Design-build Agreement

DESIGN-BUILD AGREEMENT
AND GENERAL CONDITIONS BETWEEN OWNER AND CONTRACTOR
(WHERE THE BASIS OF COMPENSATION FOR DESIGN AND
ENGINEERING IS FIXED RATE NOT TO EXCEED A MAXIMUM
AND COMPENSATION FOR THE WORK IS COST-PLUS,
NOT TO EXCEED A MAXIMUM AMOUNT)


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OWNER: KFX FUEL PARTNERS II, L.P.


CONTRACTOR: YANKE ENERGY, INC.


DATE: DECEMBER 30, 1996


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TABLE OF CONTENTS


ARTICLES


ARTICLE 1..................................................................
The Construction, Approved Contractors, Extent of Agreement and Definitions


ARTICLE 2..................................................................
Contractor's Responsibilities


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


ARTICLE 4..................................................................
Subcontracts


ARTICLE 5..................................................................
Contract Time Schedule


ARTICLE 6..................................................................
Fees for Development and Detailed Engineering
Cost-plus Percentage Basis Price for Construction


ARTICLE 7..................................................................
Changes in the Project


ARTICLE 8..................................................................
Payments to the Contractor


ARTICLE 9..................................................................
Indemnity, Insurance, Performance Bond


ARTICLE 10..................................................................
Termination of the Agreement and Owner's
Right to Perform Contractor's Obligations


ARTICLE 11..................................................................
Assignment and Governing Law


ARTICLE 12..................................................................
Proprietary Information; Inventions and Licenses


ARTICLE 13..................................................................
Arbitration


ARTICLE 14..................................................................
Definitions


ARTICLE 15..................................................................


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Miscellaneous


EXHIBITS


A. Work Scope B. Project Schedule (Date: 11/05/96) C. Design and Engineering Fee Schedule D. Estimated Drawdown Schedule E. Permits, Licenses and Government Approvals F. Form of Progress Report G. Form of Lien Waivers H. Schedule of Approved Contractors/Subcontractors I. Insurance Requirements J. Requirements for Drawings, Specifications, and Operation and
Maintenance Manuals K. Performance Guarantees and Performance Tests L. Warranty Procedures


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AGREEMENT made as of this 30th day of December, 1996 by and between KFX Fuel Partners II, L.P., a Delaware limited partnership with its principal offices at 1999 Broadway, Suite 3200, Denver, Colorado 80202 (hereinafter "Owner"), and Yanke Energy, Inc., an Idaho corporation with its principal offices at 4414 S. Gekeler Lane, Boise, Idaho 83705 (hereinafter "Contractor") for the design, procurement, construction and start-up, pursuant to the Work Scope (attached hereto and incorporated by reference as Exhibit A) of the following described Project: a Series "C" K-Fuel Plant to produce 640,000 (nominal) tons per year, at the Site in Section 32, Township 51 North, Range 71 West, 6th P. M., Campbell County, Wyoming (as more specifically located on Drawing No. 1001-2, "Proposed Site Plan", KFX Fuel Partners II, L.P. (Yanke Energy, Inc. 10/25/96)).


RECITALS
--------
A. Owner desires to engage Contractor to design, procure, construct, start-up and test on a design-build basis, the Project on the Site.


B. (i) Owner will provide to Contractor, and Contractor will review the conceptual drawings, designs and specifications and all other documents relating to the design, procurement, construction, start-up and testing of the nearly-completed Series "C" K-Fuel facility (hereinafter "Existing Facility") constructed pursuant to that certain Turnkey Design and Construction Agreement entered into as of August 21, 1995 between KFX Fuel Partners, L.P. and Walsh Construction Company, a division of Guy F. Atkinson Company. (ii) Contractor has been provided and reviewed all other documents relating to the Project which Contractor and Owner have deemed necessary in connection with this Agreement. (iii) Contractor has inspected the real property on which the Project is to be constructed, and performed or reviewed such other investigations, studies and analyses which Contractor has determined to be necessary or prudent in connection with entering into this Agreement.


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C. Owner and Contractor desire to develop and incorporate into the Project design improvements and efficiencies resulting from the testing and operation of the Existing Facility and concepts identified in the CRA Parametric test program.


D. Contractor desires to design, procure, construct, start-up and test, on a design-build basis, the Project for Owner.


NOW, THEREFORE, in consideration of the sums to be paid to Contractor by Owner and of the covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, here agree as follows:


ARTICLE 1


THE CONSTRUCTION, APPROVED CONTRACTORS AND EXTENT OF AGREEMENT


1.1 The Contractor, and such persons on the Schedule of Approved Contractors, attached hereto and incorporated by reference as Exhibit H, that Contractor may subcontract with from time to time constitutes the "Construction Team" which shall work from the beginning of design through construction completion.


1.2 This Agreement represents the entire agreement between the Owner and the Contractor and supersedes all prior negotiations, representations or agreements. When the Drawings and Specifications are complete, they shall be identified by amendment to Exhibit A 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 Owner and Contractor.


1.3 The Project is the total construction to be designed and constructed of which the work is a part. The Work comprises the completed construction required by the Drawings and Specifications. The term day shall mean calendar day unless otherwise specifically designated.


1.4 DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following meanings:


1.4.1 Agreement: The term "Agreement" has the meaning set forth in the
---------- preamble.


1.4.2 Approved Subcontractor: Any Subcontractor listed on Schedule H or
----------------------- otherwise approved by Owner in writing.


1.4.3 Business Day: Any Day on which commercial banks are not authorized or
------------- required to close in the State of Wyoming or the State of Idaho.


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1.4.4 Contractor: The term "Contractor" has the meaning set forth in the
----------- preamble.


1.4.5 Day: A "Day" or "day" is a calendar day.
----


1.4.6 Dollar or "$": United States dollars.
--------------


1.4.7 Drawings and Specifications: Drawings and Specifications either (i)
---------------------------- prepared by the Contractor or its Subcontractors with respect to the work as submitted to Owner under this Agreement, or (ii) included as part of Exhibit A.


1.4.8 Equipment: All materials, supplies, apparatus, machinery, parts,
---------- special maintenance tools, components, appliances and appurtenances thereto (a) required for prudent construction, Start-up and testing of and operation of the Facility in accordance with this agreement, or (b) to the extent they are described in or required by the Work or the Drawings and Specifications.


1.4.9 Existing Facility: The Series "C" K-Fuel facility constructed
------------------ pursuant to that certain Turnkey Design and Construction Agreement entered into as of August 21, 1995 between KFX Fuel Partners, L.P. and Walsh Construction Company, a division of Guy F. Atkinson Company.


1.4.10 Facility: The complete 640,000 ton per year (design capacity)
--------- subbituminous coal benefication plant which is expected to have an annual throughput capacity of 750,000 tons and is to be designed, procured, constructed, tested and started-up under this Agreement, together with all supporting improvements and interconnections, as more fully described in Exhibit A.


1.4.11 Good Engineering Practices: Those practices, methods, equipment,
--------------------------- specifications and standards of safety and performance utilizing good, safe and prudent engineering practices in connection with the design, construction, operation, maintenance, repair and use in similar facilities.


1.4.12 Government Approval: Any authorization, consent, approval, license,
--------------------- lease, ruling, permit, tariff, rate, certification, exemption, filing, variance, order, judgment, decree, publication, notices to, declarations of or with or registration by or with any Government Authority relating to the acquisition, ownership, construction, operation or maintenance of the Facility or to the execution, delivery or performance of this Agreement.


1.4.13 Government Authority: Any Federal, national, state, municipal, local,
--------------------- territorial, or other governmental department, commission, board, bureau, agency regulatory authority, instrumentality, judicial or administrative body, domestic or foreign.


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1.4.14 Law: The term "Law" shall mean (a) any statute, law, rule, regulation,
--- code, ordinance, judgment, decree, writ, order, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision of or determination by, or any interpretation or administration of any of the foregoing by, any Government Authority, whether now or hereafter in effect or (b) any requirements or conditions on or with respect to the issuance, maintenance or renewal of any Government Approval or applications therefore whether now or hereafter in effect.


1.4.15 Lender: Any bank, financial institution or other institutional
------- investor providing financing under a Loan Agreement and any trustee or agent acting on any such Person's behalf.


1.4.16 Loan Agreement: Any credit agreement, note purchase agreement, bond
--------------- indenture, lease agreement, equity contribution agreement, or other document or documents pursuant to which Owner obtains financing for the acquisition, development, construction, construction loan retirement, modification, repair, or operation of the Facility or any refinancing of any thereof.


1.4.17 Owner: The term "Owner" has the meaning set forth in the preamble.
------


1.4.18 Permits, Licenses and Government Approvals: Any authorization,
------------------------------------------- consent, approval, license, lease, ruling, permit, tariff, rate, certification, exemption, filing, variance, order, judgment, decree, publication, notices to, declarations of or with or registration by or with any Government Authority relating to the acquisition, ownership, construction, operation or maintenance of the Facility or to the execution, delivery or performance of this Agreement.


1.4.19 Progress Report: The report submitted by Contractor to Owner in
---------------- accordance with Article 8.


1.4.20 Project Schedule: The Project Schedule attached hereto as Exhibit B.
----------------


1.4.21 Site: The term "Site" shall mean the site in Section 32, Township 51
----- North, Range 71 West, 6th P. M., Campbell County, Wyoming, as more specifically located on Drawing No. 1001-2, "Proposed Site Plan", KFX Fuel Partners II, L.P. (Yanke Energy, Inc. 10/25/96).


1.4.22 Subcontract: A subcontract entered into between Contractor and any
------------ Subcontractor.


1.4.23 Subcontractor: Any person other than Contractor performing any portion
-------------- of the Work, whether hired directly by Contractor or by a person hired by Contractor and including every


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tier of subcontractor, sub-subcontractors and so forth, and any person providing or supplying all or a portion of the Equipment required by any person performing any portion of the Work to perform the Work, whether or not incorporated into the Facility, including, without limitation, any materialman or vendor.


1.4.24 Work: All acts or action required for the design, procurement,
----- engineering and construction of the Facility to final completion and for the performance of Contractor's warranty obligations, including, but not limited to, (i) engineering and construction of the Facility in conformance with applicable Laws and Government Approvals, (ii) obtaining or assisting owner in acquiring all Permits, Licenses and Government Approvals for the Facility in accordance with Exhibit E, (iii) procurement and handling of materials, start-up and testing of the Facility, (iv) supply and installation of the Equipment, (v) performance of the purchase order work, (vi) construction management, and (vii) all other acts as may be necessary to provide Owner with a fully operational Facility, but excluding the items set forth in Phase 1 and 2 under Section 2.1.1.


ARTICLE 2


CONTRACTOR'S RESPONSIBILITIES


2.1 CONTRACTOR'S SERVICES


2.1.1 The Contractor shall be responsible for furnishing the Design, including the Drawings and Specifications, and construction of the Project. The Contractor and Owner have developed a Project Schedule, attached hereto and incorporated by reference as Exhibit B, and the Owner shall be responsible for prompt decisions and approvals so as to maintain the Project Schedule. Any design, engineering, architectural, other professional service, or construction service required to be performed under this Agreement shall be performed by duly licensed personnel or entities.


2.1.2 Contractor's services hereunder shall consist of three phases. PHASE 1-Development Engineering: The Contractor shall prepare Design Development documents to fix the cost, size and character of the Project as to structural, mechanical and electrical systems, materials and other appropriate essential items in the Project. These Development Documents are the basis for the design and construction of the Project. PHASE 2-Detailed Engineering: From approved Design Development Documents, the Contractor shall prepare working Drawings and Specifications setting forth in detail the requirements and cost for the construction of the Project, and based upon codes, laws or regulations in effect at the time of their preparation. PHASE 3-Construction: The Contractor shall engineer, procure and construct the Project pursuant to approved Drawings and Specifications.


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Contractor shall proceed with each phase only upon receipt from Owner of a written notice to proceed.


2.1.3 The Contractor and the Owner will work closely together to monitor the design in accordance with prior approvals so as to ensure that the Project can be constructed within the Guaranteed Maximum as defined in Article 6. As these working Drawings and Specifications are being completed, the Contractor will keep the Owner advised of the effects of any Owner requested changes on the Project Schedule and/or the Guaranteed Maximum. Construction of the Project shall be in accordance with these Drawings and Specifications as approved by the Owner. The Drawings and Specifications are the property of the Owner and are not to be used by the Contractor on this or other projects without the written consent of the Owner.


2.1.4 After the completion of each of Phase 1 and 2 as set forth in Article 2.1.2, if the Project is no longer feasible from the standpoint of the Owner, the Owner may terminate this Agreement and pay the Contractor pursuant to Article 6 through the date of termination. The Project is no longer feasible only if, in the exercise of Owner's prudent business judgment, Owner determines that: (i) the Permits, Licenses and Governmental Approvals, attached hereto and incorporated by reference as Exhibit E, necessary to construct the Project will not be timely granted so as to achieve Start-up by April 1, 1998 and/or Commercial Operation by June 1, 1998; or (ii) adequate commitments for equity and/or debt financing have not been received by April 1, 1997. Owner shall immediately notify Contractor of termination pursuant to this Article 2.1.4. Contractor shall not commence work on the next succeeding phase except upon receipt of a Notice to Proceed from Owner.


2.1.5 The Contractor and the Owner will assist the other in securing authorizations necessary for the construction of the Project. Exhibit E is a preliminary list, and Owner and Contractor will diligently identify and apply for all applicable permits, licenses and government approvals. Permits, Licenses and Government Approvals, Exhibit E, identifies the party responsible for timely acquiring the same in the column labeled "Responsible Party": Contractor is identified as "Yanke" and Owner is identified as "KFP."


2.2 RESPONSIBILITIES WITH RESPECT TO CONSTRUCTION


2.2.1 The Contractor will provide all construction supervision, inspection, labor, materials, tools, construction equipment and subcontracted items necessary for the execution and completion of the Project.


2.2.2 The Contractor will pay all sales, use, gross receipts and similar taxes related to the Work provided by the Contractor


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which have been legally enacted at the time of execution of this Agreement and for which the Contractor is liable.


2.2.3 The Project Schedule, attached hereto and incorporated by reference as Exhibit B, indicates the dates for the starting and completion of the various stages of the design and construction. With the Owner's consent, it shall be revised as required by the conditions of the Work and those conditions and events which are beyond the Contractor's control; provided, however, that in no event may the dates for Start-up or Commercial Operation be moved to a later date.


2.2.4 The Contractor shall at all times keep the premises free from the accumulation of waste materials or rubbish caused by his operations. At the completion of the Work, he shall remove all of his waste material and rubbish from and around the Project as well as all his tools, construction equipment, machinery and surplus materials.


2.2.5 The Contractor will give all notices and comply with all laws and ordinances legally enacted at the date of execution of the Agreement, which govern the proper execution of the Work.


2.2.6 The Contractor shall take necessary precautions for the safety of his employees and the employees of all of Contractor's employees on the Work, and shall comply with all applicable provisions of federal, state and municipal safety laws to prevent accidents or injury to persons on, about or adjacent to the Project site. He shall erect and properly maintain, at all times, as required by the conditions and progress of Work, necessary safeguards for the protection of workmen and the public. It is understood and agreed, however, that the Contractor shall have no responsibility for the elimination or abatement of safety hazards created or otherwise resulting from Work at the job site carried on by other persons or firms directly employed by the Owner as separate contractors, and the Owner agrees to cause any such separate contractors to abide by and fully adhere to all applicable provisions of federal, state and municipal safety laws and regulations and to comply with all reasonable requests and directions of the Contractor for the elimination or abatement of any such safety hazards at the job site.


2.2.7 The Contractor shall keep such full and detailed accounts as may be necessary for proper financial management under this Agreement. The system shall be satisfactory to the Owner, who shall be afforded access to all the Contractor's records, books, correspondence, instructions, drawings, receipts, vouchers, memoranda and similar data relating to this Agreement. The Contractor shall preserve all such records for a period of three years after the final payment or longer where required by law.


2.3. ROYALTIES AND PATENTS


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2.3.1 The Contractor shall pay all royalties and license fees for materials, methods and systems incorporated in the work. He shall defend all suits or claims for infringement of any patent rights and shall save the Owner harmless from loss on account thereof except when a particular design, process or product is specified by the Owner. In such case the Contractor shall be responsible for such loss only if he has reason to believe that the design, process or product so specified is an infringement of a patent, and fails to give such information promptly to the Owner. Provided, however, that the Owner, at its cost, shall acquire the right to use the Koppleman Series "C" K-Fuel technology for the Project.


2.4 WARRANTIES AND COMPLETION


2.4.1 The Contractor warrants to the Owner that all materials and equipment furnished under this Agreement will be new, unless otherwise specified and agreed to by Owner and Contractor, and that all Work will be of good quality, free from improper workmanship and defective materials and in conformance with the Drawings and Specifications. The Contractor agrees to correct all Work performed by him under this Agreement which proves to be defective in material and workmanship within a period of one year from the Date of Substantial Completion as defined in Paragraph 5.2, or for such longer periods of times as may be set forth with respect to specific warranties contained in the Specifications. This warranty is expressly in lieu of all other rights and remedies at law or in equity.


2.4.2 The Contractor will secure required certificates of inspection, testing or approval and deliver them to the Owner.


2.4.3 The Contractor will collect all written warranties and equipment manuals and deliver them to the Owner.


2.4.4 The Contractor, with the assistance of the Owner's maintenance personnel, will direct the checkout of utilities and operations of systems and equipment for readiness, and will assist in their initial start-up and testing.


2.4.5 The Contractor shall provide the insurance for the Project as provided in Paragraph 9.4


2.4.6 Except for the performance bond as provided for in article 9.3.1, the Contractor shall bear the costs of any bonds that may be required.


2.4.7 Services related to investigation, appraisals or evaluations of existing conditions, facilities or equipment, or


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verification of the accuracy of existing drawings or other Owner-furnished information.


2.5 ADDITIONAL SERVICES


2.5.1 The Contractor will provide the following additional services upon the request of the Owner. A written agreement between the Owner and Contractor shall define the extent of such additional services and the amount and manner in which the Contractor will be compensated for such additional services.


2.5.2 Obtaining and training maintenance personnel or negotiating maintenance service contracts.


ARTICLE 3


OWNER'S RESPONSIBILITIES


3.1 The Owner shall provide full information regarding his requirements for the Project.


3.2 The Owner shall designate a representative who shall be fully acquainted with the Project, and has authority to approve changes in the scope of the Project, render decisions promptly and furnish information expeditiously and in time to meet the dates set forth in Subparagraph 2.2.3.


3.3 The Owner shall furnish for the site of the Project all necessary surveys describing the physical characteristics, soils reports and subsurface investigations, legal limitations, utility locations, and a legal description.


3.4 The Owner shall secure and pay for all necessary approvals, easements, assessments and charges required for the construction, use, or occupancy of permanent structures or for permanent changes in existing facilities.


3.5 The Owner shall furnish such legal services as may be necessary for providing the items set forth in Paragraph 3.4, and such auditing services as he may require.


3.6 If the Owner becomes aware of any fault or defect in the Project or non-conformance with the Drawings or Specifications, he shall give prompt written notice thereof to the Contractor.


3.7 The services and information required by the above paragraphs shall be furnished with reasonable promptness at the Owner's expense and the Contractor shall be entitled to rely upon the accuracy and the completeness thereof.


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3.8 The Owner shall have no contractual obligation to the Contractor's Subcontractors and shall communicate with such Subcontractors only through the Contractor.


ARTICLE 4


SUBCONTRACTS


4.1 All portions of the Project that the Contractor does not perform with his own forces shall be performed under subcontracts. Contractor shall not subcontract any design or engineering portion of the Project without the express, prior written approval of the Owner.


4.2 A Subcontractor is a person or entity who has a direct contract with the Cont ...