Construction Agreement

HTI ENGINEERING (M) SDN. BHD.
25-3(TINGKAT2), JALAN 14/22, 46100 PETALING JAYA,
SELANGOR DARUL ESHAN, WEST MALAYSIA,
TEL: 03-7573210, 7573212
FAX: 03-7573626


Our Ref: HE/95/1218-shs


August 7, 1995


Zycon Corporation 445 El Camino Real Santa Clara California, 95050-4366 U.S.A.


Attention: Mr. Ron Donati


Dear Sir,


RE: AGREEMENT BETWEEN OWNER AND CONSTRUCTION MANAGER
ZYCON CORP. SDN BHD
HITI ENGINEERING (M) SDN BHD
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Enclosed is a copy of the Agreement which has been signed by the Construction Manager, Mr. Felix Tee Yee Loh.


Please do not hesitate to contact us if you require further information.


Your Faithfully,


HITI ENGINEERING (M) SDN BHD


/s/ - ---------------------------- MR. NG BOON HOCK Technical Director


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AGREEMENT
BETWEEN OWNER AND
CONSTRUCTION MANAGER


This Document has important legal and insurance consequences; consultation with an attorney is encouraged with respect to its completion or modification.


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AGREEMENT


Made this Third day of August in the year Nineteen Hundred and Ninety Five (1995)


BETWEEN ZYCON CORPORATION SDN. BHD. the Owner, and HITI ENGINEERING (M) SDN. BHD. the Construction Manager.


For services in connection with the following Project described on Exhibit A hereto which is incorporated by reference.


The Owner and the Construction Manager agree as set forth below:


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TABLE OF CONTENTS


ARTICLE 1 The Construction Team and Extent of
Agreement...............................................4.


ARTICLE 2 Construction Manager's Services.........................4.


ARTICLE 3 Owner's Responsibilities...............................10.


ARTICLE 4 Trade Contracts........................................11.


ARTICLE 5 Schedule...............................................12.


ARTICLE 6 Guaranteed Maximum Price...............................12.


ARTICLE 7 Construction Manager's Fee............................13.


ARTICLE 8 Cost of the Project....................................13.


ARTICLE 9 Changes in the Project.................................15.


ARTICLE 10 Bonuses................................................18.


ARTICLE 11 Payments to the Construction Manager.. ................18.


ARTICLE 12 Insurance, Indemnity and Waiver of
Subrogation............................................20.


ARTICLE 13 Termination of the Agreement and Owner's
Right to Perform Construction Manager's
Obligations............................................23.


ARTICLE 14 Assignment and Governing Law...........................25.


ARTICLE 15 Miscellaneous Provisions...............................26.


ARTICLE 16 Arbitration............................................26.


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ARTICLE 1
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The Construction Team and Extent of Agreement


The CONSTRUCTION MANAGER accepts the relationship of trust and confidence established between him and the Owner by this Agreement. He covenants with the Owner to furnish his best skill and judgment and to cooperate with the Owner in furthering the interests of the Owner. He agrees to furnish efficient business administration and superintendence and to use his best efforts to complete the Project in an expeditious and economical manner consistent with the interest of the Owner.


1.1. THE CONSTRUCTION TEAM. The Construction Manager and the Owner (through Owner's representative) called the "Construction Team" shall work from the beginning of design through construction completion. The Construction manager shall provide leadership to the Construction Team on all matters relating to construction.


1.2. EXTENT OF AGREEMENT. This Agreement represents the entire agreement between the Owner and the Construction Manager and supersedes all prior negotiations, representations or agreements. When Drawings and Specifications are completed, they shall be identified by amendment to this Agreement. This Agreement shall not be superseded by any provisions of the documents for construction and may be amended only by written instrument signed by both the Owner and the Construction Manager.


1.3. DEFINITIONS. The Project is the total construction to be performed under this Agreement, the exhibits hereto, and the Drawings and Specifications and Time Schedule referenced below. The Work is that part of the construction that the Construction Manager is to perform with his own forces or the part of the construction that a particular Trade Contractor is to perform. The term day shall mean calendar day unless specifically designated. "Hard Construction Costs" shall mean the cost items specified in Article 8.2 below. "Soft Construction Costs" shall mean all engineering costs associated with the Project and the commissions and expenses involved in obtaining the Performance Bonds, as defined below, and premiums for insurance required of Construction Manager under Section 12.2 below.


ARTICLE 2
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Construction Manager's Services


The Construction Manager will perform the following services under this Agreement in each of the two phases described below.


2.1. Design Phase.


2.1.1. CONSULTATION DURING PROJECT DEVELOPMENT. Schedule and attend regular meetings with the Owner during the development of conceptual and preliminary design to advise on site use and improvements, selection of materials, building systems


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and equipment. Provide recommendations on construction feasibility, availability of materials and labor, time requirements for installation and construction and factors related to cost including costs of alternative designs or materials, preliminary budgets and possible economies.


2.1.2. SCHEDULING. Develop with Owner a project Time Schedule that coordinates and integrates the design efforts with construction schedule, including realistic activity sequences and durations, allocation of labor and materials, processing of shop drawings and samples, and delivery of products requiring long lead-time procurement.


2.1.3. PROJECT CONSTRUCTION BUDGET. Prepare a Project Budget within fourteen (14) days of execution of this agreement for Owner's approval, which shall be consistent with the Construction Manager's May 18, 1995 quotation, as amended on May 30, 1995, on an overall basis, and update such Budget periodically for the Owner's approval. Advise the Owner if it appears that the Project Budget will not be met and make recommendations for corrective action.


2.1.4. COORDINATION OF CONTRACT DOCUMENTS. Prepare with Owner the Drawings and Specifications, recommending alternative solutions whenever design details affect construction feasibility or schedules.


2.1.5. CONSTRUCTION PLANNING. Recommend for purchase and expedite the procurement of long-lead items to ensure their delivery by the required dates.


2.1.5.1. Make recommendations to the Owner regarding the division of work in the Drawings and Specifications to facilitate the bidding and awarding of Trade Contracts, allowing for phase construction taking into consideration such factors as time performance, availability of labor, overlapping trade jurisdictions and provisions for temporary facilities.


2.1.5.2. Review the Drawings and Specifications with the Owner to eliminate areas of conflict and overlapping in the Work to be performed by the various Trade Contracts and prepare pre-qualification criteria for bidders.


2.1.5.3. Develop Trade Contractor interest in the Project and as working Drawings and Specifications are completed, take competitive bids of the Work from the various Trade Contractors. After analyzing the bids and aware contract pursuant to Article 4 below.


2.2. Construction Phase


2.2.1. PROJECT CONTROL. Monitor the work of the Trade Contractors and coordinate the Work with the activities and responsibilities of the Owner and to complete the Project in accordance with the Owner's objectives of cost, time and quality.


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2.2.1.1. Maintain a competent full-time staff at the Project site to coordinate and provide general direction of the Work and progress of the Trade Contractors on the Project.


Without limiting the above, Construction Manager agrees, except in the event of death or disability:


a. Luke Lai Khin Lee and Chua Shen Huat shall be on the
construction site on all work days during the start up and
through the completion of the major civil and structural
phases;


b. Luke Lai Khin Lee shall be present at the construction site
through the balance of the project including, but not
limited to, the electrical phase;


c. Ng Boon Hock or Change Chin Sia shall be present at the
construction site on all work days during the installation
of the mechanical and electrical equipment;


d. Felix Tee shall supervise the Project as required but at a
minimum shall be on site at least every other week for
sufficient time to assure that prudent decisions have been
made concerning the construction and that materials and
equipment have been ordered in sufficient time to assure
that the Project is completed as contemplated by this
agreement.


In the event of death or disability of any of the aforementioned individuals, Construction Manager shall replace the individual at Construction Manager's expense with another qualified individual acceptable to Owner.


2.2.1.2. Establish on-site organization and lines of authority in order to carry out the overall plans of the Construction Team.


2.2.1.3. Establish procedures for coordination with the Owner and Trade Contractors with respect to all aspects of the Project and implement such procedures.


Without limiting the above, Construction Manager shall hold weekly progress meetings concerning the status of the construction project, a comparison with the estimated construction Time Schedule and Construction Budget. Construction Manager shall prepare accurate minutes of such meetings which shall be promptly forwarded to Ronald Donati, Robert Snyder, Larry Jo and Richard Goh.


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2.2.1.4. Schedule and conduct progress meetings at which Trade Contractors, owner and Construction Manager can discuss jointly such matters as procedures, progress, problems and scheduling.


2.2.1.5. Provide regular monitoring of the schedule as construction progresses. Identify potential variances between scheduled and probable completion dates. Review schedule for Work not started or incomplete and recommend to the Owner and Trade Contractors adjustments in the schedule to meet the probable completion date. Provide summary reports of each monitoring and document all changes in schedule.


2.2.1.6. Determine the adequacy of the Trade Contractors' personnel and equipment and the availability of materials and supplies to meet the schedule.


2.2.1.7. Pay strict attention to safety on the Project for all workers and others visiting the site and will insure that safety helmets and apparel are worn by all workers and other persons visiting the site. Construction Manager shall instruct all employees and hold appropriate classes on safety.


2.2.2.1. PHYSICAL CONSTRUCTION. Except as provided in Article 2.2.2.2., provide all supervision, labor, materials, construction equipment, including, but not limited to, equipment, tools and subcontract items which are necessary for the completion of the Project which are not provided by either the Trade Contractors or the Owner. To the extent that the Construction Manager performs any Work with his own forces, he shall, with respect to such Work, perform in accordance with the Drawings and Specifications and in accordance with the procedure applicable to the Project.


2.2.2.2. The Project items which Construction Manager is not required to provide are:


a. Process vacuum system
b. Epoxy floor coatings
c. Ceco scrubber system


The above items will be obtained and paid for directly by Owner and will not be considered Costs of the Project. Construction Manager shall, however, unless directed otherwise by Owner, supervise and direct the installation of such items. Owner shall pay Construction Manager a separate supervision fee equal to 2% of the Owner's cost of each system or equipment, the installation of which Construction Manager supervises.


2.2.3. COST CONTROL. Develop and monitor an effective system of Project cost control. Revise and refine the initially approved Project Construction Budget, incorporate approved changes as they occur and develop cash flow reports and forecasts as needed. Identify variances between actual and budgeted or estimated costs and advise


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Owner whenever projected cost exceeds budgets or estimates. All modifications to the Project construction Budget must be approved by Owner.


2.2.3.1. Maintain cost accounting records on authorized Work performed. Afford the Owner access to these records and preserve them for a period of six (6) years after final payment.


2.2.4. CHANGE ORDERS. Develop and implement a system for the preparation, review and processing of Change Orders. Recommend necessary or desirable changes to the Owner, review requests for changes, submit recommendations to the Owner and assist in negotiating Change Orders. All Change Orders must be approved by Owner.


2.2.5. PAYMENTS TO TRADE CONTRACTORS. Develop and implement a procedure for the review, processing and payment of applications by Trade Contractors for progress and final payments, which procedure shall be satisfactory to Owner.


2.2.6. PERMITS AND FEES. Obtain all building permits and special permits for permanent improvements.


Without limiting the above, Construction Manager shall be responsible for obtaining all necessary permits, licenses and approvals in connection with the Project other than approval from the Division of Environment including, but not limited to, the following agencies:

a. Sarawak State Government
b. Local town council
c. Fire department (BOMBA)
d. Jabatan Kerja Raya/water boards
e. State Economic Development Corporation (SEDCO)


Construction Manager shall insure that all work on the Project is done in conformity with such permits, licenses and approvals (and the approval of the Department of Environment) and all such work shall be done in compliance with all applicable laws, including local laws and ordinances of Kuching. The cost of obtaining all such approvals (other than from the Department of Environment) shall be considered a Cost of the Project within the meaning of Article 8, but not a Hard Construction Cost. Fees required by the licensing authorities shall be paid directly by Owner or Construction Manager, but if Owner pays the fees (other than for approval from the Department of Environment), the amount so paid shall be credited against the Cost of the Project at the time of final payment under Article 11.2. Notwithstanding anything to the contrary above stated, in the event any contributions, fees or levies shall be imposed by either SESCO, the Sarawak Water Board or Telekoms, such contributions, fees or levies shall be paid directly by the Owner and shall not be considered a Cost of the Project.


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2.2.7. OWNER'S CONSULTANTS. If required, assist the Owner in selecting and retaining professional services of a surveyor, testing laboratories and special consultants and coordinate these services, without assuming any responsibility or responsibility or liability of or for these consultants.


2.2.8. INSPECTION. Inspect the work of Trade Contractors for defects and deficiencies in the Work.


2.2.8.1. Review the safety programs of each of the Trade Contractors and make appropriate recommendations. The performance of such services by the Construction Manager shall not relieve the Trade Contractors of their responsibilities for the safety of persons and property, and for compliance with laws, rules, regulations and orders applicable to the conduct of the Work.


2.2.9. Intentionally omitted.


2.2.10. REPORTS AND PROJECT SITE DOCUMENTS. Record the progress of the Project. Submit written progress reports to the Owner including information on the Trade Contractors' Work and the percentage of completion. Keep a daily log available to the Owner.


2.2.10.1. Maintain at the Project site, on a current basis: records of all necessary Contracts, Drawings, Permits, Licenses and Approvals, samples, purchases, materials, equipment, maintenance and operating manuals and instructions, and other construction related documents, including all revisions. Obtain data from Trade Contractors and maintain a current set of record Drawings, Specifications and operating manuals. At the completion of the Project, deliver all such records to the Owner.


2.2.12. TRADE CONTRACTORS' SUPERVISION. Prepare for Trade Contractors' readiness and assist in their initial start-up and supervise and direct Trade Contractors' performance.


2.2.13. START-UP. With the Owner's maintenance personnel, direct the checkout of utilities, operations, systems and equipment for readiness and assist in their initial start-up and testing by the Trade Contractors.


2.2.14. FINAL COMPLETION. Provide written notice to the Owner that the Work is ready for final inspection. Secure and transmit to the Owner required guarantees, affidavits, releases, bonds and waivers. Turn over to the Owner all keys, manuals, record drawings and maintenance stocks.


2.2.15. PIPES: All process pipes shall be labeled every twenty (20) feet by the Construction Manager to identify the gases or fluids transported.


2.2.16. AS-BUILT PLANS: Upon completion of the Project, the Construction Manager shall deliver a complete set of as-built plans for the Project to the Owner.


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2.2.17. WARRANTY. Where any Work is performed by the Construction Manager's own forces or by Trade Contractors under contract with the Construction Manager, the Construction Manager shall warrant that all materials and equipment included in such Work will be new, unless otherwise specified, and that such Work will be of good quality, free from improper workmanship and defective materials and in conformance with the Drawings and Specifications. With respect to the same Work, the Construction Manager further agrees to correct all work defective in material and workmanship for a period of one year from the Construction Completion Dat ...