Platform Construction Agreement

Exhibit 10.14


PLATFORM CONSTRUCTION AGREEMENT


This Agreement including the Exhibits attached hereto which are incorporated by reference herein and made a part hereof (hereinafter referred to as this "Contract"), entered into on the 5th day of August, 1997, by and between CHILES OFFSHORE LLC, a limited liability company organized under the laws of the State of Delaware (hereinafter referred to as "Buyer") and AMFELS, INC., a corporation organized under the laws of the State of Texas (hereinafter referred to as "Seller");


WITNESSETH:


1. Description of Platform.


(a) Seller hereby agrees with Buyer to commence the construction of, at Seller's shipyard at Brownsville, Texas ("Seller's Yard), to prosecute in accordance with good shipyard practice to completion, and to deliver to Buyer by September 10, 1999 (such date as the same may be extended under the terms of this Agreement is referred to herein as the "Scheduled Delivery Date"), at Seller's Yard a mobile, self-contained and elevating platform, being Seller's Yard No. P179, in accordance with (i) Seller's specifications No. 9701 Revision 2 therefor, dated May 21, 1997 and all related drawings, plans and data, whether now or hereafter prepared by Seller (hereinafter referred to collectively as the "Specifications"), the said Specifications having been (or shall be in instances where specifications, drawings, plans, and data are hereafter prepared) initialed by Seller and Buyer as evidence of the accuracy thereof and being (and to be) hereby incorporated by reference as part of this Agreement and (ii) the certain rules of the American Bureau of Shipping (hereinafter referred to as the "ABS"); Rules for Building and Classing Offshore Mobile Drilling Units, 1996, Part 3, Hull Construction and Equipment, Sections 1 through 10 which were in effect and enforced against Seller by the ABS on April 1, 1997 and which are specified and limited in Part I of the Specifications. For purposes of this Agreement, the mobile, self-contained, and elevating platform be constructed and delivered to Buyer in accordance herewith shall be referred to as the "Platform". Buyer hereby agrees with Seller to purchase the Platform from Seller, and to pay Seller for same, all in accordance with the provisions of this Agreement.


(b) If any conflict or inconsistency shall arise between this Agreement and the Specifications, this Agreement shall prevail. Similarly, if any conflict or inconsistency shall arise between the written Specifications and the Specification drawings, the written Specifications shall prevail. In the event of a dispute as to conformity with ABS classification requirements, the decision of the ABS shall be final.


(c) Notwithstanding anything in this Agreement to the contrary, it is expressly understood that the obligations of Seller under this Agreement are subject to and conditioned


upon the full and timely performance by Seller's Licensor LeTourneau, Inc. ("LeTourneau'') of its covenants, agreements, and undertakings and fulfillment of all subjects and conditions under that certain License Agreement and Kit Construction Agreement between Seller and LeTourneau dated August 1, 1997 (collectively the "LeTourneau Agreements"), copies of which have been provided to Buyer. Seller shall have no liability of any nature whatsoever, including damages (whether direct, incidental, consequential, special, or otherwise) to Buyer if LeTourneau is unable to or otherwise fails or refuses to fully and timely perform all of its covenants, agreements, and undertakings under the LeTourneau Agreements or if all subjects and conditions under the LeTourneau Agreements are not fully and timely met. As used in this Agreement, "Package" and "Equipment" shall have the meanings set forth in the LeTourneau Agreements. In the event LeTourneau is unable to or otherwise fails or refuses to fully and timely perform all of its covenants, agreements, and undertakings under the LeTourneau Agreements or if all subjects and conditions under the LeTourneau Agreements are not fully and timely met and as a result thereof Seller is delayed in the construction of the Platform for ninety (90) days, Seller and Buyer shall each have the right to terminate this Agreement without further liability of either party to the other except that Seller shall retain all progress payments made pursuant to Paragraph 2(b) hereinbelow and shall be paid by Buyer for the price for that portion of the Platform then constructed for which progress payments have not yet been made and all work in process (including profit on all to Seller).


(d) In the event that any of the equipment or materials required to be furnished by Seller in the performance of the work under this Agreement cannot be timely procured or are in short supply, Seller may supply other materials and equipment complying with the requirements of this Agreement and the Specifications.


2. Contract Price.


(a) As consideration for Seller's construction of the Platform in accordance with the terms of this Agreement, Buyer agrees to pay Seller the sum of U.S. Dollars Sixty Two Million Four Hundred Thousand, ($62, 400,000.00) subject to adjustment as provided in this Agreement including Exhibit "A" hereto (hereinafter referred to as the "Contract Price") at Seller's office at Brownsville, Texas or at such other place as Seller may from time to time designate in writing to Buyer.


(b) The Contract Price shall be paid by Buyer to Seller in installments as provided in Exhibit "A" attached to and made a part of this Agreement. Wire transfer shall be made to Seller's account at Texas Commerce Bank as follows:


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Texas Commerce Bank, Rio Grande Valley
1034 E. Levede Street
Brownsville, Texas 78520
Officer: Irv Downing
ACCOUNT NUMBER 6700278275
ABA NUMBER113000609


(c) Seller shall submit to Buyer invoices at least five (5) working days prior to the date any payment is due under this Agreement.


(d) Any agreed lump sum change order (other than proposed Change Order No. 1 dealing with the matters described in Exhibit B attached hereto which shall be paid as agreed by the parties hereto) shall be paid 50% of the change order value upon confirmation of change order and the balance of 50% on the last scheduled installment as stipulated subparagraph (b) above. For change orders performed on time and material basis, payments shall be made monthly based upon percentage of completion of the change.


(e) All costs for ABS approvals for the Platform are for the Seller's account with the exception of Buyer furnished equipment and materials.


(f) Prior to delivery of the Platform, the Seller shall furnish evidence satisfactory to the Buyer showing that no liens, claims, security interests or rights in rem of any kind have been or can be acquired against the Platform by, through, or under Seller.


(g) All progress payments, payments for change orders, and other sums owing by Buyer to Seller under this Agreement must be paid in full at the time of delivery of the Platform under this Agreement and in any event prior to departure of the Platform from Seller's Yard. If Buyer disputes in good faith any sums claimed by Seller under or in connection with this Agreement, Buyer shall provide to Seller a corporate surety bond from a first class U.S. surety acceptable to Seller in a form reasonable satisfactory to Seller. Such bond shall be in an amount equal to 150% of the disputed sum. The bond must be executed and delivered to Seller at the time of delivery of the Platform under this Agreement and in any event prior to departure of the Platform from Seller's Yard.


(h) All amounts owing to Seller by Buyer hereunder shall bear interest at the lesser of the highest lawful rate or the rate of eighteen percent (18%) per annum from the date notice of failure to pay is received by Buyer and Buyer fails to pay same within thirty (30) days until paid in full.


3. [Intentionally Omitted]


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4. Representatives and Progress of Platform.


(a) Seller will furnish office space and parking facilities at the Yard for Buyer's authorized representatives (the "Representative"), who will have complete and unrestricted access to the Yard of Seller, or its subcontractors, where the Platform under this Agreement is being constructed. The office provided to Buyer will have telephone, telefax, and duplicating facilities. Costs for long distance telephone calls, telefaxes, and duplication will be for Buyer's account. Such authorized Representatives shall have the right to make inspection of workmanship, material, equipment and supplies as the construction of the Platform progresses and shall notify Seller in writing of any deficiencies noted therein, and Seller will then take such steps as are necessary to correct such deficiencies. Seller shall give notice to Buyer and its Representative at least forty-eight (48) hours in advance of the date and place of all tests, trials, and inspections. Inspections shall be made so as not to impede the progress of the construction of the Platform and if defective or non-conforming workmanship or material is rejected, rejection shall be made promptly in order that Seller may minimize the expense and disruption of construction. In the event Buyer's Representative shall fail to be present at any properly notified test, trial, or inspection, the results thereof shall be binding on Buyer. Buyer shall ensure that its Representative shall not in performing their inspections obstruct the construction schedule for the Platform. If Buyer's Representative fails to promptly submit to Seller notification of any non-conforming work discovered by Buyer's Representative, Buyer shall be deemed to have approved such item and Buyer shall be precluded from making demand for correction of such item, refusing to accept tender of delivery of the Platform, or claiming such item as a warranty defect under Seller's warranty set forth in Section 11 herein below.


(b) In all working hours during the construction of the Platform until delivery thereof, the Representative and all assistants of the Representative shall be given free and ready access to the Platform and to any other place where construction of the Platform is being done or materials are being processed or stored in connection with the construction of the Platform, including the yards, workshops, stores and offices of Seller, and the premises of subcontractors of Seller who are doing work for the Platform or storing materials at such premises in connection with the Platform's construction.


(c) Seller shall appoint a project manager who shall be the direct interface with the Buyer's-Representative, with full authority to act for Seller under this Agreement.


(d) If any difference in opinion between parties hereto shall arise during the construction of the Platform concerning technical matters in respect of the materials and workmanship covered by the ABS rules, such difference in opinion shall be referred to ABS whose opinion thereof shall be final and binding upon both parties.


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(e) Within thirty (30) days of the date of this Agreement the Seller shall deliver to the Buyer a key event production schedule (the "Production Schedule") showing planned construction progress of the Platform. The Production Schedule shall be reasonably acceptable to the Buyer. The Seller shall develop an overall Platform erection plan that integrates material delivery and assembly actions needed to schedule work flow during all phases of construction. This plan shall encompass sufficient planning data to assure that all phases of construction can be adequately accomplished so as to deliver the Platform on or before the Scheduled Delivery Date. The Platform erection/construction plan shall be furnished to Buyer within sixty (60) days after the effective date of this Agreement and shall, upon acceptance by Buyer, become by reference an integral part of the Production Schedule. The Scheduled Delivery Date shall be extended by any delay caused by act or omission of Buyer, failure to timely deliver to Seller any Buyer Furnished Equipment, delays caused by ABS or any governmental agency, changes, events of force major, or inability of or failure or refusal of LeTourneau to fully and timely perform all of its covenants, agreements, and undertakings under the LeTourneau Agreements or if all subjects and conditions under the LeTourneau Agreements are not fully and timely met.


(f) Included in the Specifications is a list of tests and trials to be performed by Seller in connection with the completion of the Platform. Buyer's Representative shall be given the number of days of prior notice for each applicable test or trial as set forth in the Specifications.


5. Changes and Additional Work.


(a) Buyer shall have the right, at any time or times, to request that reasonable change or changes be made in any of the Specifications, and Buyer shall issue to Seller a written change order to be executed by Buyer and Seller; provided, however, if such requested change or changes in the aggregate would materially increase the overall scope of work so as to adversely impact Seller's other work or commitments or if LeTourneau refuses to agree to any requested change with respect to the Package or the Equipment or if Seller and Buyer cannot reach agreement as to a lump sum price or credit or change in the Scheduled Delivery Date or other terms and conditions of this Agreement or the Specifications, Seller shall have no obligation to Buyer to perform same. If any change necessitates an increase or decrease in the quantity or quality of the materials or the nature of the labor to be furnished by Seller for the Platform, then the Contract Price shall be increased or decreased on a lump sum basis in accordance with the mutual agreement of the parties. Seller shall be entitled to make minor changes to the Specifications, if found necessary, for the introduction of improved production methods or otherwise, subject to Buyer's approval not to be unreasonably withheld.


(b) If any such change will prolong the time for completion of the Platform, the Scheduled Delivery Date provided hereunder shall be extended accordingly.


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(c) Seller and Buyer recognize that the Contract Price set forth hereinabove is based upon the scope of work for the platform designated as Seller's Yard No. P178 and that the license agreement from LeTourneau is specifically limited to the LeTourneau Super 116 design. Accordingly, the parties agree that the Platform will be built as a Super 116 and that the Specifications will be amended and changed to accommodate same at such time as LeTourneau supplies the drawings and other information for the Super 116 design and that this change will be reflected as Change Order No. 2. If this mandatory change necessitates an increase or decrease in the quantity or quality of the materials or the nature of the labor to be furnished by Seller for the Platform, then the Contract Price shall be increased on a lump sum basis in accordance with the mutual agreement of the parties. Seller will provide Buyer with Seller's estimate of the change in the Contract Price within forty five (45) days of receipt of all information and drawings from LeTourneau related to Change Order No. 2. Buyer will within thirty (30) days thereafter advise Seller in writing whether Buyer accepts or rejects such change in the Contract Price and if rejected then Buyer's notice of rejection shall include Buyer's estimate of the change in the Contract Price. In the event of rejection by Buyer, the parties shall negotiate in good faith in an effort to reach resolution of the dispute. In the event the parties, despite good faith negotiations, are unable to agree to the lump sum price for this change, then Seller shall be entitled to equitable and reasonable compensation (including profit) for performing same and the amount of this compensation shall be determined by final and binding arbitration utilizing in accordance with the Construction Industry Rules of the American Arbitration Association. The arbitration shall be held in Houston, Texas. Each of the parties shall nominate their own party arbitrator and the two party arbitrators shall select the third arbitrator. In the event the party arbitrators shall be unable to agree to the third arbitrator within ten (10) days, the third arbitrator shall be appointed by the American Arbitration Association. All arbitrators shall be commercial persons (and not attorneys) with at least ten (10) years experience in the construction of mobile offshore jackupdrilling rigs. The third arbitrator shall have no prior or current business relationship to either party or their counsel of record. The decision of the majority of the arbitrators shall be final, binding and enforceable in any court of competent jurisdiction and the Parties agree that there shall be no appeal from the arbitrators' decision. The arbitrators shall render their decision within ninety (90) days after selection of the third arbitrator, but in any event prior to delivery of the Platform.. The arbitrators must select either Seller's or Buyer's price and shall have no authority to determine any other figure for compensation to Seller for this mandatory change.


6. Buyer Furnished Equipment.


(a) Within forty five (45) days of the execution of this Agreement, Seller shall furnish to Buyer a schedule of in-yard delivery dates of those items of material, equipment, engineering data and information ("Buyer Furnished Equipment"), as are set forth in the Specifications to be provided by Buyer. The time for delivery of the Buyer Furnished


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Equipment as detailed on such delivery schedule shall be such so as to not cause Seller to be delayed in the timely prosecution of the work in accordance with the Production Schedule.


(b) Seller shall at its own cost install the Buyer Furnished Equipment. Seller's scope of work includes all necessary foundations and supplies, such as, but not limited to, electric power, air, fuel, steam, etc. All Buyer Furnished Equipment shall be delivered by Buyer to Seller at Seller's Yard in their assembled form, tested and in proper condition,ready for installation in or on the Platform, in accordance with the Production Schedule. Seller will assist Buyer in unloading all Buyer Furnished Equipment. Suitable storage will be provided by Seller for all Buyer Furnished Equipment.


(c) In order to facilitate installation by Seller of the Buyer Furnished Equipment on the Platform, Buyer shall furnish the Seller with all necessary information including specifications, plans, drawings, instruction books, manuals, test reports and certificates. Buyer, if so requested by Seller, shall without any charge to Seller cause representatives of the manufacturers of the Buyer Furnished Equipment to assist Seller in installation thereof in or on the Platform and/or to carry out installation thereof by themselves or to make necessary adjustments thereof at the Yard. Seller's scope of work under this Agreement excludes any testing, adjustment of equipment, repair and modification and supply of all inter-connecting parts.


(d) In the event of a delay in delivery of any Buyer Furnished Equipment, then Buyer and Seller shall mutually agree on a new installation date of the delayed Buyer Furnished Equipment. If no agreement is reached between both parties within fifteen (15) days, then Seller shall have the right to proceed with the construction of the Platform without installation of the delayed Buyer Furnished Equipment on the Platform, without prejudice to Seller's other rights as hereinabove provided, and Buyer shall accept and take delivery of Platform as so constructed.


(e) On delivery of each consignment of Buyer Furnished Equipment, Seller shall assist Buyer in the inspection of the consignment delivered. Any and all of the Buyer Furnished Equipment shall be subject to Seller's reasonable right of rejection as and if they are found to be unsatisfactory or in improper condition for installation. In such instances, Seller shall first give adequate notice to Buyer before being entitled to reject the Buyer Furnished Equipment.


(f) Should Buyer fail to timely deliver the Buyer Furnished Equipment as provided in this Agreement and such delay results in increased costs to Seller, Buyer shall reimburse Seller for such increased cost as and when incurred.


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7. Liens.


Provided Seller is paid all amounts owing to Seller by Buyer under this Agreement as and when due, Seller shall not place or create or permit to be placed or created, any liens, charges, or encumbrances on, or security interests as to, or pledges of, the Platform, and any lien, charge, encumbrance or security interest so placed or created by or though Seller, its subcontractors and suppliers, or any of them, shall be forthwith released by the Seller. The Seller shall release and cause to be discharged any such lien, charge, encumbrance or security interest. In the event Seller fails to secure the discharge or release of any such lien, charge, encumbrance or security interest, after notice to Seller the Buyer may secure the removal of same, in which event the Seller shall reimburse the Buyer for its costs of securing such discharge or release (which cost shall include any expenses incurred in connection therewith) or at Buyer's sole option by deducting such sum from any payments due or to become due the Seller's under this Agreement. In the event such cost is in excess of the amount of any such reimbursement by deductions, the Seller further agrees to pay the amount of such excess to the Buyer upon demand.


8. Insurance.


Seller shall obtain and maintain during all times hereunder the following insurances:


(a) Worker's Compensation (including occupational disease), United States longshoremen Harbor Workers, and employer's liability insurance in accordance with the applicable statutory requirements of the jurisdiction in which the Platform is constructed, with maritime and in rem, alternate employer, and voluntary compensation coverages, with limits on the employer's liability coverage of not less than U.S. $1,000,000 for bodily injury per person and with excess liability limits of not less than U.S. $1,000,000 per occurrence.


(b) Broad Form Comprehensive General Liability Insurance covering all of the operations of Seller, including Contractual Liability and Contractor's Protective Liability with a combined single limit of not less than U.S. $1,000,000 per occurrence for bodily injury and/or property damage, including products and completed operations coverage with excess liability limits of not less than U.S. $1,000,000 per occurrence.


(c) Each of the foregoing insurance policies shall, either on the face thereof or by appropriate endorsement name (except for the policies specified in subparagraph (a) above) Buyer as an additional assured with respect to the indemnities of Seller assumed under this Agreement, provide that the insurance policy shall not be cancelled or coverage reduced except upon 30 days prior written notice to Buyer, contain waivers of subrogation pursuant to which the insurer waives all express or implied rights of subrogation against Buyer, provide that Buyer


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shall not be liable for premiums or calls, and be retained in full force and effect by Seller until the conclusion of the Platform hereunder as provided below. Seller shall be responsible for all deductibles and self insured retentions, to the extent the loss or claim would otherwise be covered by Seller's indemnities contained in this Agreement. Concurrently with the execution of this Agreement, Seller shall furnish to Buyer certificates or other evidence satisfactory to the other of the insurance required hereunder.


(d) Until final delivery of the Platform, Seller shall its own cost and expense, keep the Platform and all materials either delivered to the Yard or being handled by Seller for the Platform or built into, or installed in or upon the Platform fully insured under coverage and with underwriters satisfactory to the Buyer and not more restrictive than the current form of London or American Institute Clauses for Builder's Risks or equivalent form, including tests and trials clauses. The Builder's Risks insurance shall include supplemental coverage for war risks, strikes, lockouts, labor disturbances, riot or civil commotion, earthquakes, and protection and indemnity risks. The amount of such insurance coverage shall be in an amount at least equal to the Contract Price and shall be increased from time to time to cover the cost of all changes, alterations, or modifications.


(e) The Builders Risks policy shall be taken out in the joint names of Seller Buyer and all losses under such policy shall be payable to the Seller in accordance with their respective interests. The policies shall provide that there shall be no recourse against the Buyer for the payment of premiums or other charges and shall further provide that at least thirty (30) days' prior written notice of any material alteration, cancellation, or cancellation for the non-payment of premiums or other charges shall be given to the Buyer by the insurance underwriters. Any deductible under this insurance policy shall be for the account of Seller.


9. Title and Risk of Loss.


(a) Title to the Platform, to the extent completed and all materials destined for incorporation therein, whether located at Seller's Yard or elsewhere, shall immediately vest in Buyer when the same is paid for by Buyer, whether prior to or after incorporation into the Platform. The vesting of title shall not relieve Seller of its obligation to replace damaged or defective materials at Seller's expense and to complete and deliver the Platform in accordance with the provisions of this Agreement. Risk of loss of the Platform shall pass to Buyer upon delivery and acceptance thereof in accordance with this Agreement.


(b) To the extent that title to any part of the Platform or the materials destined for incorporation in the Platform has passed from Seller to Buyer or Buyer otherwise obtains any rights therein, whether now owned or hereafter acquired, Buyer as debtor hereby grants to Seller as a secured party a security interest and lien upon same and all right, title, and interest of Buyer thereto and the proceeds and products thereto, to secure the performance of Buyer


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under this Agreement and the payment to Seller of all required to be paid by Buyer to Seller under this Agreement; provided, however, the security interest granted to the Seller by this Section 9 (b)shall be subordinate to any liens or security interests granted by Buyer to its lenders on Buyer's interest in this contract and the Platform. In connection herewith, Seller shall upon Buyer's default under this Agreement have all rights and remedies of a secured party under the Uniform Commercial Code of Texas. The security interest and lien granted to Seller hereunder and the rights and remedies of Seller herein shall be deemed cumulative and in addition to the rights and remedies otherwise available to Seller at law or in equity or in contract, including without limitation the rights of Seller under Article 2 of the Texas Uniform Commercial Code which shall not be subordinate to any liens or security interests granted by Buyer to its lenders.


(c) If the Platform or any Buyer Furnished Equipment shall be damaged by any insured cause whatsoever prior to acceptance thereof by Buyer and such damage does not constitute an actual or a constructive total loss of the Platform, Seller and/or Buyer shall apply the amount recovered under the insurance policy referred to in Paragraph 8(d) of this Agreement to the repair of such damage and Buyer shall accept the Platform under this Agreement if completed in accordance with this Agreement and the Specifications. The Production Schedule including the Scheduled Delivery Date shall be deemed extended by the time necessary to repair such damage.


(d) In the event of an actual or constructive total loss of the Platform prior to del ...