the Company was approximately $175 million. Nicolet designs, manufactures, and markets instrumentation for a broad range of analytical chemistry, neurodiagnostic, and electronic engineering problem-solving applications in science and industry. In 1992, the Company's majority-owned subsidiaries made several other acquisitions for $77.7 million in cash, assumption of debt in the amount of $7.3 million, prepayment of debt in the amount of $1.5 million, and issuance of common stock and stock options of a majority-owned subsidiary valued at approximately $12.3 million. These acquisitions have been accounted for as purchases and their 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 $325 million, 12 which is being amortized principally over 40 years. Allocation of the purchase price was based on the fair value of the net assets acquired and, for acquisitions completed in fiscal 1993, is subject to adjustment. Based on unaudited data, the following table presents selected financial information for the Company, Spectra-Physics Analytical, and Nicolet on a pro forma basis, assuming the companies had been combined since the beginning of 1992. Net income and earnings per share are shown before Nicolet's discontinued operations, which occurred in fiscal 1992. The effect on the Company's financial statements of the acquisitions not included in the pro forma data was not significant. (In thousands except per share amounts) 1993 1992 - ----------------------------------------------------------------- Revenues $1,257,523 $1,105,907 Income before cumulative effect of change in accounting principle 75,631 43,016 Earnings per share before cumulative effect of change in accounting principle: Primary 1.73 1.07 Fully diluted 1.55 1.04 The pro forma results for 1992 include a $10.8 million reorganization charge recorded by Nicolet prior to its acquisition by the Company and a one-time $3.3 million charge for certain acquisition-related expenses incurred by Nicolet prior to its acquisition by the Company. The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisitions been made at the beginning of 1992. "Other accrued expenses" in the accompanying balance sheet includes approximately $41 million and $48 million at year-end 1993 and 1992, respectively, for estimated severance, relocation, and other restructuring reserves associated with acquisitions. 3.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. In 1992, the Company sold 1,200,000 shares of its common stock in a private placement for net proceeds of $34.3 million. At January 1, 1994, the Company had reserved 26,732,077 unissued shares of its common stock for possible issuance under employees' and directors' stock plans, for possible conversion of the Company's 4 5/8%, 4 7/8%, and 6 3/4% 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 5). The conversion price would be equal to 50% of the price of the Company's common stock prior to the change in control. 4.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. 13 The incentive stock option plan expired in 1991 and no grants may be 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 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, although incentive stock options must be granted at not less than fair market value 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 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: 1993 1992 1991 --------------- --------------- --------------- Number Total Number Total Number Total of Option of Option of Option (In thousands) Shares Price Shares Price Shares Price - ------------------------------------------------------------------------------- Options outstanding, beginning of year 2,074 $45,550 1,965 $34,276 2,366 $33,390 Granted 1,225 48,610 634 17,997 369 9,260 Exercised (317) (4,319) (480) (5,648) (746) (8,029) Lapsed or canceled (21) (483) (45) (1,075) (24) (345) ----- ------- ----- ------- ----- ------- Options outstanding, end of year 2,961 $89,358 2,074 $45,550 1,965 $34,276 ===== ======= ===== ======= ===== ======= Options exercisable 2,961 $89,358 2,067 $45,444 1,965 $34,276 ===== ======= ===== ======= ===== ======= Options available for grant 292 1,195 1,786 ===== ===== ===== 14 5. Long-term Obligations and Other Financing Arrangements Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1993 1992 - ----------------------------------------------------------------------------- 4 5/8% Senior convertible debentures, due 1997, convertible at $32.25 per share $205,000 $260,000 4 7/8% Subordinated convertible debentures, due 1997, convertible at $32.25 per share 55,000 - 6 3/4% Subordinated convertible debentures, due 2001, convertible at $23.00 per share 67,173 74,215 3 3/4% Senior convertible debentures, due 2000, convertible into shares of Thermo Instrument at $31.75 per share 70,000 - 6 5/8% Subordinated convertible debentures, due 2001, convertible into shares of Thermo Instrument at $17.59 per share 49,569 84,240 6 1/2% Subordinated convertible debentures, due 1998, convertible into shares of Thermedics at $10.42 per share 12,997 20,307 6 1/2% Subordinated convertible debentures, due 1997, convertible into shares of Thermo Process at $10.33 per share 18,547 18,547 5 1/2% Subordinated convertible notes, due 2002, convertible into shares of Thermo Cardiosystems at $9.88 per share 600 600 4% Subordinated convertible note, due 1995, convertible into shares of Thermo Cardiosystems at $3.60 per share - 1,920 3 3/4% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Voltek at $11.75 per share 34,500 - 8.1% Nonrecourse tax-exempt obligation, payable in semi-annual installments, with a final payment in 2000 62,500 - 5.7% Nonrecourse tax-exempt obligation, payable in semi-annual installments, with a final payment in 2000 57,500 - 10.23% Mortgage loan secured by property with a net book value of $16,826, payable in monthly installments, with final payment in 2004 11,535 12,150 Other 21,375 25,650 -------- -------- 666,296 497,629 Less: Current maturities of long-term obligations 18,835 3,477 -------- -------- $647,461 $494,152 ======== ======== 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 4 5/8%, 4 7/8%, and 6 3/4% 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 15 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, 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 the Company by a third party owner/lessor and was purchased by the subsidiary in December 1993. Construction of Delano II was completed in 1993. The obligations are payable only by the subsidiary that owns the facilities and are not guaranteed by the Company. "Tax-exempt obligations" in the accompanying 1993 and 1992 balance sheet includes $8.5 million and $66 million, respectively, of tax-exempt obligations issued by the California Pollution Control Financing Authority in October 1991, the proceeds of which were loaned to the Company to finance the construction of the Delano II alternative-energy facility. In 1993, $57.5 million of these obligations were renegotiated and are included in the accompanying 1993 balance sheet as "Nonrecourse tax-exempt obligations," discussed above. In February 1994, the remaining $8.5 million of these tax-exempt obligations was repaid. Prior to the renegotiation and repayment, these obligations carried a floating rate of interest, which varied daily based on short-term, tax-exempt markets. The interest rate ranged from 2.5% to 6.1% in 1993, and from 2.65% to 6.1% in 1992. "Tax-exempt obligations" in the accompanying 1993 and 1992 balance sheet also includes $133.5 million of tax-exempt obligations due 1995 through 2017 issued by the California Pollution Control Financing Authority 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. Of these tax-exempt bonds, $95 million carry fixed rates of interest ranging from 5.3% to 6.75%, and $39 million carry a floating rate of interest, which varies weekly based on short-term, tax-exempt markets. The interest rate ranged from 4.25% to 6.85% in 1993, and from 2.95% to 5.4% in 1992. 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 $8.4 million and $7.1 million in 1993 and 1992, respectively. The annual requirements for long-term obligations and tax-exempt obligations, are as follows: Long-term Tax-exempt (In thousands) Obligations Obligations - ----------------------------------------------------------------- 1994 $ 18,835 $ 8,500 1995 16,287 2,685 1996 19,101 3,369 1997 300,388 2,610 1998 37,663 2,895 1999 and thereafter 274,022 122,010 -------- -------- $666,296 $142,069 ======== ======== Certain of the Company's obligations include requirements to maintain predetermined financial ratios. At January 1, 1994, the Company was in compliance with these requirements. Based upon quoted market prices and upon 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, including the Company's tax-exempt obligations, was approximately $1,040 million and $810 million at January 1, 1994 and January 2, 1993, respectively. 16 6.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 Company believes Dade County (the County) has breached its contractual obligations with respect to the use of power at County facilities outside the Government Center (affecting plant efficiency), 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 sells over half of its actual output to the County and the balance to Florida Power and Light, the local utility. The joint venture has sued the County in Florida state court, seeking in excess of $60 million in damages and alleging that the County was in breach of the energy purchase contract and had misrepresented its demand for electrical power. The County has asserted counterclaims in excess of $28 million 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. The County has also asserted that the joint venture is responsible for local property taxes on the project, totaling approximately $10.5 million to date, which the joint venture disputes. In May 1993, the County filed a petition with the Florida Public Service Commission, asserting that the joint venture was engaged in the retail sale of electricity without complying with rules governing public utilities. The County has filed a similar motion in the state court case alleging that the contract was illegal. Trial of the state court action has been delayed while the County and the joint venture attempt to settle the dispute. In May 1993, the County 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 Florida Power and Light, 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 Florida Power and Light have argued before FERC that the project did not meet the efficiency standards for 1992. The County is also using FERC's decision in an attempt to have the state court declare the energy purchase contract illegal under Federal law. 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 17 with FEP, and the 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 $54 million and the amount realized from the sale or (b) in the case of re-lease, one-half of the difference between the present value of future rentals and prepayment penalty under the lease (approximately $42 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 January 1, 1994 and the cumulative period from 1987 through 1991 were $5.0 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 that arose in the normal course of business. In the opinion of management, these contingencies will not have a material adverse effect upon the financial position 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 $14,718,000 in 1993, $11,231,000 in 1992, and $11,410,000 in 1991. Minimum rental commitments under noncancelable operating leases at January 1, 1994, are as follows: (In thousands) - ---------------------------------------------------------------- 1994 $14,314 1995 12,187 1996 7,974 1997 6,129 1998 3,866 1999 and thereafter 7,962 ------- $52,432 ======= 7.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 $4,517,000, $3,460,000, and $3,342,000 in 1993, 1992, and 1991, 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 $1,125,000, 18 $1,103,000, and $1,131,000 in 1993, 1992, and 1991, respectively. These amounts included interest expense of $228,000 and $590,000 in 1992 and 1991, respectively. 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. Prior to November 1993, the exercise price for the applicable shares was based on 85% of the lower of the fair market value at the beginning or end of the plan year. 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 subsidiary by which they are employed. During 1993, 1992, and 1991, the Company issued 125,268 shares, 85,300 shares, and 210,847 shares, respectively, of its common stock under these plans. Post-retirement Benefits Two of the Company's subsidiaries provide post-retirement 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 Post-retirement Benefits Other Than Pensions," which required the Company to change to the accrual method of accounting for post-retirement medical benefits. Prior to fiscal 1992, the cost of these benefits was recognized as premiums were paid, and was not material for 1991. The Company elected to recognize the cumulative effect of its accumulated post-retirement 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 for 1993 and 1992 and the related obligations required under this statement are not material to the Company's financial statements. Post-employment Benefits The Company provides certain post-employment benefits to inactive and former employees. The Company is required to adopt SFAS No. 112, "Employers' Accounting for Post-employment Benefits," at the beginning of fiscal 1994. SFAS No. 112 requires that the cost of post-employment benefits be recognized at the time the event prompting payment occurs and a reasonable estimate can be made. Management believes that the adoption of this statement will not have a material impact on the Company's financial statements. 8.Income Taxes As discussed in Note 1, the Company adopted SFAS No. 109 in 1992. The components of income before income taxes, minority interest, and cumulative effect of change in accounting principle are as follows: (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------ Domestic $113,152 $ 83,943 $ 59,970 Foreign 17,967 18,027 19,203 -------- -------- -------- $131,119 $101,970 $ 79,173 ======== ======== ======== 19 The provision for income taxes consists of the following: (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------ Currently payable: Federal $10,270 $12,280 $ 4,445 Foreign 8,643 7,058 4,624 State 5,320 3,923 4,149 ------- ------- ------- 24,233 23,261 13,218 ------- ------- ------- Deferred (prepaid), net: Federal 6,821 4,018 9,714 Foreign 931 1,010 1,105 State 1,415 (815) 813 ------- ------- ------- 9,167 4,213 11,632 ------- ------- ------- $33,400 $27,474 $24,850 ======= ======= ======= The provision for income taxes that is currently payable does not reflect $3,354,000 and $7,579,000 of tax benefits allocated to "Capital in excess of par value" or $2,280,000 and $3,137,000 of tax benefits that reduced "Cost in excess of acquired companies" in 1993 and 1992, respectively. The provision for income taxes differs from the provision calculated by applying the statutory federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 to income before income taxes, minority interest, and cumulative effect of change in accounting principle due to the following: (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------ Income tax provision at statutory rate $ 45,892 $ 34,670 $ 26,919 Increases (decreases) resulting from: Gain on issuance of stock by subsidiaries (13,770) (10,272) (8,639) State income taxes, net of federal tax 4,299 2,051 3,267 Tax-exempt and tax-preferred investment income (1,207) (251) (514) Investment and research and development tax credits (6,625) - - Foreign tax rate and tax law differential 3,969 1,916 709 Tax benefit of foreign sales corporation (1,366) (989) - Minority interest in partnership (losses) income (1,057) (1,157) 96 Amortization of cost in excess of net assets of acquired companies 3,400 1,674 1,455 Nondeductible expenses 1,008 198 1,292 Other, net (1,143) (366) 265 -------- -------- -------- $ 33,400 $ 27,474 $ 24,850 ======== ======== ======== 20 Deferred income taxes and short- and long-term prepaid income taxes at year-end 1993 and 1992 consist of the following: (In thousands) 1993 1992 - ------------------------------------------------------------------------ Deferred income taxes: Depreciation $38,108 $22,747 Intangible assets 8,214 9,186 Other 2,065 2,238 ------- ------- $48,387 $34,171 ======= ======= Prepaid income taxes: Reserves and accruals $29,855 $35,074 Inventory basis difference 10,801 11,555 Capitalized cost and joint venture equity 7,071 1,259 Accrued compensation 7,653 7,189 Allowance for doubtful accounts 4,108 3,473 Net operating loss carryforwards 5,200 4,419 Federal tax credit carryforwards 3,193 3,640 Other, net 7,270 3,524 ------- ------- 75,151 70,133 Less: Valuation allowance 20,402 15,756 ------- ------- $54,749 $54,377 ======= ======= The valuation allowance relates to 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 1993 valuation allowance, $9.5 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. The increase in the valuation allowance is primarily attributable to the establishment of valuation allowances for tax attributes of certain acquisitions, 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. The Company has not provided deferred taxes on the basis difference in its investment in public or privately held subsidiaries, resulting primarily from the issuance of stock by subsidiaries, as the Company intends to maintain its majority interest in these subsidiaries. Provision has not been made for U.S. or additional foreign taxes on $73 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. 21 9. Transactions in Stock of Subsidiaries "Gain on issuance of stock by subsidiaries" in the accompanying statement of income results primarily from the following transactions: 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 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. 1991 Conversion of $9,099,000 of Thermo Instrument 6% and 6 3/4% subordinated convertible debentures convertible at $12.19 and $10.83 per share, respectively, into 766,786 shares of Thermo Instrument common stock resulted in a gain of $3,707,000. Conversion of $6,200,000 of Thermo Process 6 1/2% subordinated convertible debentures convertible at $10.33 per share into 600,191 shares of Thermo Process common stock resulted in a gain of $3,043,000. Repurchase of $3,700,000 of Thermedics 6 1/2% subordinated convertible debentures convertible at $10.42 per share for $941,000 in cash and 367,500 shares of Thermedics common stock valued at $7.14 per share, or $2,625,000, resulted in a gain of $1,010,000. Private placement of 1,660,197 shares and initial public offering of 2,250,000 shares of ThermoTrex common stock at $5.55 and $8.00 per share, respectively, for net proceeds of $24,764,000 resulted in a gain of $13,958,000. Private placement of 1,591,549 shares of common stock of J. Amerika N.V. at 6.00 Dutch guilders per share for net proceeds of $4,573,000 resulted in a gain of $2,148,000. Sale of 244,200 shares of Thermo Cardiosystems common stock by Thermedics at an average price of $8.43 per share for net proceeds of $2,040,000 resulted in a taxable gain of $1,958,000. 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 majority-owned subsidiary stock, the subsidiaries' purchases of their own stock, the sale of subsidiaries' stock by the Company or by the subsidiaries under employees' and directors' stock plans or in other transactions, and the conversion of convertible obligations held by the Company, its subsidiaries, or by third parties. 22 The Company's ownership percentages at year-end were as follows: 1993 1992 1991 - -------------------------------------------------------------- Thermo Instrument 81% 81% 80% Thermo Fibertek 80% 80% 100% Thermedics 52% 59% 59% Thermo Power 52% 81% 81% ThermoTrex 55% 62% 70% Thermo Process 72% 71% 71% Thermo Energy Systems 88% 87% 87% Thermo Cardiosystems (a) 57% 58% 55% Thermo Voltek (a) 67% 57% 52% Thermo Remediation (b) 67% 85% 93% ThermoLase (c) 81% 100% 100% (a) Reflects combined ownership by Thermo Electron and Thermedics. (b) Reflects ownership by Thermo Process. (c) Reflects ownership by ThermoTrex. 10. Other Income (Expense), Net The components of "Other income (expense), net" in the accompanying statement of income are: (In thousands) 1993 1992 1991 - ----------------------------------------------------------------- Royalty income $ 1,741 $ 1,732 $ 2,341 Interest income 23,883 24,624 22,297 Interest expense (31,643) (24,296) (18,323) Equity in losses of unconsolidated subsidiaries (21,076) (3,948) (1,663) Gain on sale of investments 2,469 4,968 7,622 Other income, net 535 416 1,290 -------- -------- -------- $(24,091) $ 3,496 $ 13,564 ======== ======== ======== 11. Costs Associated with Divisional and Product Restructuring "Costs associated with divisional and product restructuring" in the accompanying statement of income resulted from the restructuring of certain of the Company's operations, the closing of certain facilities, and the phasing out of certain low-technology products. The 1993 charge to expense primarily represents a $1,645,000 reserve for the closing of a joint venture operation in the alternative-energy power plant business, $1,900,000 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 restructing 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. The 1991 charge to expense primarily represents a $3,225,000 reserve for restructuring to effect certain changes in the Company's operations designed to reduce expenses and $444,000 for the write-down of goodwill associated with the restructuring of the Company's flotation-dryer business. 23 12. Business Segment and Geographical Information The Company's business segments include the following: Instruments: environmental-monitoring and analytical 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 biopsy systems, skin-incision devices, blood coagulation-monitoring equipment, left ventricular-assist devices, neurophysiology monitoring instruments Services: thermal waste treatment, waste-oil recycling, metallurgical heat treating and fabrication, laboratory analysis, environmental sciences Advanced Technologies: explosives- and drug-detectors, product quality assurance systems, electronic test equipment, power conversion systems, development of avionics products and medical systems. (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------ Revenues: Instruments $ 516,712 $ 349,261 $ 283,612 Alternative-energy Systems 242,662 221,877 180,379 Process Equipment 167,524 160,459 168,812 Biomedical Products 127,533 58,167 28,341 Services 121,987 114,268 112,003 Advanced Technologies 76,304 46,075 34,192 Intersegment Sales Elimination (a) (3,004) (1,135) (1,855) ---------- ---------- ---------- $1,249,718 $ 948,972 $ 805,484 ========== ========== ========== Segment Income (b): Instruments $ 91,412 $ 59,758 $ 48,700 Alternative-energy Systems 14,434 1,767 (913) Process Equipment 13,924 13,891 12,922 Biomedical Products 5,758 1,252 (601) Services 9,263 8,411 5,189 Advanced Technologies 7,841 1,989 (1,394) ---------- ---------- ---------- Total Segment Income 142,632 87,068 63,903 Equity in Losses of Unconsolidated Subsidiaries (21,076) (3,948) (1,663) Corporate (c) 9,563 18,850 16,933 ---------- ---------- ---------- Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle $ 131,119 $ 101,970 $ 79,173 ========== ========== ========== Identifiable Assets: Instruments $ 850,688 $ 531,320 $ 444,237 Alternative-energy Systems 593,247 406,515 234,952 Process Equipment 179,251 172,984 141,061 Biomedical Products 285,715 228,781 92,042 Services 146,658 129,656 122,242 Advanced Technologies 169,488 81,409 78,784 Corporate (d) 248,663 267,600 86,173 ---------- ---------- ---------- $2,473,710 $1,818,265 $1,199,491 ========== ========== ========== 24 (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------ Depreciation and Amortization: Instruments $ 18,059 $ 10,786 $ 8,153 Alternative-energy Systems 4,982 3,511 2,391 Process Equipment 4,277 3,792 3,558 Biomedical Products 5,328 2,922 1,726 Services 6,641 5,845 5,479 Advanced Technologies 1,843 1,277 1,043 Corporate 1,226 1,095 1,041 ---------- ---------- ---------- $ 42,356 $ 29,228 $ 23,391 ========== ========== ========== Capital Expenditures: Instruments $ 6,347 $ 4,650 $ 4,174 Alternative-energy Systems (e) 92,862 38,097 6,034 Process Equipment 2,631 3,721 4,414 Biomedical Products 9,042 2,245 1,792 Services 7,583 8,550 5,773 Advanced Technologies 2,774 1,681 1,006 Corporate 2,241 1,063 10,276 ---------- ---------- ---------- $ 123,480 $ 60,007 $ 33,469 ========== ========== ========== Export Sales Included Above (f) $ 219,631 $ 131,755 $ 103,806 ========== ========== ========== Foreign Operations Included Above: Revenues: Europe $ 223,707 $ 198,066 $ 173,350 Other 32,835 22,941 20,894 ---------- ---------- ---------- $ 256,542 $ 221,007 $ 194,244 ========== ========== ========== Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle: Europe $ 11,305 $ 17,627 $ 16,362 Other 6,662 400 2,841 ---------- ---------- ---------- $ 17,967 $ 18,027 $ 19,203 ========== ========== ========== Identifiable Assets: Europe $ 299,091 $ 239,431 $ 205,124 Other 41,068 36,877 31,303 ---------- ---------- ---------- $ 340,159 $ 276,308 $ 236,427 ========== ========== ========== (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. (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. 25 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 January 1, 1994 and January 2, 1993, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended January 1, 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 January 1, 1994 and January 2, 1993, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 1994, in conformity with generally accepted accounting principles. As discussed in Note 7 to the consolidated financial statements, effective December 29, 1991, the Company changed its method of accounting for post-retirement benefits other than pensions. Arthur Andersen & Co. Boston, Massachusetts February 17, 1994 26 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 its products and services 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 three broad market segments: environmental, energy, 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 two years, has been the ability to identify attractive acquisition opportunities, complete those acquisitions, and derive a growing income contribution from these 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. To date, the Company's overall financial performance has been relatively unaffected by the recession in the U.S. economy in 1991 and 1992 and the general economic weakness in Europe and Japan in 1992 and 1993. This is due in large part to strong contributions from newly acquired businesses and the continued strength of businesses primarily driven by environmental regulation. 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 depends upon, among other factors, the strength of worldwide economies and the continued adoption and diligent enforcement of environmental regulations. The Company believes that maintaining an entrepreneurial atmosphere is essential to its continued growth and development. In order to preserve this atmosphere, the Company adopted in 1983 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 shares by subsidiaries upon conversion of indebtedness, 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 sales of stock by its subsidiaries will represent a decreasing portion of 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. 27 Results of Operations 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%. (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.) 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 (segment income margin is segment income as a percentage of sales) 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. Within this segment, sales from Thermo Energy Systems Corporation, which consists of revenues from alternative-energy power plant operations, were $117.7 million, compared with $104.8 million in 1992. Included in 1993 sales from plant operations is $9.8 million recorded as a result of the termination of a power sales agreement, 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 power sales contracts, offset in part by increased utility-imposed curtailments of power output at two California plants. Construction revenues from the Delano II 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, Inc. by Thermo Power in October 1992, offset in part by slight declines in revenues from the Crusader Engines and Tecogen divisions. Sales of Peter Brotherhood Ltd. 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 Energy Systems Corporation 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 agreement 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 from both years, segment income from Thermo Energy Systems Corporation 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 Delano, California. In addition, segment income from Thermo Energy Systems Corporation 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, similar to those completed at another California plant. Post-startup data indicates improvement in the modified plants' operations. 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. The utility 28 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. 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. In January 1994, one of the Company's alternative-energy facilities suffered major equipment damage to its turbine-generator, which will interrupt its operations for approximately six months. The Company expects that the cost of repairs and lost profits will be substantially reimbursed under the terms of its business insurance policies. In 1994, the Company will begin to derive revenues from the operation of the 22-megawatt Delano II alternative-energy facility, as well as from the recently completed waste-recycling facility in San Diego County, California. 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 the Engineered Systems Division (AES) of Albany International Corp. in June 1993, by $9.7 million due to the inclusion for a full year of Vickerys Holdings Limited, which was acquired in September 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 $15.9 million in Thermo Fibertek's paper-recycling equipment business, which continues to be 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 the Company's wholly owned Napco, Inc. subsidiary 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, which was 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' 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 the Company's wholly owned International Technidyne Corporation subsidiary. Segment income improved to $5.8 million from $1.3 million in 1992, principally as a result of increased sales. Sales in the Services segment were $122.0 million, compared with $114.3 million in 1992. Within this segment, sales from soil-remediation services increased by $8.8 million, primarily as a result of higher production at regional soil-remediation centers. Sales of metallurgical services declined by $1.3 million due to continuing weakness in aerospace and defense-related businesses. Sales from environmental sciences and engineering services were about the same level as in 1992. Segment income margin improved to 7.6%, 29 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' high-speed product quality assurance system. Sales also increased $7.2 million at Thermo Voltek, due to the inclusion, for a full year, of revenues from KeyTek Instrument Corp., which was acquired in June 1992, and the inclusion of revenues from Comtest Instrumentation, 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 completed 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 $8.3 million of "Costs associated with divisional and product restructuring," which are described in Note 11 to Consolidated Financial Statements. Of the $8.3 million, the Alternative-energy Systems segment recorded $3.2 million, the Process Equipment segment recorded $0.5 million, and the Services segment recorded $4.6 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 shares 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. 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 9 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. This plant, which is operated by a 50/50 joint venture of subsidiaries of the Company and Rolls-Royce, Inc., supplies electricity and chilled water to the Dade County Downtown Government Center complex in Miami, Florida. The loss for 1993 was $21.1 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, discussed below. The remaining increase resulted from higher fuel costs and legal expenses pertaining to the legal actions described in Note 6 to Consolidated Financial Statements. 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 Company believes that Dade County (the County) has breached its contractual obligations with respect to the use of power at County facilities outside the Government Center (affecting plant efficiency), the joint venture has experienced continuing losses. Although the Company continues to pursue various 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. The Company expects that its share of the future net cash flows of the joint venture will be less than the carrying amount of its investment and future obligations under the joint venture agreement, and has therefore established a reserve in the amount of $15.0 million. This reserve was determined by discounting to present value the Company's share of estimated future negative net cash flows of the joint venture, and represents management's estimate of the probable results. The Company is involved in litigation and regulatory proceedings with respect to the Dade County project that could require additional reserves, if the outcome of one or more of these matters is adverse to the Company (see Note 6 to Consolidated Financial Statements). 30 1992 Compared With 1991 Sales in 1992 were $949.0 million, compared with $805.5 million in 1991. Segment income was $87.1 million, compared with $63.9 million in 1991. Sales from the Instruments segment were $349.3 million, an increase of $65.6 million, or 23%, over 1991. Sales increased $54.9 million due to the acquisitions of Gas Tech in May 1992 and Nicolet in August 1992. Sales from most existing businesses also increased in 1992. Segment income margin was 17.1%, compared with 17.2% in 1991. Improved margins from existing businesses, due to reduced manufacturing costs, were offset by lower segment income margins at Gas Tech and Nicolet. Sales from the Alternative-energy Systems segment were $221.9 million, an increase of $41.5 million, or 23%, over 1991. Within this segment, sales from Thermo Energy Systems Corporation increased to $104.8 million from $92.4 million in 1991. This increase results from higher contractual rates on electricity sold and increased output at plants in California due to less utility-imposed curtailments of power output and fewer operating problems during the 1992 period. The 1992 period also included $2.0 million received in settlement of a dispute over lost development fees with a former joint venture partner. Construction revenues from the Delano II alternative-energy facility were $35.8 million, compared with $20.1 million in 1991. Sales from Thermo Power were $43.9 million, compared with $29.1 million in 1991. The acquisition of FES by Thermo Power in October 1992 contributed $10.1 million in revenues. Also, within Thermo Power, revenues from the Crusader Engines division were $19.2 million, an increase of $8.1 million from the depressed 1991 level, while sales of Tecogen packaged-cogeneration units and research services declined 19% to $14.6 million due to lower demand. Sales of Peter Brotherhood steam turbines and compressors were at about the same level as in 1991. Segment income from the Alternative-energy Systems segment was $1.8 million, compared with a loss of $0.9 million in 1991. Thermo Energy Systems Corporation segment income increased to $5.7 million from $0.5 million in 1991 due to $2.0 million received in settlement of a dispute over lost development fees; lower lease expense at the Company's alternative-energy plant in Whitefield, New Hampshire, resulting from the purchase of this plant by the Company in September 1992; and increased revenues from plant operations. Segment loss from power plant construction was $5.9 million in 1992, compared with segment income of $0.9 million in 1991, principally due to the establishment of a $5.0 million reserve for probable cost overruns on projects under construction. The comparison is also affected by the inclusion in 1991 segment income of a net contribution of $2.0 million from the favorable resolution of reserves established against subcontractor overrun claims on previously completed projects, offset in part by costs associated with the abandonment of two projects then under development. Segment income improved at Thermo Power and Peter Brotherhood principally as a result of increased revenues and efforts to reduce costs. Sales in the Process Equipment segment were $160.5 million, compared with $168.8 million in 1991. Sales of Holcroft heat-treating systems declined $9.7 million reflecting continued low order activity. This decline was offset in part by the inclusion of $4.8 million in revenues from Vickerys Holdings Limited, which was acquired by Thermo Fibertek in September 1992. Segment income margin was 8.7%, compared with 7.7% in 1991. The 1992 improvement resulted primarily from increased margins at Thermo Fibertek's flotation-dryer and pollution-control equipment business compared with 1991, which was affected by unusually high warranty costs, and to a lesser extent, a shift in product mix to higher-margin paper-recycling equipment. Sales in the Biomedical Products segment were $58.2 million, compared with $28.3 million in 1991. Sales increased $23.4 million due to the acquisition of Nicolet's biomedical products business in August 1992 and the ThermoTrex acquisition of Lorad in November 1992. Sales also increased due to higher demand for blood coagulation-monitoring instruments and skin-incision devices at the Company's International Technidyne Corporation (ITC) subsidiary. Segment income 31 was $1.3 million, compared with a loss of $0.6 million in 1991. This improvement results principally from increased revenues and improved profitability at ITC. Sales in the Services segment were $114.3 million, compared with $112.0 million in 1991. Within this segment, sales from soil-remediation services increased by $7.9 million, primarily as a result of additional regional soil-remediation centers in operation. Sales of metallurgical services declined by $4.7 million due to weakness in defense-related business. Sales from environmental science and analytical laboratory services were down 2% compared with 1991. Segment income margin improved to 7.4%, compared with 4.6% in 1991, resulting from a more favorable sales mix and actions taken to reduce costs. Sales from the Advanced Technologies segment were $46.1 million, compared with $34.2 million in 1991. Sales increased primarily due to the acquisition of KeyTek by Thermo Voltek in June 1992, which contributed $6.0 million in sales, and shipments by Thermedics to a new customer of a high-speed product quality assurance system introduced in mid-1992. Segment income was $2.0 million, compared with a loss of $1.4 million in 1991, resulting primarily from increased sales. As a result of the sale of stock by subsidiaries, the issuance of shares by subsidiaries upon conversion of indebtedness, and similar transactions, the Company recorded gains of $30.2 million in 1992 and $27.4 million in 1991. See Notes 1 and 9 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. The loss in 1992 was $3.9 million, compared with a loss of $1.7 million in 1991, with the Dade County cogeneration plant accounting for $3.4 million and $1.6 million of these losses, respectively. The loss from the Dade County cogeneration plant increased principally due to ongoing higher lease costs, and to a lesser extent, higher fuel and maintenance costs. The Company recorded gains on sale of investments of $5.0 million in 1992 and $7.6 million in 1991. Such gains are also included in "Other income (expense), net" in the accompanying statement of income. Financial Condition Liquidity and Capital Resources Consolidated working capital was $828.3 million at January 1, 1994, compared with $503.4 million at January 2, 1993. Included in working capital were cash and short-term investments of $700.2 million at January 1, 1994, compared with $368.7 million at January 2, 1993. In addition, at January 1, 1994, the Company had $43.6 million of long-term marketable securities, compared with $44.5 million at January 2, 1993. In July 1993, the Company completed a public offering of 6,750,000 shares of common stock for net proceeds of $246.0 million. 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, Thermo Electron utilizes the combined financial resources of Thermo Electron and its subsidiaries 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 Electron 32 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 and Thermo Fibertek 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 with 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, at prevailing market prices. See Note 5 to Consolidated Financial Statements for a description of outstanding convertible debentures issued by Thermo Instrument. In addition, at January 1, 1994, Thermo Instrument and Thermo Fibertek had outstanding stock options of 1,894,000 and 1,691,000 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 and/or Thermo Fibertek, the Company would incur an additional tax liability, which could be substantial. In 1993, the Company expended $143.0 million, net of cash acquired, for acquisitions (see Note 2 to Consolidated Financial Statements) and $56.6 million for purchases of property, plant and equipment. The Company has signed an agreement to purchase several businesses within the EnviroTech Measurements & Controls group of Baker Hughes Incorporated for approximately $134 million, subject to regulatory approvals and other closing conditions. In August 1993, the Company's Peter Brotherhood subsidiary finalized an agreement with a United Kingdom-based company to sell its present 11.6 acre facility in Peterborough, England, for 12.0 million British pounds sterling (approximately $17.8 million at current exchange rates). The first payment, for approximately 25% of the selling price, is expected in early 1994, with final payment before the end of 1994. Peter Brotherhood will use the proceeds from the sale to construct a new and more efficient facility within the Peterborough area. In early 1994, the Company completed construction of a waste-recycling facility in San Diego County, California. In the event that this facility is not sold to a third party, the Company is obligated to contribute $15.0 million of equity to the project. The project is also subject to $133.5 million of tax-exempt obligations, included in the accompanying balance sheet, which would be assumed by any purchaser. The Company has no material commitments for purchases of property, plant and equipment and expects that, for 1994, such expenditures will approximate the 1993 level. During 1993, the Company and its majority-owned subsidiaries expended $57.2 million to purchase common stock of the Company and its subsidiaries. The Company expects that these purchases will continue in 1994. Pending Accounting Changes The Company is required to adopt Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Post-employment Benefits," and SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," at the beginning of fiscal 1994. Management does not expect that SFAS No. 112 will have a material adverse effect on its results of operations. Management believes that the adoption of SFAS No. 115 will result in a cumulative effect of a change in accounting principle adjustment to shareholders' investment of approximately $2.6 million. 33 Information as to Publicly Owned Businesses (Unaudited) (In thousands) 1993 1992 1991 - ------------------------------------------------------------------------------ Revenues: Thermo Instrument Systems Inc. $ 584,176 $ 423,199 $ 338,747 Thermo Fibertek Inc. 137,088 125,577 124,731 Thermedics Inc. (a) 80,220 45,778 32,295 Thermo Power Corporation 77,360 43,904 29,131 ThermoTrex Corporation 54,329 19,843 16,801 Thermo Process Systems Inc. (b) 53,839 47,082 50,632 ---------- ---------- ---------- 987,012 705,383 592,337 Wholly and majority-owned nonpublic companies 262,706 243,589 213,147 ---------- ---------- ---------- $1,249,718 $ 948,972 $ 805,484 ========== ========== ========== Segment Income (c): Thermo Instrument Systems Inc. $ 96,786 $ 63,373 $ 49,742 Thermo Fibertek Inc. 15,902 15,716 14,652 Thermedics Inc. (a) 8,292 841 (3,048) Thermo Power Corporation 2,707 715 (3,158) ThermoTrex Corporation 485 (1,185) (113) Thermo Process Systems Inc. (b) 1,338 371 (1,487) ---------- ---------- ---------- 125,510 79,831 56,588 Wholly and majority-owned nonpublic companies 17,122 7,237 7,315 ---------- ---------- ---------- 142,632 87,068 63,903 Equity in Losses of Unconsolidated Subsidiaries (21,076) (3,948) (1,663) Corporate 9,563 18,850 16,933 ---------- ---------- ---------- Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle $ 131,119 $ 101,970 $ 79,173 ========== ========== ========== (a) Includes Thermo Cardiosystems Inc. and Thermo Voltek Corp. (b) Includes Thermo Remediation Inc. (c) 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. 34 Quarterly Information (Unaudited) (In thousands except per share amounts) 1993(a) First(b) 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 Earning per share: Primary 0.38 0.43 0.45 0.48 Fully diluted 0.34 0.39 0.40 0.43 1992(c) First(d) Second Third(e) Fourth - ------------------------------------------------------------------------------ Revenues $204,385 $210,065 $242,918 $291,604 Gross profit 61,758 70,119 88,726 99,968 Income before cumulative effect of change in accounting principle 12,634 13,904 15,516 18,540 Net income 11,196 13,904 15,516 18,540 Earnings per share before cumulative effect of change in accounting principle: Primary 0.32 0.35 0.39 0.46 Fully diluted 0.31 0.33 0.35 0.41 Earnings per share: Primary 0.28 0.35 0.39 0.46 Fully diluted 0.27 0.33 0.35 0.41 - ------------------------------------------------------------------------------ (a) Results include pre-tax 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. (b) Results reflect the February 1993 acquisition of Spectra-Physics Analytical. (c) Results include pre-tax gains of $8,251,000, $5,076,000, $3,876,000, and $13,009,000 in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. (d) The first quarter of 1992 was restated to reflect the adoption of Statement of Financial Accounting Standards No. 106, "Accounting for Post-retirement Benefits Other Than Pensions." (e) Results reflect the August 1992 acquisition of Nicolet Instrument Corporation. 35 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 1993 and 1992. Prices have been restated to reflect a three-for-two stock split distributed in October 1993. 1993 1992 --------------------- --------------------- Quarter High Low High Low - --------------------------------------------------------------- First $38 $31 1/3 $31 2/3 $26 1/4 Second 41 1/6 36 1/3 29 1/12 25 1/6 Third 43 1/4 37 1/4 28 1/3 25 Fourth 43 38 1/8 31 1/2 26 1/2 The closing market price on the New York Stock Exchange for the Company's common stock on February 25, 1994, was $39 1/2 per share. As of February 25, 1994, the Company had 6,406 holders of record of its common stock. This does not include holdings in street or nominee names. 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 Power Corporation (THP), Thermo Process Systems Inc. (TPI), Thermo Cardiosystems Inc. (TCA), Thermo Voltek Corp. (TVL), ThermoTrex Corporation (TKN), Thermo Fibertek Inc. (TFT), and Thermo Remediation Inc. (THN). 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. Transfer Agent and Common Stock Registrar The Bank of Boston is the stock transfer agent and maintains shareholder accounting 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) 575-2900 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. 36 Annual Meeting The annual meeting of shareholders will be held on Tuesday, May 24, 1994, at 5:30 p.m. at the Hyatt Regency Hotel, Hilton Head, South Carolina. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended January 1, 1994, as filed with the Securities and Exchange Commission, may be obtained without charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. 37 Ten Year Financial Summary (In millions except per share amounts)
1993(a) 1992(b) 1991(c) 1990(d) 1989 1988 1987 1986 1985 1984 - --------------------------------------------------------------------------------------------------- Revenues $1,249.7 $949.0 $805.5 $720.7 $623.0 $540.7 $419.9 $359.1 $286.2 $253.3 Costs and Expenses: Cost of revenues 755.5 609.0 533.6 465.3 424.2 359.6 280.3 244.8 194.9 172.6 Expenses for R&D and new lines of business 87.0 62.3 52.6 54.0 46.4 43.2 31.4 26.5 21.5 21.6 Selling, general and administrative expenses 283.6 209.4 177.3 163.1 130.0 113.7 91.5 72.7 56.9 48.2 Costs associated with divisional and product restructuring 8.3 - 3.7 1.0 2.2 0.9 3.5 7.1 4.3 0.1 -------- ------ ------ ------ ------ ------ ------ ------ ------ ------ 1,134.4 880.7 767.2 683.4 602.8 517.4 406.7 351.1 277.6 242.5 -------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Gain on Issuance of Stock by Subsidiaries 39.9 30.2 27.4 20.3 16.8 6.0 16.1 15.9 9.1 - Other Income (Expense), Net (24.1) 3.5 13.5 2.3 3.3 4.5 (0.6) (3.3) (4.7) (5.1) -------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Income Before Income Taxes, Minority Interest, and Cumulative Effect of Change in Accounting Principle 131.1 102.0 79.2 59.9 40.3 33.8 28.7 20.6 13.0 5.7 Provision for Income Taxes 33.4 27.5 24.8 17.8 10.4 9.0 6.0 4.0 2.5 0.1 38 Ten Year Financial Summary (continued) (In millions except per share amounts) 1993(a) 1992(b) 1991(c) 1990(d) 1989 1988 1987 1986 1985 1984 - --------------------------------------------------------------------------------------------------- Minority Interest Expense $ 21.1 $ 13.9 $ 7.3 $ 7.1 $ 3.3 $ 2.0 $ 1.9 $ 0.5 $ (0.1) $ (0.1) -------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Income Before Cumulative Effect of Change in Accounting Principle 76.6 60.6 47.1 35.0 26.6 22.8 20.8 16.1 10.6 5.7 Cumulative Effect of Change in Accounting Principle, Net of Tax (e) - 1.4 - - - - - - - - --------- ------- ------- ------- ------- ------- ------- ------- ------- ------ Net Income $ 76.6 $ 59.2 $ 47.1 $ 35.0 $ 26.6 $ 22.8 $ 20.8 $ 16.1 $ 10.6 $ 5.7 ========= ======= ======= ======= ======= ======= ======= ======= ======= ====== Earnings per Share Before Cumulative Effect of Change in Accounting Principle: Primary $ 1.75 $ 1.51 $ 1.31 $ 1.09 $ 0.86 $ 0.77 $ 0.68 $ 0.55 $ 0.42 $ 0.24 Fully diluted $ 1.57 $ 1.41 $ 1.23 $ 1.03 $ 0.84 $ 0.75 $ 0.67 $ 0.54 $ 0.41 $ 0.23 Earnings per Share: Primary $ 1.75 $ 1.48 $ 1.31 $ 1.09 $ 0.86 $ 0.77 $ 0.68 $ 0.55 $ 0.42 $ 0.24 Fully diluted $ 1.57 $ 1.38 $ 1.23 $ 1.03 $ 0.84 $ 0.75 $ 0.67 $ 0.54 $ 0.41 $ 0.23 Balance Sheet Data: Working capital $ 828.3 $ 503.4 $ 463.5 $ 241.4 $ 276.0 $ 218.8 $ 210.9 $ 124.3 $ 79.1 $ 51.3 Total assets 2,473.7 1,818.3 1,199.5 904.4 664.1 524.4 460.8 332.6 240.9 208.0 39 Ten Year Financial Summary (continued) (In millions) 1993(a) 1992(b) 1991(c) 1990(d) 1989 1988 1987 1986 1985 1984 - --------------------------------------------------------------------------------------------------- Net assets related to construction projects $ 9.4 $ 23.8 $ 29.4 $ - $ - $ - $ - $ - $ - $ - Long-term obligations 647.5 494.2 255.0 210.0 176.9 152.7 135.7 61.4 49.1 47.5 Minority Interest 277.7 164.3 122.5 83.9 51.8 22.6 25.8 20.1 6.6 1.3 Common stock of subsidiaries subject to redemption 14.5 5.5 5.5 8.7 13.1 - - - - - Shareholders' investment 858.5 552.9 480.9 310.2 226.4 194.3 173.5 153.1 106.7 87.8 (a) Reflects the February 1993 acquisition of Spectra-Physics Analytical and the Company's 1993 public offering of common stock for net proceeds of $246.0 million. (b) Reflects the August 1992 acquisition of Nicolet Instrument Corporation and the issuance of $260.0 million principal amount of convertible debentures. (c) Reflects the issuance of $164.0 million principal amount of convertible debentures. (d) Reflects the May 1990 acquisition of Finnigan Corporation. (e) Reflects the adoption in fiscal 1992 of Statement of Financial Accounting Standards No. 106, "Accounting for Post-retirement Benefits Other Than Pensions".
40 EX-21 7 THERMO ELECTRON 1993 10-K/EXHIBIT 21 Exhibit 21 Subsidiaries of the Registrant At March 8, 1994, Thermo Electron owned the following companies: STATE OR PERCENT JURISDICTION OF OF OWNER- NAME INCORPORATION SHIP - ------------------------------------------------------------------------------- Napco Europe Limited United Kingdom 100 Nicolet Biomedical Inc. California 100 Eden Medical Electronics, Inc. Delaware 100 Eden Medizinische Elektronik GmbH Germany 100 Neuroscience Limited United Kingdom 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 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 Delano Biomass Energy Company, Inc. California 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 Instrument of California Inc. California 100 North Carbondale Minerals, Inc. California 100 North County Recycling, Inc. California 100 Overly, Inc. Wisconsin 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, Inc. New York 100 TE Energy Systems, Inc. Massachusetts 100 TEC Cogeneration Inc. Florida 100 South Florida Cogeneration Associates Florida 50* TEC Energy Corporation California 100 North County Resource Recovery Associates California 50* (50% of which shares are owned directly by San Marcos Resource Recovery, Inc.) Tecomet Inc. Massachusetts 100 TECOMP Inc. Michigan 100 Page 1 Exhibit 21 Subsidiaries of the Registrant At March 8, 1994, Thermo Electron owned the following companies: STATE OR PERCENT JURISDICTION OF OF OWNER- NAME INCORPORATION SHIP - ------------------------------------------------------------------------------- Thermedics Inc. Massachusetts 52** Corpak Inc. Massachusetts 100 Walpak Company Illinois 100 Thermedics Detection Inc. Massachusetts 100 ThermedeTec Corporation Delaware 100 Thermedics Detection de Mexico, S.A. de C.V. Mexico 100 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 TMD Securities Corporation Massachusetts 100 Thermo Cardiosystems Inc. Massachusetts 54** TCA Securities Corporation Massachusetts 100 Thermo Voltek Corp. Delaware 53** KeyTek Instrument Corp. Massachusetts 100 Residu Pensioen 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 Electron of Conway, Inc. New Hampshire 100 Thermo Electron Foundation, Inc. Massachusetts 100 Thermo Electron Metallurgical Services, Inc. Texas 100 Thermo Energy Systems Corporation Delaware 88** Coos Biomass Corporation California 100 Delano Energy Company Inc. Delaware 100 Delano Operations Company, Inc. California 100 SFS Corporation New Hampshire 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 Central Florida Corporation Delaware 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 61* (39% of which shares are owned directly by SFS Corporation) Thermo Fuels Company, Inc. California 100 Woodland Biomass Power, Inc. California 100 Woodland Biomass Power, Ltd. California 99* Thermo Fibertek Inc. Delaware 80** AES Equipos y Sistemas S.A. de C.V. Mexico 100 Page 2 Exhibit 21 Subsidiaries of the Registrant At March 8, 1994, Thermo Electron owned the following companies: STATE OR PERCENT JURISDICTION OF OF OWNER- NAME INCORPORATION SHIP - ------------------------------------------------------------------------------- Thermo AES Canada Inc. Canada 100 Thermo Electron Web Systems, Inc. Massachusetts 100 Fiberprep Inc. Delaware 51 (17% of which shares are owned directly by E. & M. Lamort, S.A.) Fiberprep Securities Corporation Delaware 100 Thermo Electron Wisconsin, Inc. Wisconsin 100 TMO Lamort Holdings Inc. Delaware 100 E. & M. Lamort, S.A. France 100 Lamort GmbH Germany 85 Lamort Italia S.R.L. Italy 90 Lamort Paper Services Ltd. United Kingdom 85 Nordiska Lamort Lodding A.B. Sweden 100 Vickerys Holdings Limited United Kingdom 100 Vickerys Limited United Kingdom 100 Chinell Fabricators Limited United Kingdom 100 Paperliners Limited New Zealand 100 Vickerys Projects Limited United Kingdom 100 Winterburn Limited United Kingdom 100 Thermo Instrument Systems Inc. Delaware 81** Analytical Instrument Development, Inc. Pennsylvania 100 Eberline Instrument Company Limited United Kingdom 100 Eberline Instrument Corporation New Mexico 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 Imaging Systems International, Incorporated Wisconsin 100 National Nuclear Corporation California 100 Nicolet Instrument Corporation Wisconsin 100 Nicolet Instrument Canada, Inc. Canada 100 Page 3 Exhibit 21 Subsidiaries of the Registrant At March 8, 1994, Thermo Electron owned the following companies: STATE OR PERCENT JURISDICTION OF OF OWNER- NAME INCORPORATION SHIP - ------------------------------------------------------------------------------- Nicolet Instrument GmbH Germany 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 Thermo Environmental Corporation Massachusetts 100 TEV Administrative Services Corporation Delaware 100 Thermo Analytical Inc. Massachusetts 100 Eberline Analytical Corporation New Mexico 100 Skinner & Sherman, Inc. Massachusetts 100 Skinner & Sherman Laboratories, Inc. Massachusetts 100 Skinner & Sherman Technology, Inc. Massachusetts 100 TMA/NORCAL Inc. California 100 Thermo Water Management Inc. Delaware 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 Fellows, Read & Associates, Inc. New Jersey 100 Normandeau Associates, Inc. New Hampshire 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 F.S.C. Inc. U.S. Virgin 100 Islands Thermo Jarrell Ash Corporation Massachusetts 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 Instrument Systems K.K. Japan 100 Van Hengel Holding B.V. Netherlands 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 Thermo Automation Services (ThAS) B.V. Netherlands 100 Thermo Instrument Systems GmbH Germany 100 Thermo Separation Products GmbH Germany 100 Thermo Jarrell Ash (Europe) B.V. Netherlands 100 Page 4 Exhibit 21 Subsidiaries of the Registrant At March 8, 1994, Thermo Electron owned the following companies: STATE OR PERCENT JURISDICTION OF OF OWNER- NAME INCORPORATION SHIP - ------------------------------------------------------------------------------- Thermo Jarrell Ash, S.A. Spain 100 Thermo Separation Products B.V. Netherlands 100 Thermo Separation Products B.V. B.A. Belgium 100 Thermo Power Corporation Massachusetts 52** Takepine Limited United Kingdom 100 Tecogen Securities Corporation Massachusetts 100 Thermo Process Systems Inc. Delaware 72** Beheersmaatschappij J. Amerika N.V. Netherlands 71 Amerika Tankinstallaties B.V. Netherlands 100 High-Tech Trouble-Shooters B.V. Netherlands 100 Jac. Amerika en Zonen B.V. Netherlands 100 Holcroft (Canada) Limited Canada 100 Holcroft Corporation Delaware 100 Holcroft GmbH Germany 100 Terra Tech Labs, Inc. Delaware 100 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 67** TPST Soil Recyclers of Florida Inc. Delaware 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 Thermo Fluids Inc. Delaware 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 55** LORAD Corporation Connecticut 100 ThermoLase Inc. Delaware 81** 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 Electron (UK) Limited United Kingdom 100 * Joint Venture/Partnership ** As of 1/1/94 Page 5 EX-23 8 THERMO ELECTRON 1993 10-K/EXHIBIT 23 Exhibit 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 17, 1994 included in or incorporated by reference into Thermo Electron Corporation's Annual Report on Form 10-K for the year ended January 1, 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, and Registration Statement No. 33-50924 on Form S-3. Arthur Andersen & Co. Boston, Massachusetts March 9, 1994 -----END PRIVACY-ENHANCED MESSAGE-----