Document:

Exhibit
10.4

FORM OF

ARCTIC CAT INC.

DIRECTOR

NON-QUALIFIED

STOCK OPTION AGREEMENT

THIS
OPTION AGREEMENT is made as of the       
day of                  
200     (the “Option Date”), between ARCTIC CAT
INC., a Minnesota corporation (the “Company”), and                                              ,
a non-employee member of the Board of Directors of the Company (the
“Optionee”).

WHEREAS,
the Company desires, by affording the Optionee an opportunity to purchase
shares of its Common Stock, $.01 par value (the “Common Stock”), as hereinafter
provided, to carry out the purpose of the 2007 Omnibus Stock and Incentive Plan
(the “2007 Stock Plan”) of the Company approved by its shareholders;

NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth and
for other good and valuable consideration, the parties hereto have agreed, and
do hereby agree, as follows:

1.             Grant
of Option.  The Company hereby grants
to the Optionee the right and Option (hereinafter called the “Option”) to
purchase from the Company all or any part of an aggregate amount of                   
shares of the Common Stock of the Company on the terms and conditions herein
set forth.  This grant does not qualify
as an incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended.

2.             Purchase
Price.  The purchase price of the
shares of the Common Stock covered by the Option shall be $             
per share.

3.             Term
of Option.  The term of the Option
shall be for a period expiring ten (10) years from the Option Date.  In no event shall the Option be exercisable
after the expiration of the term of the Option.

4.             Exercise
of Option.  The Option may be
exercised in whole or in part at any time from and after the Option Date until
expiration of the term specified in paragraph 3.

5.             Non-Transferability.  The Option shall not be transferable
otherwise than by will or the laws of descent and distribution, and the Option
may be exercised, during the lifetime of the Optionee, only by the Optionee.  More particularly (but without limiting the
generality of the foregoing), the Option may not be assigned, transferred
(except as provided above), pledged, or hypothecated in any way; shall not be
assignable by operation of law; and shall not be subject to execution, attachment,
or similar process.  Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of the Option
contrary to the provisions hereof, and the levy of

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any
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.

6.             Method of
Exercising Option.  Subject to the
terms and conditions of this Option Agreement, the Option may be exercised by
written notice to the Chief Financial Officer of the Company at the principal
office of the Company.  Such notice shall
state the election to exercise the Option and the number of shares in respect
of which it is being exercised, and shall be signed by the person so exercising
the Option.  Such notice shall be
accompanied by payment of the full purchase price of such shares which payment
shall be made in cash or by certified check or bank draft payable to the
Company, by any other form of legal consideration deemed sufficient by the
Company and consistent with the purpose of the 2007 Stock Plan and applicable law,
or in the sole discretion of the Company, by delivery of shares of unrestricted
Common Stock of the Company with a fair market value equal to the purchase
price or by a combination of cash and such shares, whose fair market value
shall equal the purchase price.  For
purposes of this paragraph the “fair market value” of the Common Stock of the
Company shall be established in the manner set forth in Section 2(p) of the
2007 Stock Plan.  The certificate or
certificates for the shares as to which the Option shall have been so exercised
shall be registered in the name of the person so exercising the Option, or if
the Optionee so elects, in the name of the Optionee or one other person as
joint tenants, and shall be delivered as soon as practicable after the notice
shall have been received.  In the event
the Option shall be exercised by any person other than the Optionee, such
notice shall be accompanied by appropriate proof of the right of such person to
exercise the Option.  All shares that
shall be purchased upon the exercise of the Option as provided herein shall be
fully paid and nonassessable.

7.             Withholding
Requirements.  Upon exercise of the
Option by the Optionee and prior to the delivery of shares purchased pursuant
to such exercise, the Company shall have the right to require the Optionee to
remit to the Company cash in an amount sufficient to satisfy applicable federal
and state tax withholding requirements. 
The Company shall inform the Optionee as to whether it will require the
Optionee to remit cash for withholding taxes in accordance with the preceding
sentence within two (2) business days after receiving from the Optionee notice
that such Optionee intends to exercise, or has exercised, all or a portion of
the Option.

8.             Stock
Plan.  This Option is subject to
certain additional terms and conditions set forth in the 2007 Stock Plan
pursuant to which this Option has been issued. 
A copy of the 2007 Stock Plan is on file with the Chief Financial
Officer of the Company and each Option holder by acceptance hereof agrees to
and accepts this Option subject to the terms of the 2007 Stock Plan.

9.             General.  The Company shall at all times during the
term of the Option reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of this Option
Agreement, shall pay all original issue and transfer taxes with respect to the
issue and transfer of shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations which, in
the opinion of counsel for the Company, shall be applicable thereto.

10.           Investment
Certificate.  Prior to the receipt of
the certificates pursuant to the exercise of the Option granted hereunder, the
Optionee shall, if required in the Company’s discretion, demonstrate an intent
to hold the shares acquired by exercise of the Option for investment and not
with a view to resale or distribution thereof to the public by delivering to
the Company an investment certificate or letter in such form as the Company may
require.

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11.           Status.  Neither the Optionee nor the Optionee’s
executor, administrator, heirs, or legatees shall be or have any rights or
privileges of a shareholder of the Company in respect of the shares
transferable upon exercise of the Option granted hereunder, unless and until
certificates representing such shares shall be endorsed, transferred, and
delivered and the transferee has caused the Optionee’s name to be entered as
the shareholder of record on the books of the Company.

12.           Company
Authority.  The existence of the
Option herein granted shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company’s capital
structure or its business or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock of the Company of the rights thereof, or dissolution
or liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.

13.           Disputes.  As a condition of the granting of the Option
herein granted, the Optionee agrees, for the Optionee and the Optionee’s
personal representatives, that any dispute or disagreement which may arise
under or as a result of or pursuant to this Option Agreement shall be
determined by the Board of Directors of the Company, in its sole discretion,
and that any interpretation by the Board of the terms of this agreement shall
be final, binding and conclusive.

14.           Binding
Effect.  This Option Agreement shall
be binding upon the heirs, executors, administrators and successors of the
parties hereto.

IN
WITNESS WHEREOF, the Company has caused this Option Agreement to be duly
executed by an officer thereunto duly authorized, and the Optionee has hereunto
set his or her hand, all as of the day and year first above written.

	
  

  	
  ARCTIC CAT INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  , Optionee

  
					

 

 3Exhibit
10.1

AGREEMENT BETWEEN

OWNER AND DESIGN BUILDER

THIS AGREEMENT

made
as of this 9th day of
May in the year of 2007.

BETWEEN the Owner:

POETTM Biorefining – Chancellor

27716 462nd Ave.

Chancellor,
SD 57015

And
the Design Builder:

POETTM Design and Construction, Inc.

4615 North Lewis Avenue

Sioux
Falls, SD 57104

For
the following Project:

Solid
Fuel Boiler

The
Owner and Design Builder, in consideration of the mutual covenants hereinafter
set forth, agree as follows

ARTICLE I - GENERAL PROVISIONS

1.1          BASIC DEFINITIONS

1.1.1        The Contract Documents consist of this Agreement, the Design Builders
Exhibits and written addenda
identified in Article 14, the Construction Documents approved by the Owner and Modifications issued after
execution of this Agreement.  A
Modification is a Change Order
or a written amendment to this Agreement signed by both parties, or a Construction Change Directive issued by the
Owner in accordance with Paragraph 8.3.

1.1.2        The term “Work” means the construction and services provided by the
Design Builder to fulfill the
Design Builder’s obligations.

1.2          EXECUTIONS, CORRELATION AND
INTENT

1.2.1        It is the intent of the Owner and Design Builder that the Contract
Documents include all items
necessary for proper execution and completion of the Work.  The Contract Documents are complimentary, and what is required by one shall
be as binding as if required by
all; performance by the Design Builder shall be required only to the extent consistent with and reasonably
inferable from the Contract Documents as being necessary to produce the intended results.  Words that have well-known technical or construction industry meanings are used
in the Contract Documents in accordance with such recognized meanings.

1.2.2        If the Design Builder believes or is advised by another design
professional retained by the
Design Builder to provide services on the Project that implementation of any instruction received from the Owner
would cause a violation of any applicable law, the Design Builder shall notify the Owner in writing. Neither the
Design Builder nor another
design professional retained by the Design Builder shall be obligated to
perform any act which either
believes will violate any applicable law.

1.2.3        Nothing contained in this Agreement shall create a contractual
relationship between the Owner
and any person or entity other than the Design Builder.

1.3          OWNERSHIP AND USE OF
DOCUMENTS

1.3.1        Drawings, specifications, and other documents and electronic data
furnished by the Design Builder
and other design professionals retained by the Design Builder, are instruments of service. The Design Builder
and other providers of professional services shall retain all common law, statutory and other reserved rights,
including copyright in those
instruments of service furnished by them. Drawings, specifications, and other documents and electronic data are
furnished for use solely with respect to this Agreement. The Owner shall be permitted to retain copies, including
reproducible copies,

Agreement Between Owner and Design Builder 

POETTM Biorefining – Chancellor and POET Design and Construction,
Inc.

Confidential – Property of POET Design and Construction,
Inc.

This
Agreement is adapted from AIA Document 191

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of the drawings,
specifications, and other documents and electronic data furnished by the
Design Builder for information
and reference in connection with the Project except as provided in Subparagraphs 1.3.2 and 1.3.3.

1.3.2        Drawings, specifications, and other documents and electronic data
furnished by the Design Builder
shall not be used by the Owner or others on other projects, for additions to this Project or for completion
of this Project by others, except by agreement in writing and with appropriate compensation to the Design Builder.

1.3.3        Submission or distribution of the Design Builder’s documents to meet
official regulatory requirements or for similar purposes in connection with the
Project is not to be construed as publication in derogation of the rights
reserved in Subparagraph 1.3.1.

ARTICLE 2- OWNER

2.1           The Owner shall designate a representative authorized to act on the
Owner’s behalf with respect to the Project. The Owner or such authorized
representative shall examine documents submitted by the Design Builder and
shall render decisions in a timely manner and in accordance with the schedule
accepted by the Owner. The Owner may obtain 
independent review of the Contract Documents by a separate architect,
engineer, contractor, or cost estimator under contract to or employed by the Owner.
Such independent review shall be undertaken at the Owner’s expense in a timely
manner and shall not delay the orderly progress of the Work.

2.2           The Owner shall cooperate with the Design Builder in securing building
and other permits, licenses and inspections. The Owner shall not be required to
pay the fees for such permits, licenses and inspections unless the cost of such
fees is excluded from the Design Builder’s Scope of Services.

2.3           The Owner shall furnish services of land surveyors; geotechnical
engineers, and other consultants for subsoil, air and water conditions, when
such services are deemed necessary by the Design Builder to properly carry out
the design services required by this Agreement.

2.4           The Owner shall disclose, to the extent known to the Owner, the results
and reports of prior tests, inspections or investigations conducted for the
Project involving: structural or mechanical systems; chemical; air and water
pollution; hazardous materials; or other environmental and subsurface
conditions. The Owner shall disclose all information known to the Owner
regarding the presence of pollutants at the Project’s site.

2.5           The Owner shall furnish all legal, accounting and insurance counseling
services as may be necessary at any time for the Project, including such
auditing services as the Owner may require to verify the Design Builders
Applications for Payment.

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2.6           Those services, information, surveys and reports required by Paragraphs
2.3 through 2.5 which are within the Owner’s control shall be furnished at the
Owner’s expense. The Design Builder shall be entitled to rely upon the accuracy
and completeness thereof, except to the extent the Owner advises the Design
Builder to the contrary in writing.

2.7           If the Owner requires the Design Builder to maintain any special
insurance coverage, policy, amendment, or rider, the Owner shall pay the
additional cost thereof, except as otherwise stipulated in this Agreement.

2.8           If the Owner observes or otherwise becomes aware of a fault of defect
in the Work or nonconformity with the Design Builder’s Scope of Services or the
Construction Documents, the Owner shall give prompt written notice thereof to
the Design Builder.

2.9           The Owner shall promptly upon the request of the Design Builder,
furnish to the Design Builder reasonable evidence that financial arrangements
have been made to fulfill the Owner’s obligations under the Contract.

2.10
        The Owner shall communicate with persons or
entities employed or retained by the Design Builder through the Design Builder,
unless otherwise directed by the Design Builder.

ARTICLE 3- DESIGN BUILDER

3.1          SERVICES AND
RESPONSIBILITIES

3.1.1        Standard of Care: Design Builder shall perform or furnish Design
Professional Services and
related services in all phases of the project. The standard of care for all
such services performed or
furnished under this Agreement will be the care and skill ordinarily used by members of the engineering profession
practicing under similar conditions at the same time and locality.

3.1.2        The Design Builder shall be responsible to the Owner for acts and
omissions of the Design Builder’s
employees, subcontractors and their agents and employees, and other persons, including other design
professionals, performing any portion of the Design Builder’s obligations under this Agreement.

3.2          BASIC SERVICES

3.2.1        The Design Builder’s Basic Services are described below and in Article
14.

3.2.2        The Design Builder shall designate a representative authorized to act
on the Design Builder’s behalf with respect to the Project.

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3.2.3        The Design Builder, with the assistance of the Owner, shall file
documents required to obtain necessary approvals of governmental authorities
having jurisdiction over the Project.

3.2.4        Unless otherwise provided in the Contract Documents, the Design Builder
shall provide or cause to be provided and shall pay for design services, labor,
materials, equipment, tools, construction equipment and machinery, water, heat,
utilities, transportation and other facilities and services necessary for
proper execution and completion of the Work, whether temporary or permanent and
whether or not incorporated or to be Incorporated in the Work.

3.2.5        Design Builder shall supervise, inspect and direct the Construction
competently and efficiently,
devoting such attention thereto and applying such skills and expertise as may be necessary to provide the
Construction in accordance with the Contract Documents.  Design Builder shall
be solely responsible for the means, methods, techniques, sequences and procedures employed for the provision of
Construction. Design Builder
shall be responsible to see that the complete Construction complies accurately with the Contract Documents and
shall keep Owner advised as to the quality and progress of the Construction.

3.2.6        The Design Builder shall keep the Owner informed of the progress and
quality of the Work.

3.2.7        The Design Builder shall be responsible for correcting Work which does
not conform to the Contract Documents.

3.2.8        The Design Builder warrants to the Owner that materials and equipment
furnished under the Contract
will be of good quality and new unless otherwise required or permitted by the Contract Documents, that the
construction will be free from faults and defects, and that the construction will conform with the requirements
of the Contract Documents.
Construction not conforming to these requirements, including substitutions not properly approved by the Owner,
shall be corrected in accordance with Article 9.

3.2.9        The Design Builder shall pay all state sales, consumer, use and similar
taxes which had been legally
enacted prior to the date of this Agreement, and shall secure and pay for building and other permits and
governmental fees, licenses and inspections  necessary for the proper
execution and completion of the Work which are either customarily secured after execution of a
contract for construction or are legally required prior to the date of this Agreement.

3.2.10      Laws and Regulations

1.             Design Builder shall give all notices and
comply with all Laws and 

 5
 

Regulations
of the place of the Project which are applicable to furnishing and performance
of the Work.  Except where otherwise
expressly required by applicable Laws and Regulations, Owner shall not be
responsible for monitoring Design Builder’s compliance with any Laws or
Regulations.

2.             If Design Builder performs any Work knowing
or having reason to know that it is contrary to Laws or Regulations, Design
Builder shall bear all costs arising therefrom.

3.             Changes in Laws and Regulations not known or
foreseeable on the date of receipt of Proposals having an effect on the cost or
time of performance may be the subject of a claim under Article 8,

3.2.11      Design
Builder shall pay all license fees and royalties and assume all costs incident
to the use in the performance of the Work or the incorporation in the Work of
any invention, design, process, product or device which is subject of patent
rights or copyrights held by others. If a particular invention, design,
process, product or device is specified in the Conceptual Documents for use in
the performance of the Construction and if to the actual knowledge of Owner its
use is subject to patent rights or copyrights calling for the payment of any
license fee or royalty to others, the existence of such rights shall be
disclosed by Owner in the Conceptual Documents. 
To the fullest extent permitted by Laws and Regulations, Design Builder
shall indemnify and hold harmless Owner, from and against all claims, costs,
losses and damages (including but not limited to all fees and charges of
engineers, architects, attorneys and other professionals and all court or
arbitration or other dispute resolution costs) arising out of or resulting from
any infringement of patent rights or copyrights incident to the use in the
performance of the Work or resulting from the incorporation in the Work of any
invention, design, process, product or device not specified in the Conceptual
Documents.

3.2.12 Use of Site and Other Areas

1.             Design Builder shall confine construction
equipment, the storage of materials and equipment and the operations of
construction workers to those lands and areas permitted by the Owner and other
land and areas permitted by Laws and Regulations, rights-of-way, permits and
easements, and shall not unreasonably encumber the premises with construction
equipment or other materials or equipment Design Builder shall assume full
responsibility for any damage to any such land or area, or to the owner or
occupant thereof or of any adjacent land or areas, resulting from the
performance of the Construction. Should any claim be made by any such owner or
occupant because of the performance of the Construction, Design Builder shall
promptly settle with such other party by negotiation or otherwise resolve the
claim by arbitration or other dispute resolution proceeding or at law. Design
Builder shall, to the fullest extent permitted by Laws and Regulations,
indemnify and hold harmless Owner, 

 6
 

Owner’s
Consultants and anyone directly or indirectly employed by any of them from and
against all claims, costs, losses and damages (including, but not limited to,
fees of engineers, architects, attorneys and other professionals and court and
arbitration or other dispute resolution costs) arising out of or resulting from
any claim or action, legal or equitable, brought by any such owner or occupant
against Owner, or any other party indemnified hereunder to the extent caused by
or based upon Design Builder’s performance of the Construction.

2.             During the performance of the Construction,
Design Builder shall keep the premises
free from accumulations of waste materials, rubbish and other debris resulting from the Construction. At the
completion of the Construction Design Builder shall remove all waste materials, rubbish and debris from and
about the premises as well as
all tools, appliances, construction equipment, temporary construction and machinery and surplus
materials. Design Builder shall leave the Site clean and ready for occupancy by Owner at Substantial Completion.
Design Builder shall restore to
original condition all property not designated for alteration by the Contract Documents.

3.             Design Builder shall not load nor permit any
part of any structure to be loaded
in any manner that will endanger the structure, nor shall Design Builder subject any part of the Work or
adjacent property to stresses or pressures that will endanger it.

3.2.13      The
Design Builder shall notify the Owner when the Design Builder believes that the
Work or an agreed upon portion thereof is substantially completed. If the Owner
concurs, the Design Builder shall issue a Certificate of Substantial Completion
which shall establish the Date of Substantial Completion, shall state the
responsibility of each party for security, maintenance, heat, utilities, damage
to the Work and insurance, shall Include a list of items to be completed or
corrected and shall fix the time within which the Design Builder shall complete
items listed therein. Disputes between the Owner and Design Builder regarding
the Certificate of Substantial Completion shall be resolved in accordance with
provisions of Article 10.

3.2.14      The
Design Builder shall maintain at the site for the Owner one record copy of the
drawings, specifications, product data, samples, shop drawings, Change Orders
and other modifications, in good order and regularly updated to record the
completed construction. These shall be delivered to the Owner upon completion
of construction and prior to final payment.

3.2.15      Unless
otherwise provided in the Contract Documents, Design Builder shall directly or
through one or more Subcontractors obtain and pay for all permits and licenses
necessary for construction. Owner shall assist Design Builder, when necessary,
in obtaining such permits and licenses. Design Builder shall pay all
governmental charges and inspection fees necessary for the prosecution of the
Construction, which are 

 7
 

applicable on the date of this Agreement. The
Owner is responsible for paying any and all utility company connection charges
and/or capital costs related thereto.

3.2.16      Design
Builder’s General Warranty and Guarantee

1.             Design Builder warrants and guarantees to
Owner that all Construction will
be in accordance with the Contract Documents and will not be defective. This warranty shall be effective for a
period of twelve months from the date of substantial completion and will cover all labor and
materials to correct any deficiencies. Design Builder’s warranty and guarantee hereunder excludes defects or damage
caused by:

a.             Abuse, modification or improper maintenance
or operation by persons other than Design/Builder, Subcontractors or Suppliers;
or

b.             Normal wear and tear under normal usage.

2.             Design Builder’s obligation to perform and
complete the Work in accordance with the Contract Documents shall be absolute.
None of the following will constitute an acceptance of Work that is not in
accordance with the Contract Documents or a release of Design Builder’s
obligation to perform the Work in accordance with the Contract Documents:

a.             Observations by Owner:

b.             The making of any progress or final payment;

c.             The issuance of a certificate of Substantial
Completion;

d.             Use or occupancy of the Work or any part
thereof by Owner;

e.             Any acceptance by Owner or any failure to do
so;

f.              Any review and approval of a Submittal;

g.             Any inspection, test or approval by others;
or

h.             Any correction of defective Construction by
Owner.

3.2.17      Operational Phase: During the Operations
Phase, Design Builder shall:

1.             Provide assistance in connection with the
start-up, testing, refining and adjusting of any equipment or system.

2.             Assist
Owner in training staff to operate and maintain the Project.

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3.             Assist Owner in developing systems and
procedures for control of the operation and maintenance of and record keeping
for the Project.

3.3          ADDITIONAL SERVICES

3.3.1        The services described in this Paragraph 3.3 are not included in Basic
Services unless so identified in
Article 14, and they shall be paid for by the Owner as provided in this agreement, in addition to the
compensation for Basic Services. The services described in this Paragraph 3.3 shall be provided only if authorized or
confirmed in writing by the
Owner.

3.3.2        Making
revisions in drawings, specifications, and other documents or electronic data
when such revisions are required by the enactment or revision of codes, laws or
regulations subsequent to the preparation of such documents or electronic data.

3.3.3        Providing consultation concerning replacement of Work damaged by fire
or other cause during construction, and furnishing services required in
connection with the replacement of such Work.

3.3.4        Providing services in connection with a public hearing, arbitration
proceeding or legal proceeding, except where the Design Builder is a party
thereto.

3.3.5        Providing coordination of construction performed by the Owner’s own
forces or separate contractors employed by the Owner, and coordination of
services required in connection with construction performed and equipment
supplied by Owner.

3.3.6        Submitting Construction Documents for review and approval by the Owner.
Construction Documents may include drawings, specifications, and other
documents and electronic data setting forth in detail the requirements for
construction of the Work.

3.3.7        Preparing a set of reproducible record documents or electronic data
showing significant changes in the Work made during construction.

3.3.8        Providing additional assistance for training personnel, preparing
manuals or consulting during operation outside of the Scope of Basic Services.

ARTICLE 4 - TIME

4.1           Unless otherwise indicated, the Owner and the Design Builder shall perform
their respective obligations as expeditiously as is consistent with reasonable
skill and care and the orderly progress of the Project.

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4.2           Time limits stated in the Contract Documents are of the essence. The
Work to be performed under this Agreement shall commence upon receipt of a
Notice To Proceed unless otherwise agreed and, subject to authorized
Modifications, Substantial Completion shall be achieved on or before the date
established in Article 14.

4.3           Substantial Completion is the stage in the progress of the Work when
the Work or designated portion thereof is sufficiently complete in accordance
with the Contract Documents so the Owner can occupy or utilize the Work for its
intended use.

4.4           Based on the Design Builder’s Scope of Services, a construction
schedule shall be provided consistent with Paragraph 4.2 above.

4.5           If the Design Builder is delayed at any time in the progress of the
Work by an act or neglect of the Owner, Owner’s employees, or separate
contractors employed by the Owner, or by changes ordered in the Work, or by
labor disputes, fire, unusual delay in deliveries, adverse weather conditions
not reasonably anticipatable, unavoidable casualties or other causes beyond the
Design Builder’s control, or by delay authorized by the Owner pending
arbitration, or by other causes which the Owner and Design Builder agree may
justify delay, then Contract Time shall be reasonably extended by Change Order.

ARTICLE 5 - PAYMENTS

5.1          PROGRESS PAYMENTS

5.1.1        The Design Builder shall deliver to the Owner itemized Applications for
Payment in such detail as indicated in Article 14.

5.1.1.1  Application shall be made on AIA forms 0702
and 0703 or similar documents.  Two
percent retainage shall be held by the owner on up to fifty percent value of
the original contract value after which no additional retainage will be held.

5.1.2        Within ten (10) days of the Owner’s receipt of a properly submitted and
correct Application for Payment, the Owner shall make payment to the Design
Builder.

5.1.3        The Application for Payment shall constitute a representation by the
Design Builder to the Owner that the design and construction have progressed to
the point indicated; the quality of Work covered by the application is in
accordance with the Contract Documents; and the Design Builder is entitled to
payment in the amount requested.

5.1.4        Upon receipt of payment from the Owner, the Design Builder shall
promptly pay the other design professionals and each contractor the amount to
which each is entitled in 

 10
 

accordance with the terms of
their respective contracts.

5.1.5        The Owner shall have no obligation under this Agreement to pay or to be
responsible in any way for payment to another design professional, or a
contractor performing portions of the Work.

5.1.6        Neither progress payment nor partial or entire use or occupancy of the
Project by the Owner shall constitute acceptance of Work not in accordance with
the Contract Documents.

5.1.7        The Design Builder warrants that title to all construction covered by
an Application for Payment will pass to the Owner no later than the time of
payment. The Design Builder further warrants that upon submittal of an
Application for Payment all construction for which payments have been received
from the Owner shall be free and clear of liens, claims, security interests or
encumbrances in favor of the Design Builder or any other person or entity
performing construction at the site or furnishing materials or equipment
relating to the construction.

5.1.8        Upon substantial completion, the Owner shall pay the Design Builder the
retainage, if any, less the reasonable cost to correct or complete incorrect or
incomplete Work.  Final payment of such
withheld sum shall be made upon correction or completion of such Work.

5.2.         FINAL PAYMENT

5.2.1        When
the Work has been completed and the contract fully performed, the Design
Builder shall submit a final application for payment to the Owner, who shall
make final payment within ten (10) days of receipt.

5.2.2        The
making of final payment shall constitute a waiver of claims by the Owner except
those arising from:

5.2.2.1     liens,
claims, security interests or encumbrances arising out of the Contract and
unsettled;

5.2.2.2     failure of
the Work to comply with the requirements of the Contract Documents; or

5.2.2.3     terms of
special warranties required by the Contract Documents

5.2.3        Acceptance of final payment shall constitute a waiver of all claims by
the Design Builder except those previously made in writing and identified by
the Design Builder as unsettled at the time of final Application for Payment.

 11

5.3          INTEREST PAYMENTS

5.3.1        Payments due to the Design Builder under this Agreement which are not
paid when due shall bear interest from the date due at the rate specified in
Article 13, or in the absence of a specified rate, at the legal rate prevailing
where the Project is located.

ARTICLE 6 - PROTECTION OF PERSONS AND PROPERTY

6.1           The Design Builder shall be responsible for initiating, maintaining and
providing supervision of safety precautions and programs in connection with the
performance of this Agreement.

6.2           The Design Builder shall take reasonable precautions for the safety of,
and shall provide reasonable protection to prevent damage, injury or loss to:
(1) employees on the Work and other persons who may be affected thereby; (2)
the Work and materials and equipment to be incorporated therein, whether in
storage on or off the site, under care, custody, or control of the Design
Builder or the Design Builder’s contractors; and (3) other property at or
adjacent thereto, such as trees, shrubs, lawns, walks, pavements, roadways,
structures and utilities not designated for removal relocation, or replacement
in the course of construction.

6.3           The Design Builder shall give notices and comply with applicable laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on the safety of persons or property or their protection from damage, injury or
loss.

6.4           The Design Builder shall promptly remedy damage and loss (other than
damage or loss insured under property insurance provided or required by the
Contract Documents) to property at the site caused in whole or in part by the
Design Builder, a contractor of the Design Builder or anyone directly or
indirectly employed by any of them, or by anyone for whose acts they may be
liable.

ARTICLE 7 - INSURANCE AND BONDS

7.1          PERFORMANCE, PAYMENT AND OTHER BONDS

7.1.1        If it is required by the Primary Lender, Design Builder shall furnish
performance and payment Bonds,
each in an amount at least equal to the Contract Price as security for the faithful performance and payment of all
Design Builder’s obligations to furnish, provide and pay for Construction and related materials under the
Contract Documents. These Bonds
shall remain in effect at least until one year after the date when final payment becomes due, except as provided
otherwise by Laws or Regulations or by the Contract Documents. Design Builder shall also furnish such other Bonds
as are required by Article 14.
All Bonds shall be in the form prescribed by the Contract Documents except as provided otherwise by Laws or
Regulations, and shall be executed by such sureties as are named in the current list of “Companies Holding
Certificates of Authority  

 12
 

as Acceptable Surety
Companies” as published in Circular 570 (amended) by the Audit  Staff, Bureau of Government Financial
Operations, U.S. Treasury Department. All Bonds signed by an agent must be accompanied by a certified copy of such
agent’s authority to act. The
cost of the performance and payment bonds shall be paid by the Owner.

7.1.2        If the surety on any Bond furnished by Design Builder is declared
bankrupt or becomes insolvent or its right to do business is terminated in any
state where any part of the Project is located or it ceases to meet the
requirements of paragraph 7.1.1.  Design
Builder shall within thirty days thereafter substitute another Bond and surety
meeting the requirements of paragraphs 7.1.1 and 7.9.

7.2          DESIGN/BUILDER’S LIABILITY INSURANCE

7.2.1        The Design Builder shall purchase from and maintain, in a company or
companies lawfully authorized to do business in the jurisdiction in which the
Project is located, such insurance as will protect the Owner and Design Builder
from claims set forth below which may arise out of or result from operations
under this Agreement by the Design Builder.

7.2.1.1  
Claims under workers’ compensation, disability benefits and other similar
employee benefit acts;

7.2.1.2  
Claims for damages because of bodily injury, occupational sickness or disease,
or death of Design Builder’s employees;

7.2.1.3  
Claims for damages because of bodily injury, sickness or disease, or death
of any person other than Design Builder’s employees;

7.2.1.4  
Claims for damages insured by customary personal injury liability coverage
which are sustained (i) by any person as a result of an offense directly or
indirectly related to the employment of such person by Design Builder, or (ii)
by any other  person for any other
reason;

7.2.1.5  
Claims for damages, other than to the Work itself, because of injury to
or destruction of tangible property wherever located, including loss of use
resulting therefrom; and

7.2.1.6  
Claims for damages because of bodily injury or death of any person or
property damage arising out of the ownership, maintenance or use of any motor
vehicle.

7.2.2        The policies of insurance required by paragraph 7.2.1 shall:

7.2.2.1  
With respect to insurance required by paragraphs 7.2.1.3 through 7.2.1.6

 13
 

inclusive, include as additional insureds
Owner and any other persons or entities  indicated in Article 14, all of whom shall be listed as additional
insureds, and include coverage
for the respective officers and employees of all such additional insureds;

7.2.2.2  
Include at least the specific coverages and be written for not less than
the limits of liability provided in 7.2.2.2.a through 7.2.2.2.c or required by
Laws or Regulations, whichever is greater;

a.             Worker’s Compensation under Paragraph 7.2.1.1
of the General Conditions:

	
  1.

  	
   

  	
  State:

  	
   

  	
  Statutory

  	
   

  
	
  2.

  	
   

  	
  Applicable
  Federal:

  	
   

  	
  Statutory

  	
   

  
	
  3.

  	
   

  	
  Employer’s Liability:

  	
   

  	
  $

  	
  500,000

  	
   

  
							

 

b.             Design Builder’s General Liability (under
paragraphs 7.2.1.2 through 7.2.1.6) which shall include completed operations
and product liability coverages.

	
  1.

  	
   

  	
  General
  Aggregate:

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
  (Except Products
  –Completed Operations)

  	
   

  	
  $

  	
  2,000,000

  	
   

  
	
  2.

  	
   

  	
  Products —
  Completed Operations Aggregate

  	
   

  	
  $

  	
  2,000,000

  	
   

  
	
  3.

  	
   

  	
  Personal and
  Advertising Injury

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
  (Per Person/Organization)

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  4.

  	
   

  	
  Each Occurrence

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Bodily Injury
  and Property Damages)

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  5.

  	
   

  	
  Property Damage
  liability insurance will

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
  provide
  Explosion, Collapse and Underground

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
  coverages where
  applicable.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Excess Liability

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
  General
  Aggregate

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
  Each Occurrence

  	
   

  	
  $

  	
  5,000,000

  	
   

  

 

c.     Automobile
Liability:

	
  Combine Single

  	
   

  	
   

  	
   

  
	
  Limit (Bodily Injury
  and Property Damage)

  	
   

  	
  $

  	
  1,000,000

  	
   

  
					

 

7.2.2.3   Include completed
operations Insurance;

7.2.2.4   Include contractual liability insurance
covering Design Builder’s indemnity obligations under paragraphs 3.2.11, 3.2.12
and 11.4;

 14
 

7.2.2.5   Contain a provision or endorsement that the
coverage afforded will not be canceled until at least 30 days’ prior written
notice has been given to Owner and each other additional insured indicated in
Article 14 to whom a Certificate of Insurance has been issued (and the
Certificate of Insurance furnished by the Design Builder pursuant to paragraph
7.9.2 will so provide);

7.2.2.6.    Remain in effect at least until final
payment and at all times thereafter when Design Builder may be correcting,
removing or replacing defective Construction in accordance with Article 9; and

7.2.2.7     With respect to completed operations
insurance, and any other insurance coverage written on a claims-made basis,
this insurance shall remain in effect for at least one year after final
payment.

7.2.3        Design Builder’s Insurance agency shall agree in writing to give to
owner notice of cancellation of insurance by either party.

7.3          OWNER’S LIABILITY INSURANCE

7.3.1        The Owner shall be responsible for purchasing and maintaining the Owner’s General, Auto and Workmen’s
Compensation liability insurance. Optionally, the Owner may purchase and maintain other insurance for
self-protection against claims which may arise from operations under this Agreement. The Design Builder shall
not be responsible for
purchasing and maintaining this optional Owner’s liability insurance unless specifically required by the Contract
Documents.

7.4          PROPERTY INSURANCE

7.4.1        Unless otherwise provided in Article 14, Owner shall purchase and
maintain property insurance upon the Construction at the Site in the amount of
the full replacement cost thereof (subject to deductible amounts not exceeding
$5000 per occurrence). This insurance will:

7.4.1.1  
Include the interests of Owner, Design/Builder, Subcontractors, and any
other persons or entities indicated in the Supplementary Conditions, each of
whom is deemed to have an insurable interest and shall be listed as an insured
or additional insured;

7.4.1.2  
Be written on a Builder’s Risk “all-risk” or open peril or special
causes of loss policy form that shall at least include insurance for physical
loss and damage to the Construction, temporary buildings, falsework and all
materials and 

 15
 

equipment in transit, and shall insure
against at least the following perils or causes of loss: fire, lightning,
extended coverage, theft, vandalism and malicious mischief, collapse, debris
removal, demolition occasioned by enforcement of Laws and Regulations, and such
other perils or causes of loss as may be specifically required by the
Supplementary Conditions;

7.4.1.3  
Include expenses incurred in the repair or replacement of any insured property
(including but not limited to fees and charges of engineers and design professionals);

7.4.1.4  
Be maintained in effect until final payment is made unless otherwise
agreed to in writing by Owner and Design/Builder with thirty days written
notice to each other additional insured to whom a certificate of insurance has
been issued; and

7.4.1.5    Allow partial
utilization in accordance with paragraph 7.8.

7.4.2        All the policies of insurance (and the certificates or other evidence
thereof) required to be purchased and maintained by Owner in accordance with
paragraph 7.4 will contain a provision or endorsement that the coverage
afforded will not be canceled until at least 30 days’ prior written notice has
been given to Design Builder and to each other additional insured to whom a
Certificate of Insurance has been issued and will contain waiver provisions in
accordance with paragraph 7.5.1.  In
addition, the insurance agency representing the Owner shall agree in writing to
give to Design Builder notice of cancellation by either party, 7.4.3. Owner
shall not be responsible for purchasing and maintaining any property insurance
to protect the interests of Design Builder, Subcontractors, Supplies, Engineers
or others in the Work to the extent of any deductible amounts. The risk of loss
within such identified deductible amount, will be borne by Design Builder,
Subcontractor or others suffering any such loss and if any of them wishes
property Insurance coverage within the limits of such amounts, each may
purchase and maintain it at the purchaser’s own expense.

7.5          WAIVER OF RIGHTS

7.5.1    
Owner and Design Builder intend that all policies purchased in
accordance with paragraph 7.4 will protect Owner, Design Builder, Engineers,
Subcontractors, and all other individuals or entities indicated in Article 14
to be listed as Insured or additional insureds in such policies and will
provide primary coverage for all losses and damages caused by the perils or
causes of loss covered thereby. All such policies shall contain provisions to
the effect that in the event of payment of any loss or damage the insurers will
have no rights of recovery against any of the insureds or additional insureds
thereunder. Owner and Design Builder waive all rights against each other and
their respective officers, directors, employees and agents for all losses and
damages caused by, arising out of or resulting from any of the perils or causes
of loss covered by such 

 16
 

policies and any other property insurance
applicable to the Work; and, in addition, waive all such rights against
Subcontractors, Suppliers, Engineers and all other individuals or entitles
indicated in the Supplementary Conditions to be listed as insureds or
additional insureds under such policies for losses and damages so caused. None
of the above waivers shall extend to the rights that any party making such
waiver may have to the proceeds of insurance held by Owner as trustee or
otherwise payable under any policy so issued. In addition, Owner waives all
rights against Design Builder, Subcontractors, Engineers and Suppliers and the
officers, directors, employees and agents of any of them for business
interruption, loss of use of Owner’s property and any other consequential
damages caused by, arising out of or resulting from any of such insured perils
or causes of loss or any other peril or cause of loss whether or not insured.

7.6          RECEIPT AND APPLICATION OF PROCEEDS

7.6.1        Any insured loss under the policies of insurance required by paragraph
7.4 will be adjusted with Owner
and made payable to Owner as fiduciary for the insureds, as their interests may appear, subject to the
requirements of any applicable mortgage clause and of paragraph 7.6.3.

7.6.2.       Owner shall deposit in a separate account any money so received, and
shall distribute it in accordance with such agreement as the parties in
interest may reach. If no other special agreement is reached the damaged Work
shall be repaired or replaced, the moneys so received applied on account
thereof and the Work and the cost thereof covered by an appropriate Change
Order or Written Amendment.

7.6.3.       Owner as fiduciary shall have power to adjust and settle any loss with
the insurers unless one of the parties in interest shall object in writing
within fifteen days after the occurrence of loss to Owner’s exercise of this
power. If such objection be made, Owner as fiduciary shall make settlement with
the insurers in accordance with such agreement as the parties in interest may
reach. If no such agreement among the parties in interest is reached, Owner as
fiduciary shall adjust and settle the loss with the insurers and, if required
in writing by any party in interest, Owner as fiduciary shall give bond for the
proper performance of such duties.

7.7          ACCEPTANCE OF BONDS AND INSURANCE; OPTION TO REPLACE

7.7.1        If either party has any objection to the coverage afforded by or other
provisions of the Bonds or
insurance required to be purchased and maintained by the other party in accordance with Article 7 on the basis of
their not complying with the Contract Documents, the objecting party shall so notify the other party in
writing within ten days after
receipt of the certificates. Owner and Design Builder shall each provide to the
other such additional
information in respect of insurance provided as the other may reasonably request. If either party does not
purchase or maintain all of the Bonds and insurance required of such party by the Contract
Documents, such party shall notify the other party  

 17
 

in writing of such failure
to purchase prior to the start of the Work, or of such failure to  maintain prior to any change in the required
coverage. Without prejudice to any other right or remedy, the other party may elect to obtain equivalent Bonds
or insurance to protect such
other party’s interests at the expense of the party who was supposed to provide such coverage, and a Change Order or
Written Amendment shall be issued to adjust the Contract Price accordingly.

7.8          PARTIAL UTILIZATION – PROPERTY INSURANCE

7.8.1        If Owner finds it necessary to occupy or use a portion or portions of
the Work prior to Substantial
Completion of all the construction, such use or occupancy may be accomplished; provided that no such use or
occupancy shall commence before the insurers providing the property insurance have acknowledged notice
thereof and in writing effected
any changes in coverage necessitated thereby. The insurers providing the property insurance shall consent by
endorsement on the policy or policies, but the property insurance shall not be cancelled or permitted to lapse on
account of any such partial use
or occupancy.

7.9          LICENSED SURETIES AND INSURERS; CERTIFICATES OF INSURANCE

7.9.1        All Bonds and insurance required by the Contract Documents to be
purchased and maintained by
Owner or Design Builder shall be obtained from surety or insurance companies that are duly licensed or
authorized in the jurisdiction in which the Project is located to issue Bonds or insurance policies
for the limits and coverage’s so required. Such surety and insurance companies shall also meet such additional
requirements and qualifications
as may be provided in Article 14.

7.9.2        Design Builder shall deliver to Owner, with copies to each additional
insured indicated in Article 14, certificates of insurance (and other evidence
of insurance requested by Owner or any other additional insured) which
Design/Builder is required to purchase and maintain in accordance with
paragraph 7.2.1. Owner shall deliver to Design Builder, with copies to each
additional insured indicated in Article 14, certificates of Insurance (and
other evidence of insurance requested by Design Builder or any other additional
insured) which Owner is required to purchase and maintain in accordance with
paragraphs 7.4.1 and 7.4.2.

ARTICLE 8 - CHANGES IN THE WORK

8.1          CHANGES

8.1.1        Changes in the Work may be accomplished after execution of this
Agreement, without invalidating this Agreement, by Change Order, Construction
Change Directive, or order for a minor change in the Work, subject to the
limitations stated in the Contract Documents.

 18
 

8.1.2        A Change Order shall be based upon agreement between the Owner and the Design
Builder; a Construction Change Directive may be issued by the Owner without the
agreement of the Design Builder; an order for a minor change in the Work may be
issued by the Design Builder alone.

8.1.3        Changes in the Work shall be performed under applicable provisions of
the Contract Documents, and the Design Builder shall proceed promptly, unless
otherwise provided in the Change Order, Construction Change Directive, or order
for a minor change in the Work.

8.1.4        If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if quantities originally contemplated are so changed in a
proposed Change Order or Construction Change Directive that application of such
unit prices to quantities of Work proposed will cause substantial inequity to
the Owner or the Design Builder, the applicable unit prices shall be equitably
adjusted.

8.2          CHANGE ORDERS

8.2.1        A Change Order is a written instrument prepared by the Design Builder
and signed by the Owner and the Design Builder, stating their agreement upon
all of the following:

1.   a change in the Work

2.   the amount of the
adjustment, if any, In the Contract Sum; and

3.   the extent of the
adjustment, if any, in the Contract Time.

8.2.2        If the Owner requests a proposal for a change in the Work from the
Design Builder and subsequently elects not to proceed with the change, a Change
Order shall be issued to reimburse the Design Builder for any costs incurred
for estimating services, design services or preparation of proposed revisions
to the Contract Documents.

8.3          CONSTRUCTION CHANCE DIRECTIVES

8.3.1        A Construction Change Directive is a written order prepared and signed
by the Owner, directing a change in the Work prior to agreement on adjustment,
if any, in the Contract Sum or Contract Time, or both.

8.3.2        Except
as otherwise agreed by the Owner and the Design Builder, the adjustment to the
Contract Sum shall be determined on the basis of reasonable expenditures and
savings of those performing the Work attributable to the change, including the
expenditures for design services and revisions to the Contract Documents. In
such case, 

 19
 

the Design Builder shall keep and present an
itemized accounting together with appropriate supporting data for inclusion in
a Change Order. Unless otherwise provided in the Contract Documents, costs for
these purposes shall be limited to the following:

1.             costs of labor, including social security,
old age and unemployment insurance, fringe benefits required by agreement or
custom, and workers’ compensation insurance;

2.             costs
of materials, supplies and equipment, Including cost of transportation, whether
incorporated or consumed;

3.             rental costs of machinery and equipment
exclusive of hand tools, whether rented from the Design Builder or others;

4.             costs of premiums for all bonds and insurance
permit fees, and sales, use or similar taxes;

5.             additional costs of supervision and field
office personnel directly attributable to the change; and fees paid to other
design professionals.

8.3.3        Pending final determination of cost to the Owner, amounts not in
dispute may be included in Applications for Payment. The amount of credit to be
allowed by the Design Builder to the Owner for deletion or change which results
in a net decrease in the Contract Sum and Contract Time, such agreement shall
be effective immediately and shall be recorded by preparation and execution of
an appropriate Change Order.

8.4          MINOR CHANGES IN THE WORK

8.4.1        The Design Builder shall have authority to make minor changes in the
Construction Documents and construction consistent with the intent of the
Contract Documents when such minor changes do not involve adjustment in the
Contract Sum or extension of the Contract Time. 
The Design Builder shall promptly inform the Owner, in writing, of minor
changes In the Construction Documents and construction.

8.5          CONCEALED CONDITIONS

8.5.1        If conditions are encountered at the site which are (1) subsurface or
otherwise concealed physical
conditions which differ materially from those indicated in the Contract Documents, or (2) unknown physical
conditions of an unusual nature which differ materially from those ordinarily found to exist and generally
recognized as inherent in
construction activities of the character provided for in the Contract
Documents, then notice by the
observing party shall be given to the other party promptly before conditions

 20
 

are disturbed and in no
event later than 21 days after first observance of the conditions.  The Contract Sum shall be equitably adjusted
for such concealed or unknown conditions by Change Order upon claim by either party made within 21 days after
the claimant becomes aware of
the conditions.

8.6          REGULATORY CHANGES

8.6.1        The Design Builder shall be compensated for changes in the construction
necessitated by the enactment or revisions of codes, laws or regulations
subsequent to the submission of the Design Builder’s Proposal.

ARTICLE 9 - CORRECTION OF WORK

9.1          The Design Builder shall promptly correct
Work rejected by the Owner or known by the Design Builder to be defective or
failing to conform to the requirements of the Contract Documents, whether
observed before or after Substantial Completion and whether or not fabricated,
installed or completed. The Design Builder shall bear costs of correcting such
rejected Work, including additional testing and inspections.

9.2          If, within one (1) year after the date of
Substantial Completion of the Work or, after the date for commencement of
warranties established in a written agreement between the Owner and the Design
Builder, or by terms of an applicable special warranty required by the Contract
Documents, any of the Work is found to be not in accordance with the
requirements of the Contract Documents, the Design Builder shall correct it
promptly after receipt of a written notice from the Owner to do so unless the
Owner has previously given the Design Builder a written acceptance of such
condition.

9.3          Nothing contained in this Article 9 shall be
construed to establish a period of limitation with respect to other obligations
which the Design/Builder might have under the Contract Documents, Establishment
of the time period of one (1) year as described in Subparagraph 9.2 relates
only to the specific obligation of the Design Builder to correct the Work, and
has no relationship to the time within which proceedings may be commenced to
establish the Design Builder’s liability with respect to the Design Builder’s
obligations other than specifically to correct the Work.

9.4          If the Design Builder fails to correct
nonconforming Work as required or fails to carry out Work in accordance with
the Contract Documents, the Owner, by written order signed personally or by an
Agent specifically so empowered by the Owner in writing, may order the Design
Builder to stop the Work, or any portion thereof, until the cause for such
order has been eliminated; however, the Owner’s right to stop the Work shall
not give rise to a duty on the part of the Owner to exercise the right for
benefit of the Design Builder or other persons or entities.

 21

9.5                               If the Design Builder defaults or neglects to
carry out the Work in accordance with the Contract Documents and fails within
fourteen (14) days after receipt of written notice from the Owner to commence
and continue correction of such default or neglect with diligence and
promptness, the Owner may give a second written notice to the Design Builder
and, fourteen (14) days following receipt by the Design Builder of that second
written notice and without prejudice to other remedies the Owner may have, correct
such deficiencies. In such case an appropriate Change Order shall be issued
deducting from payments then or thereafter due the Design Builder, the costs of
correcting such deficiencies. If the payments then or thereafter due the Design
Builder are not sufficient to cover the amount of the deduction, the Design
Builder shall pay the difference to the Owner. Such action by the Owner shall
be subject to dispute resolution procedures as provided in Article 10.

ARTICLE 10 - DISPUTE RESOLUTION – MEDIATION AND ARBITRATION

10.1                        Claims, disputes or other matters in question
between the parties to this Agreement arising out of or relating to this
Agreement or breach thereof shall be subject to and decided by mediation or
arbitration. Such mediation or arbitration shall be conducted in accordance
with the Construction Industry Mediation or Arbitration Rules of the American
Arbitration Association currently in effect.

10.2                        In addition to and prior to arbitration, the
parties shall endeavor to settle disputes by mediation.  Demand for mediation shall be filed in
writing with the other party to this Agreement and with the American
Arbitration Association. A demand for mediation shall be made within a
reasonable time after the claim, dispute, or other matter in question has
arisen. In no event shall the demand for mediation be made after the date when
Institution of legal or equitable proceedings based on such claim, dispute or
other mailer in question would be barred by the applicable statutes or repose
or limitations.

10.3                        Demand for arbitration shall be filed in
writing with the other party to this Agreement and with the American
Arbitration Association. A demand for arbitration shall be made within a
reasonable time after the claim, dispute or other matter in question has
arisen. In no event shall the demand for arbitration be made after the date
when institution of legal or equitable proceedings based on such claim, dispute
or other matter in question would be barred by the applicable statutes of
repose or limitations.

10.4                        An arbitration pursuant to this Article may
be joined with an arbitration involving common issues of law or fact between the Design Builder and any person
or entity with whom the Design
Builder has a contractual obligation to arbitrate disputes. No other arbitration arising out of or relating to
this Agreement shall include, by consolidation, joinder or in any other matter, an additional person or entity not a
party to this Agreement or not a
party to an agreement with the Design Builder, except by written consent containing a specific reference to this
Agreement signed by the Owner, the Design Builder and any other person or entitles sought to be joined. Consent
to arbitration  

 22
 

involving an additional
person or entity shall not constitute consent to arbitration of any  claim, dispute or other mailer in question
not described in the written consent or with a person or entity not named or described therein. The foregoing
agreement to arbitrate and other
agreements to arbitrate with an additional person or entity duly consented to
by the parties to this Agreement
shall be specifically enforceable in accordance with applicable law in any court having jurisdiction thereof.

10.5                        The award rendered by the arbitrator or
arbitrators shall be final, and judgment may be entered upon it in accordance
with applicable law in any court having jurisdiction thereof. Any and all
arbitration or mediation hearings shall be held in Sioux Falls, SD.

ARTICLE 11 - MISCELLANEOUS PROVISIONS

11.1                        Unless otherwise provided, this Agreement
shall be governed by the law of the place where the Project is located.

11.2.1      Owner may
perform other Work related to the Project at the Site by Owner’s own forces, or let other direct contracts
therefore or have other work performed by utility owners. If the fact that such
other work is to be performed was not noted in the Conceptual Documents then
(i) written notice thereof will be given to Design Builder prior to starting
any such other work and (ii) Design Builder may make a claim therefore as provided
in Article B if Design Builder believes that such performance will involve
additional expense to Design Builder or requires additional time and the
parties are unable to agree as to the amount or extent thereof.

11.2.2      Design
Builder shall afford each other contractor who is a party to such a direct contract and each utility owner (and
Owner, if Owner is performing the additional work with Owner’s employees)
proper and safe access to the Site and a reasonable opportunity for the
introduction and storage of materials and equipment and the execution of such
other work and shall properly connect and coordinate the Construction with
theirs. Unless otherwise provided in the Contract Documents, Design Builder
shall do all cutting, fitting and patching of the Work that may be required to
make its several parts come together properly and integrate with such other
work.  Design Builder shall not endanger
any work of others by cutting, excavating or otherwise altering their work
without the written consent of Owner and the others whose work will be
affected. The duties and responsibilities of Design Builder under this
paragraph are for the benefit of such utility owners and other contractors to
the extent that there are comparable provisions for the benefit of Design
Builder in said direct contracts between Owner and such utility owners and
other contractors.

11.2.3      If the
proper execution or results of any part of Design Builder’s Work depends upon work performed or services
provided by others under this paragraph 11.2, Design Builder shall inspect such
other work and appropriate instruments of service and

 23
 

promptly report to Owner in writing any
delays, defects of deficiencies in such other work or services that render it
unavailable or unsuitable for the proper execution and results of Design
Builder’s Work. Design Builder’s failure so to report will constitute an
acceptance of such other work as fit and proper for integration with Design
Builder’s Work except for latent or nonapparent defects and deficiencies in
such other work.

11.2.4      Coordination

11.2.4.1   If Owner contracts with others for the
performance of other work on  the Project at the Site, the following will be set forth in Article 14:

a.               The individual or entity who will have
authority and responsibility for coordination of the activities among the
various prime contractors will be identified;

b.               The specific matters to be covered by such
authority and responsibility will be itemized; and

c.               The extent of such authority and
responsibilities will be provided.

11.2.4.2  Unless otherwise provided in Article 14,
Owner shall have sole authority and responsibility in respect of such
coordination.

11.3                        CLAIMS FOR DAMAGES

11.3.1  
If either party to this Agreement suffers injury or damage to person or
property because of an act or omission of the other party, of any of the other
party’s employees or agents, or of others for whose acts such party is legally
liable, written notice of such injury or damage, whether or not insured, shall
be given to the other party within a reasonable time not exceeding 21 days
after first observance. The notice shall provide sufficient detail to enable
the other party to investigate the matter. 
If a claim of additional cost or time related to this claim is to be
asserted, it shall be filed in writing.

11.4                      INDEMNIFICATION

11.4.1  
To the fullest extent permitted by law, the Design Builder shall
indemnify  and hold
harmless the Owner’s, the Board of Managers, Officers, Owner’s consultants, and
agents and employees of any of them from and against claims, damages, losses
and expenses, including but not limited to attorney’s fees, arising out of or
resulting from performance of the Work, provided that such claim, damage, loss
or expense is attributable to bodily injury, sickness, disease or death, or to
injury to or destruction of tangible property (other than the Work itself)
including loss of use resulting therefrom, but only to the extent caused in
whole or in part by negligent acts or omissions of the

 24
 

Design Builder, anyone directly or indirectly
employed by the Design Builder or anyone for whose acts the Design Builder may
be liable. Such obligation shall not be construed to negate, abridge, or reduce
other rights or obligations of indemnity which would otherwise exist as to a
party or person described in this Paragraph 11.4.

11.4.2   
To the fullest extent permitted by law, the Owner shall indemnify and
hold harmless the Design Builder, Broin’s Board of Directors and Officers,
Design Builder’s consultants, and agents and employees of any of them from and
against claims, damages, losses and expenses, including but not limited to
attorney’s fees, arising out of or 
resulting from performance of the Work, provided that such claim,
damage, loss or expense is attributable to bodily injury, sickness, disease or
death, or to injury to or destruction of tangible property (other than the Work
itself) including loss of use resulting therefrom, but only to the extent
caused in whole or in part by negligent acts or omissions of the Owner, anyone directly
or indirectly employed by the Owner or anyone for whose acts the Owner may be
liable. Such obligation shall not be construed to negate, abridge, or reduce
other rights or obligations of indemnity which would otherwise exist as to a
party or person described in this Paragraph 11.4.

11.4.3   
In claims against any person or entity indemnified under this Paragraph
11.4 by an employee of the Design Builder, anyone directly or indirectly
employed by the Design Builder or anyone for whose acts the Design Builder may
be liable, the indemnification obligation under this Paragraph 11.4 shall not
be limited by a limitation on amount or type of damages, compensation or
benefits payable by or for the Design Builder under worker’s compensation acts,
disability benefit acts or other employee benefit acts.

11.5                      SUCCESSORS AND ASSIGNS

11.5.1  
The Owner and Design Builder, respectively, bind themselves, their
partners, successors, assigns and legal representatives to the other party to
this Agreement and to the partners, successors and assigns of such other party
with respect to all covenants of this Agreement. Neither the Owner nor the
Design Builder shall assign this Agreement without the written consent of the
other. The Owner may assign this Agreement to any institutional lender
providing construction financing, and the Design Builder agrees to execute all
consents reasonably required to facilitate such an assignment. If either party
makes such an assignment, that party shall nevertheless remain legally responsible
for all obligations under this Agreement, unless otherwise agreed by the other
party.

11.6                      EXTENT OF AGREEMENT

11.6.1  
This Agreement represents the entire agreement between the Owner and the
Design Builder and supersedes prior negotiations, representations or
agreements, either written or oral. This Agreement may be amended only by
written instrument and signed by both the Owner and the Design Builder.

 25
 

11.7                    TERMINATION OF POET
CONTRACTS

11.7.1   
Design Builder, the POET Companies and Owner have entered into contracts
under which the POET Companies provide certain materials, services and
licenses. The contracts include, but may not be limited to, the following
contracts:

	
  POET COMPANIES

  	
   

  	
  POET

  
	
  POET Design and
  Construction, Inc.

  	
   

  	
  Agreement Between Owner and Design Builder

  
	
  POET, LLC

  	
   

  	
  Confidentiality and Nondisclosure Agreement

  
	
  POET, LLC

  	
   

  	
  Information Technology, Systems Management and Data
  Management Services Agreement

  
	
  POET Plant
  Management, LLC

  	
   

  	
  Management Agreement

  
	
  POET Plant
  Management, LLC

  	
   

  	
  Corn and Natural Gas Price Risk Management Agreement

  
	
  POET Research,
  Inc

  	
   

  	
  Technology and Patent Rights License Agreement

  
	
  POET Nutrition,
  Inc.

  	
   

  	
  Dakota Gold Marketing Agreement

  
	
  Ethanol
  Products, LLC d/b/a POET Ethanol Products

  	
   

  	
  Ethanol Marketing and Services Agreement

  

 

The above-described
contracts, and any other contract that might be in existence now or in the
future between Owner and one of the POET Companies, shall constitute the “POET
Contracts.” In the event that a POET Contract is terminated for any reason,
without a POET Contract having been renewed or replaced with a similar contract
between Owner and a POET Company, then Design Builder may in its sole
discretion terminate this Agreement upon 60 days’ advance written notice to Owner.

“Affiliate” means any present or future
Entity of which ten percent (10%) of the equity interests are owned or
Controlled by one or more of the following: (i) the POET Companies; (ii) Jeff
Broin; (iii) a member of Jeff Broin’s Immediate Family and/or (iv) a trust the
beneficiaries of which Include Jeff Broin and/or Jeff Broin’s Immediate Family.

“Controlled by” means the power to direct or
cause the direction of the management and policies of a company through the
ownership of voting securities, by contract or otherwise.

“Entity” means a corporation, limited
liability company, partnership, limited partnership, cooperative, trust,
estate, governmental body or any other organization created under or

 26
 

pursuant to the laws of the United States of
America, of another country or of any state, county, municipality or
governmental unit of any of the foregoing.

“Immediate Family” means Jeff Broin’s spouse,
children and/or lineal descendants.

“POET Companies” shall mean POET, LLC; POET
Design and Construction, Inc.; POET Research, Inc.; POET Nutrition, inc.; POET
Plant Management, LLC; Ethanol Products, d/b/a POET Ethanol Products; POET
Investments, Inc.; POET Research Center, Inc.; and the Affiliates, whether now
existing, later created or that become related to any of the foregoing in the
future by ownership, contract or through the establishment of business
relationships.

ARTICLE 12 - TERMINATION OF THE AGREEMENT

12.1                        TERMINATION BY THE OWNER

12.1.1   
This Agreement may be terminated by the Owner upon 14 days’ written notice
to the Design Builder in the event that the Project is abandoned. If such
termination occurs, the Owner shall pay the Design Builder for Work completed
and for proven loss sustained upon materials, equipment, tools, and
construction equipment machinery, including reasonable profit and applicable
damages.

12.1.2   
If the Design Builder defaults or persistently fails or neglects to
carry out the Work in accordance with the Contract Documents or falls to
perform the provisions of this Agreement, the Owner may give written notice
that the Owner intends to terminate this Agreement. If the Design Builder fails
to correct the defaults, failure or neglect within fourteen (14) days after
being given notice, the Owner may then give a second written notice and, after
an additional fourteen (14) days the Owner may without prejudice to any other
remedy terminate the employment of the Design Builder and take possession of
the site and of all materials, equipment and finish the Work by whatever method
the Owner may deem expedient. If the unpaid balance of the Contract Sum exceeds
the expense of finishing the Work and all damages incurred by the Owner, such
excess shall be paid to the Design Builder. If the expense of completing the
Work and all damages incurred by the Owner exceeds the unpaid balance, the
Design Builder shall pay the difference to the Owner. This obligation for
payment shall survive termination of this Agreement.

12.2                      TERMINATION BY THE DESIGN
BUILDER

12.2.1   
If the Owner fails to make payment when due, the Design Builder may give
written notice of the Design Builders intention to terminate this Agreement. If
the Design Builder fails to receive payment within fourteen (14) days after
receipt of such notice by the Owner, the Design Builder may give a second
written notice and, fourteen (14) days after receipt of such second written
notice by the Owner, may terminate this Agreement

 27
 

and recover from the Owner payment for Work
executed and for proven losses sustained upon materials, equipment, tools, and
construction equipment and machinery, Including reasonable profit and
applicable damages.

ARTICLE 13 - BASIS OF COMPENSATION

The
Owner shall compensate the Design Builder in accordance with Article 5,
Payments, and the other provisions of this Agreement as described below.

13.1                    COMPENSATION

13.1.1   
For the Design Builder’s performance of the Work, as described in
Paragraph 3.2 and including any
other services listed in Article 14 as part of Basic Services, the Owner shall
pay the Design Builder in current funds the Contract Sum as follows:

Cost plus with a guaranteed maximum pace is
the basis of this agreement, the sum of the cost of the work and the Design
Builder’s fee is guaranteed by the Design Builder not to exceed Twenty Five
Million Five Hundred Thousand Dollars and no cents  ($25,500,000.00) subject to additions and
deductions as provided In the documents. This price does not include excise
tax. The price does include sales tax and will remain valid as long as
construction is started by August 31, 2007. A Start date after that time will
cause the price to be reviewed and adjusted accordingly.

The Design Builder’s fee will be equal to
Seventeen percent (17%) of the cost to construct the work designed or specified
by the Engineer in the scope of work. This amount includes compensation for
Engineer’s Services. The percentage of Construction Cost noted herein accounts
for labor, overhead and profit.

13.1.2   
For Additional Services, as described in Paragraph 3.3 and including any
other services listed in Article 14 as Additional Services, compensation shall
be at a negotiated price.

13.2                      REIMBURSABLE EXPENSES

13.2.1   
Reimbursable Expenses are in addition to the compensation for Basic and
Additional Services, and include actual expenditures made by the Design Builder
and the Design/Builders employees and contractors in the interest of the
Project.

13.2.2   
FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of (1.1)
times the amounts expended.

 28
 

13.3                    INTEREST PAYMENTS

13.3.1    The rate of interest
for past due payments shall be as follows:

(1.5%) one and one half percent per month.

ARTICLE 14 – OTHER CONDITIONS AND SERVICES

14.1         The Basic Services to be performed shall be commenced on issuance of
Notice to Proceed and, subject to authorized adjustments and to delays not
caused by the Design Builder, Substantial Completion shall be achieved in
fifteen (15) months following the start of concrete work.

14.2         The Basic Services beyond those described in Article 3 are as follows:

None

14.3         Additional Services beyond those described in Article 3 are as follows:

None

14.4         The Design Builder shall submit an Application for Payment on or about
the 15th day of
each month.

14.5         The Design Builders Exhibits include the following documents:

	
  

  	
   

  	
  Title

  
	
  Exhibit 1-

  	
   

  	
  Schedule of Contract Values consisting of one (1)
  page

  

14.6
                        OTHER CONDITIONS

14.6.3   
Owner will apply for and receive any applicable state sales or excise
tax refunds. Design Builder will assist the Owner in compiling necessary
documentation.

NO OTHER
CONDITIONS ARE NEITHER EXPRESSED NOR IMPLIED OTHER  THAN THOSE STATED ABOVE.

IN
WITNESS WHEREOF, OWNER and DESIGN BUILDER have signed this Agreement in
duplicate. One counterpart each has been delivered to OWNER and DESIGN BUILDER.
All portions of the Contract Documents have been signed, initialed or
identified by OWNER and DESIGN BUILDER.

This
Owner – Design Builder Agreement will be effective on the day and year first
written above.

 29
 

 

	
  OWNER:

  	
   

  	
  DESIGN BUILDER:

  
	
   

  	
   

  	
   

  
	
  POETTM
  Biorefining – Chancellor

  	
   

  	
  POETTM Design and Construction, Inc.

  
	
   

  	
   

  	
   

  
	
  BY:

  	
  Darrin lhnen

  	
   

  	
  BY:

  	
  James Moe

  	
  .

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  President

  	
   

  	
  Title:

  	
  Chief Operating Officer

  	
  .

  	
   

  
												

 

	
  [CORPORATE SEAL]

  	
   

  	
  [CORPORATE SEAL]

  	
   

  
	
   

  	
   

  	
   

  
	
  Attest:

  	
  /s/ Rick Serie

  	
   

  	
  Attest:

  	
  /s/ James Moe

  	
  .

  	
   

  
	
   

  	
   

  	
   

  
	
  Address for
  giving notices:

  	
   

  	
  Address for giving notices:

  
	
   

  	
   

  	
   

  
	
  POETTM
  Biorefining – Chancellor

  	
   

  	
  POETTM Design and Construction, Inc.

  
	
   

  	
   

  	
   

  
	
  27716 462nd Ave.

  	
   

  	
  4615 North Lewis Avenue

  
	
  Chancellor, SD
  57015

  	
   

  	
  Sioux Falls, SD 57104

  
							

 

 30

POETTM Biorefining - Chancellor

Solid Fuel Boiler

SCHEDULE OF CONTRACT VALUES

	
  CONTRACT COSTS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  100

  	
   

  	
  SITE IMPROVEMENTS

  	
   

  	
  $

  	
  157,500.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  200 

  	
   

  	
  CONCRETE, BUILDINGS, STRUCTURES
  AND MILLWRIGHT

  	
   

  	
  $

  	
  1,236,875.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  300

  	
   

  	
  MECHANICAL SYSTEMS

  	
   

  	
  $

  	
  15,702,901.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  400

  	
   

  	
  PROCESS SYSTEMS

  	
   

  	
  $

  	
  200,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  500

  	
   

  	
  ELECTRICAL

  	
   

  	
  $

  	
  1,420,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  600

  	
   

  	
  INSTRUMENTATION

  	
   

  	
  $

  	
  40,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  800

  	
   

  	
  GENERAL CONSTRUCTION, TAX,
  FREIGHT, COATINGS, MISC.

  	
   

  	
  $

  	
  941,339.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1000

  	
   

  	
  DESIGN, ENGINEERING, MANAGEMENT,
  SURCHARGES, SALES TAX

  	
   

  	
  $

  	
  5,801,385.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL
  CONTRACT COST

  	
   

  	
  $

  	
  25,500,000.00

  	
   

  

 

 1

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