Turnkey Engineering, Procurement And Construction Agreement

Exhibit 10.10

TURNKEY ENGINEERING, PROCUREMENT AND CONSTRUCTION

AGREEMENT FOR ETHANOL PRODUCTION FACILITY

BETWEEN

PANDA HEREFORD ETHANOL, LP

A Delaware Limited Partnership

AND

LURGI PSI, INC.

A Tennessee Corporation Dated as of October 15, 2005

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY PANDA ETHANOL, INC. FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS AGREEMENT WITH " *****" .

TABLE OF CONTENTS

Article I General Matters

Section 1.01

Defined Terms 1

Section 1.02

Interpretation 14

Section 1.03

Exhibits 15

Article II Retention of Contractor

Section 2.01

Retention of Contractor 16

Section 2.02

Status of Contractor; No Partnership 16

Section 2.03

Subcontractors and Vendors 16

Article III Certain Obligations and Responsibilities of Contractor

Section 3.01

Scope of Work; Applicable Standards 17

Section 3.02

Control and Method of the Work 18

Section 3.03

Compliance with Law 18

Section 3.04

Certain Matters Pertaining to Job Site 19

Section 3.05

Access to Job Site 19

Section 3.06

Inspection and Testing of Work in Progress 19

Section 3.07

No Waiver of Responsibility 20

Section 3.08

Intentionally left blank 20

Section 3.09

Clean-Up 20

Section 3.10

Obtaining, Maintaining and Identifying Permits 20

Section 3.11

Labor 21

Section 3.12

Project Management 22

Section 3.13

Temporary Office Quarters 23

Section 3.14

Cooperation with Other Contractors 23

Section 3.15

Protection and Safety 23

Section 3.16

Environmental Matters 24

Section 3.17

Fire Prevention 27

Section 3.18

Religious and Archaeological Resources 27

Section 3.19

Reports, Plans and Manuals 27

Section 3.20

Drawings, Engineering Data and Other Materials 28

Section 3.21

Operating and Maintenance Manuals 29

Section 3.22

Training of O&M Personnel 30

Section 3.23

Accounting Information 30

Section 3.24

Contractor Taxes 30

Section 3.25

Claims and Liens for Labor and Materials 31

Section 3.26

Spare Parts Availability 31

Section 3.27

Contractor' s Obligation to Notify 32

Section 3.28

Construction Utilities 32

Section 3.29

Lines and Grades 32


-i-

Section 3.30

Temporary Structures 33

Section 3.31

Weatherproof Coverings 33

Section 3.32

Milestone Payment Schedule 33

Section 3.33

Emergencies 33

Section 3.34

Contractor' s Representative 33

Section 3.35

Contractor' s Insurances 33

Section 3.36

Raw Water, Sewage and PotableWater Line Sizing 33

Article IV Certain Obligations of Owner

Section 4.01

Permits 34

Section 4.02

Gas, Electric, and Water Facilities 34

Section 4.03

Fuel Supply 34

Section 4.04

Raw Water Supply 35

Section 4.05

Access to Property Site 35

Section 4.06

Right of Ways 35

Section 4.07

Survey of Property Site 35

Section 4.08

Notice of Financial Closing 35

Section 4.09

Owner Taxes 36

Section 4.10

Owner' s Cooperation 36

Section 4.11

Owner' s Representative 36

Section 4.12

Supplies 36

Section 4.13

Operation and Maintenance 36

Section 4.14

Owner' s Insurances 36

Article V Project Schedule

Section 5.01

Commencement of Work 37

Section 5.02

Project Schedule 37

Section 5.03

Certain Prefunding Work 38

Article VI Separated Contract Price; Payments to Contractor

Section 6.01

Separated Contract Price 39

Section 6.02

Prefunding Costs 40

Section 6.03

Financial Closing Payment 41

Section 6.04

Post-Financial Closing 41

Section 6.05

General Provisions Payments 41

Section 6.06

Financing Parties' Requirements and Lien Waivers 42

Article VII Change Orders

Section 7.01

Change Order at Owner' s Request 44

Section 7.02

Change Orders Requested by Contractor 45


-ii-

Section 7.03

Changes to Separated Contract Price; Disputes 47

Section 7.04

Information Requests 47

Article VIII Title, Risk of Loss and Possession

Section 8.01

Clear Title 47

Section 8.02

Risk of Loss 48

Section 8.03

Possession Following Substantial Completion 48

Article IX Insurance

Section 9.01

Contractor Insurance Policies 48

Section 9.02

Form of Contractor Insurance Policies 49

Section 9.03

Qualified Insurers 50

Section 9.04

Certificates of Insurance 50

Section 9.05

Inspection of Contractor' s Insurance Policies 51

Section 9.06

Subcontractors' Insurance 51

Section 9.07

Remedy on Failure to Insure 51

Section 9.08

Management of Insurance Policies 51

Section 9.09

Owner Insurance Policies 51

Section 9.10

Contractor' s Assistance 52

Section 9.11

Liability not Limited to Insurance Coverage 52

Article X Tests, Interim Completion, Substantial Completion and Final Acceptance

Section 10.01

General 53

Section 10.02

Interim Completion 54

Section 10.03

Guaranteed Performance Tests 55

Section 10.04

Substantial Completion 56

Section 10.05

Punch List 57

Section 10.06

Final Acceptance 57

Article XI Contractor Guarantees

Section 11.01

Completion Guarantee 58

Section 11.02

Schedule Liquidated Damages for Interim Completion 59

Section 11.03

Schedule Liquidated Damages for Substantial Completion 59

Section 11.04

Performance Guarantees 60

Section 11.05

Liquidated Damages for Certain Performance Guarantees 61

Section 11.06

Liquidated Damages for FBG Mechanical Completion 63

Section 11.07

Payment of Liquidated Damages 64

Section 11.08

Contractor Bonus 65

Section 11.09

Determination of Performance 66


-iii-

Section 11.10

Retainage 66

Section 11.11

Corporate Guaranty 67

Article XII Contractor' s Warranties

Section 12.01

Warranties 68

Section 12.02

Repair of Nonconforming Work 68

Section 12.03

Intentionally Left Blank 69

Section 12.04

Repairs and Testing by Owner 69

Section 12.05

Vendors and Subcontractors 70

Section 12.06

Assignment of Warranties 70

Article XIII Contractor' s Representations

Section 13.01

Representations and Warranties 70

Section 13.02

Survival of Representations and Warranties 72

Article XIV Force Majeure and Owner Caused Delay

Section 14.01

Definition of Force Majeure Event 72

Section 14.02

Notice of Force Majeure Event 73

Section 14.03

Delay from Force Majeure Event 73

Section 14.04

Definition of Owner Caused Delay 74

Section 14.05

Notice of Owner Caused Delay 74

Section 14.06

Delay from Owner Caused Delay 74

Section 14.07

Performance Not Excused 75

Section 14.08

Hurricane Rescontruction 75

Article XV Termination

Section 15.01

Contractor Events of Default 75

Section 15.02

Termination by Owner due to Contractor Default 77

Section 15.03

Termination by Owner for Convenience 79

Section 15.04

Suspension by Owner or Contractor for Convenience 79

Section 15.05

Termination Due to Force Majeure Event 81

Section 15.06

Termination by Contractor 81

Section 15.07

Continuing Obligations and Remedies During Event of Default 82

Section 15.08

Obligations Upon Termination 82

Section 15.09

Termination and Survival of Terms 82

Article XVI Indemnification

Section 16.01

Contractor Indemnification 83

Section 16.02

Owner Indemnification 83

Section 16.03

Conditions of Indemnification 84


-iv-

Section 16.04

Contributory Negligence 85

Section 16.05

Remedies Not Exclusive; Joint Responsibility 85

Section 16.06

Tax Effect of Indemnification 86

Section 16.07

Survival of Indemnification 86

Article XVII Dispute Resolution

Section 17.01

Friendly Consultation 86

Section 17.02

Arbitration 87

Section 17.03

Continuing Obligations and Rights 88

Section 17.04

Interim Remedies 88

Section 17.05

Joint Resolution of FBG/FBG Work Disputes 88

Article XVIII Miscellaneous

Section 18.01

Assignment 89

Section 18.02

Financing Parties 89

Section 18.03

Good Faith Dealings 90

Section 18.04

Confidentiality 90

Section 18.05

Notice 90

Section 18.06

Waiver 91

Section 18.07

Severability 92

Section 18.08

Governing Law 92

Section 18.09

Entire Agreement; Amendments 92

Section 18.10

Expenses and Further Assurances 92

Section 18.11

No Third Party Beneficiary 93

Section 18.12

Offset 93

Section 18.13

Terms Sheet 93

Section 18.14

Counterparts 93

Section 18.15

Waiver of Consequential Damages; Maximum Liability 93


-v-

EXHIBITS

EXHIBIT A SCOPE OF WORK EXHIBIT B PROJECT SCHEDULE EXHIBIT C INTENTIONALLY LEFT BLANK EXHIBIT D MILESTONE PAYMENT TABLE EXHIBIT E FORM OF MILESTONE ACHIEVEMENT CERTIFICATE AND FIELD MILESTONE CERTIFICATION EXHIBIT F FORM OF REQUEST FOR PAYMENT EXHIBIT G FORM OF FINAL ACCEPTANCE CERTIFICATE EXHIBIT H FORM OF CONTRACTOR CERTIFICATE FOR PARTIAL WAIVER OF LIENS EXHIBIT H-1 FORM OF SUBCONTRACTOR CERTIFICATE FOR PARTIAL WAIVER OF LIENS EXHIBIT I FORM OF CORPORATE GUARANTY EXHIBIT J SEPARATED CONTRACT PRICE EXHIBIT K CONTRACTOR RATE SCHEDULE EXHIBIT L CONTRACTOR PERMITS EXHIBIT M OWNER PERMITS EXHIBIT N MAJOR EQUIPMENT EXHIBIT O PROJECT MANAGEMENT TEAM EXHIBIT P INTENTIONALLY LEFT BLANK EXHIBIT Q APPROVED SUBSTANTIAL SUBCONTRACTORS AND SUBSTANTIAL VENDORS EXHIBIT R CONTRACTOR FINAL LIEN WAIVER AND RELEASE EXHIBIT R-1 SUBCONTRACTOR FINAL LIEN WAIVER AND RELEASE EXHIBIT S SOIL BORING AND SUBSURFACE DATA EXHIBIT T FORM OF LETTER OF CREDIT


-vi-

TURNKEY ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENT FOR

ETHANOL PRODUCTION FACILITY

THIS TURNKEY ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENT FOR ETHANOL PRODUCTION FACILITY (this " Agreement" ), dated as of October 15, 2005 is by and between Panda Hereford Ethanol, LP, a Delaware Limited Partnership (hereinafter called " Owner" ), and Lurgi PSI, Inc., a Tennessee Corporation (hereinafter called " Contractor" ).

W I T N E S S E T H:

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Owner and Contractor hereby agree as follows:

ARTICLE I

GENERAL MATTERS

Section 1.01 . Defined Terms . As used in this Agreement, including the exhibits and other attachments hereto, each of the following terms shall have the meaning assigned to such term as set forth below:

" Acceptance Certificate" means a certificate relating to Final Acceptance pursuant to Section 10.06 .

" Affiliate" means, in relation to any Person, any Person: (i) which directly or indirectly controls, or is controlled by, or is under common control with, such other Person; or (ii) which directly or indirectly beneficially owns or holds fifty percent (50%) or more of any class of voting stock of such other Person; or (iii) which has fifty percent (50%) or more of any class of voting stock that is directly or indirectly beneficially owned or held by such other Person, or (iv) who either holds a general partnership interest in such other Person or such other Person holds a general partnership interest in the Person. " Allocated Contract Price" means (a) for the time period between the Effective Date and the later of the Financial Closing Date and the date the Notice to Proceed is given to Contractor following the Financial Closing Date (the " Full Release Date" ), the Ethanol Plant Price paid to Contractor; (b) for the time period after Full Release Date and until the time when *****% of the Ethanol Plant Price has been paid to Contractor, *****% of the Ethanol Plant Price plus the Ethanol Plant Price paid to Contractor to date; or (c) for the time period after *****% of the Ethanol Plant Price has been paid to Contractor, the Ethanol Plant Price paid to Contractor to date, as the case may be.


CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY PANDA ETHANOL, INC. FOR CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS AGREEMENT WITH " *****" .


-1-

" Applicable Laws" means any act, statute, law, regulation, permit, license, ordinance, rule, judgment, order, decree, directive, guideline or policy (to the extent mandatory) or any similar form of decision or determination by, or any interpretation or administration of, any of the foregoing by any Government Authority with jurisdiction over the Facility, the Job Site, the performance of the Work or other services to be performed under this Agreement.

" Applicable Permits" means any and all permits, clearances, licenses, authorizations, consents, filings, exemptions or approvals from or required by any Government Authority that are necessary for the performance of the Work. " Builder' s Risk Policy" has the meaning set forth in Section 9.09 . " Business Day" means any day other than a Saturday, Sunday or a legal holiday in Dallas, Texas. " Change in Law" means any of the following events or circumstances occurring after the date of execution of this Agreement: (i) an amendment, modification, supplement or other change in or repeal of an existing Applicable Law or Applicable Permit; or (ii) an enactment or making of a new Applicable Law or Applicable Permit. " Change Order" has the meaning set forth in Section 7.01(a) . " Changes" has the meaning set forth in Section 7.01(a) . " Contract Amendment" shall mean a written agreement executed by both Parties and, if required, consented to by the Financing Parties, as set forth in Section 18.09 .

" Contractor Bonus" means a Schedule Bonus or Performance Bonus. " Contractor Equipment" means all of the equipment, materials, apparatus, structures, tools, supplies and other goods provided by Contractor and its Subcontractors and Vendors for performance of the Work other than the Equipment.

" Contractor Event of Default" was the meaning set forth in Section 15.01 .

" Contractor Insurance Policies" means the insurance policies maintained by Contractor as required pursuant to Article IX .

" Contractor Internal Costs" means the internal costs of Contractor in performing the Prefunding Work, including general and administrative costs, labor costs, overhead and out-of-pocket expenses such as travel, telephone and photocopies.

" Contractor Permits" means the Applicable Permits listed on Exhibit L .


-2-

" Contractor Project Engineering Manager" means the person designated by Contractor as having the responsibility, authority and supervisory power of Contractor for the Work.

" Contractor Project Manager" means the person designated by Contractor as having the centralized responsibility, authority and supervisory power of Contractor for design, construction, testing and start-up of the Ethanol Plant and the performance of the FBG Work, as well as all matters relating to the administration of the provisions of this Agreement.

" Contractor Site Manager" means an employee of Contractor, working under the supervision of the Contractor Project Manager, located at the Job Site on a daily basis.

" Contractor Taxes" has the meaning set forth in Section 3.24 .

" Contractor' s Guarantor" has the meaning set forth in Section 11.11 .

" Corporate Guaranty" has the meaning set forth in Section 11.11 . " Cost Plus Formula" has the meaning as set forth in Section 7.02(e) . " Damages" has the meaning set forth in Section 16.01 . " Defect" means, any designs, engineering, software, drawings, components, tools, Equipment, installation, construction, or workmanship furnished or performed by or on behalf of Contractor or Work, (i) that does not materially conform to the terms of this Agreement, (ii) that is not of uniform good quality, free from material defects or deficiencies in design, application, manufacture or workmanship, or that contains materially improper or inferior workmanship or (iii) that either would materially and adversely affect (A) the performance of the Ethanol Plant and FBG Work under operating conditions as stated in Exhibit A, the Scope of Work (unless, in the alternative, Performance Liquidated Damages for such defect or deficiencies has been paid) or (B) the continuous safe operation of the Facility, all as determined by reference to Good Engineering Practices. The term " Defect" shall neither be construed to include material damage caused by Owner' s acts or omissions to the extent arising out of abuse, misuse or negligence in operations, maintenance and repair (unless such act or omission was taken or made at the direction of Contractor) or failure to follow Contractor' s or manufacturers' recommendations and directions and Good Engineering Practices, nor shall the term " Defects" be construed to include ordinary wear and tear, erosion, corrosion, and deterioration (unless as a result of a Defect) or any other defect or deficiency that has no material impact on the Facility' s appearance, operation or useful life as specified in the Scope of Work.

" Denatured Ethanol" means fuel grade ethanol in accordance with and meets the requirements of ASTM D4806-01a dated August 10, 2001.


-3-

" Dispute" has the meaning set forth in Section 17.01 . " Drawings" means (i) all specifications, designs, plans, drawings, engineering and analyses, and other documents which determine, establish, define or otherwise describe the scope, quantity, and relationship of the components of the Ethanol Plant and the FBG Work, including the structure and foundation thereof, prepared by Contractor or any of its Subcontractors or Vendors and (ii) all technical drawings, operating drawings, specifications, shop drawings, diagrams, illustrations, schedules and performance charts, samples, patterns, models, operation and maintenance manuals, piping and instrumentation diagrams, underground structure drawings, conduit and grounding drawings, lighting drawings, conduit and cable drawings, electric one-lines, electric schematics, connection diagrams and technical information of a like nature required to be submitted by Contractor, or any Subcontractor or Vendor, from time to time under this Agreement which illustrates any of the Equipment or any other portion of the Work, either in components or as completed. " Effective Date" means the date on which all of the following have occurred: (a) this Agreement has been executed and delivered by both Owner and Contractor as set forth on Page 1 hereof, (b) Owner has paid to Contractor all amounts, if any, due under the terms of that certain Term Sheet between the Parties, and (c) Owner has issued to Contractor a Notice to Proceed under Section 5.01 and in the event any such Notice to Proceed requires the payment of any amount due pursuant to Exhibit D, such payments are made. The Parties shall confirm the Effective Date in writing. " Electric Power Consumption" means the overall electric power consumed by the Ethanol Plant in kWh as measured at the meter for equipment specifically and directly involved in the production of ethanol and wet distiller' s grain in accordance with the Scope of Work. This does not include any CO 2 processing, grain handling, or FBG or natural gas boiler electrical power consumption.

" Electric Power Consumption Guarantee" has the meaning set forth in Section 11.04(a) .

" Emissions Guarantee" has the meaning set forth in Section 11.04(e) .

" Equipment" means all of the equipment, materials, apparatus, structures, tools, supplies, goods and other items provided by Contractor and its Subcontractors and Vendors that are installed or incorporated into the Ethanol Plant or otherwise form or are intended to form part of the Work (other than Contractor Equipment). For avoidance of doubt, the FBG shall not constitute a part of the Equipment.

" Ethanol Plant" means the Facility, excluding both the Fluidized Bed Gasifier Equipment and the FBG Work.


-4-

" Ethanol Plant Price" means the Separated Contract Price less the FBG Work Price.

" Ethanol Plant Reliability Guarantee" has the meaning set forth in Section 11.04(i) . " Ethanol Production Rate" means the production of Denatured Ethanol measured in gallons per hour. " Ethanol Production Rate Guarantee" means the production rate of Denatured Ethanol as guaranteed by Contractor pursuant to Section 11.04(c) .

" Ethanol Yield" means the ratio in weight (pounds) of un-denatured ethanol per weight (pounds) of starch, based on Un-denatured Ethanol density of 6.60 pounds per US gallon at 60F, containing a maximum of 0.5% water per weight. The yield is based on a feedstock specification of 56 lb per bushel test weight #2 yellow corn containing a maximum of 15.0%moisture (by weight), a maximum of 1% foreign material (by weight), a minimum of 70% of dry fermentable starch (by weight) and zero aflatoxin tolerance.

" Ethanol Yield Guarantee" has the meaning set forth in Section 11.04(d) .

" Facility" means the nominal 105 million gallon per year design capacity of Denatured Ethanol production facility consisting of all necessary and fully functional systems and equipment, apparatus, accessories, auxiliaries and controls capable of fuel grade ethanol production, and wet distillers grain production, which Facility includes the Ethanol Plant and an auxiliary natural gas boiler to be supplied by Contractor and the FBG to be supplied by the Fluidized Bed Gasifier Supplier, to be located on the Property Site as more particularly described in the Scope of Work.

" FBG Mechanical Completion" means that with respect to the FBG Work (i) the FBG and all Equipment has been installed with the required connections and controls to deliver steam to the Ethanol Plant; (ii) the FBG and all Equipment has been installed in accordance with construction drawings, the Scope of Work and manufacturers recommendations, checked for alignment, lubrication and rotation; (iii) all systems have been checked out, and are ready for safe and proper operation; (iv) all instrumentation (including Continuous Emissions Monitoring Systems) is operational and has been calibrated in accordance with manufacturers' standards and guidelines and loop checked; and (v) all systems have been tested, flushed and cleaned out as necessary and restored in accordance with the Scope of Work.

" FBG Mechanical Completion Date" means the date when FBG Mechanical Completion is achieved.

" FBG Purchase Agreement" means that separate agreement between Owner and the Fluidized Bed Gasifier Supplier in Appendix A of Exhibit A governing the supply of


-5-

the FBG for the Facility, including the design, engineering, procurement, training, commissioning, start-up and testing activities to be performed by the Fluidized Bed Gasifier Supplier directly for Owner.

" FBG Schedule Liquidated Damages" has the meaning set forth in Section 11.06 (a) .

" FBG Work" means Contractor' s design, engineering, procurement and construction for the installation of the FBG and the tie-in of the FBG to the Ethanol Plant in accordance with the Scope of Work.

" FBG Work Price" shall mean the price for the FBG Work, as stated in Exhibit J, as amended from time to time pursuant to the terms hereof.

" Field Milestone Certification" means a duly executed certificate in substantially the form of the Field Milestone Certification in Exhibit E attached hereto, which is submitted by Contractor to Owner with a Request for Payment. " Final Acceptance" shall mean that all of the following have occurred: (i) Substantial Completion of the Ethanol Plant has been achieved; (ii) the Guaranteed Performance Tests applicable to the Ethanol Plant, mechanical calibrations, have been successfully completed and any Defects found have been corrected; (iii) either (A) the Guaranteed Performance Levels applicable to the Ethanol Plant specified in Section 11.04 have been met or exceeded as determined pursuant to Section 11.09 , or (B) the Ethanol Plant has achieved at a minimum the Minimum Performance Levels as determined pursuant to Section 11.09 and Contractor has paid all Performance Liquidated Damages applicable to the Ethanol Plant as elected or required pursuant to Section 11.05 and Section 11.06 ; (iv) the Ethanol Plant has satisfied the Emissions Guarantee and the Noise Guarantee, as more fully provided herein; (v) the Ethanol Plant has been constructed in accordance with this Agreement and the Drawings; (vi) the Final Plans accurately reflect the Ethanol Plant as constructed; (vii) the Ethanol Plant is capable of being operated in a safe manner in accordance with the terms of this Agreement; (viii) Contractor shall have delivered to Owner all operation and maintenance manuals and Final Plans relating to the Ethanol Plant in accordance with the Scope of Work; (ix) no defective or incomplete portions of the Work exist that have or could reasonably have a material negative impact on the operation or performance of the Ethanol Plant as required under this Agreement; (x) either (A) all items on the Punch List applicable to the Ethanol Plant have been completed or (B) the Parties have reached an agreement pursuant to Section 10.05(c) and Contractor has paid all amounts due to Owner pursuant thereto; (xi) all of Contractor' s cleanup and related obligations have been comp ...