Business Context and Reporting Period
Company: Green Plains Renewable Energy, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 7, 2006
Event: Entry into a Material Definitive Agreement (Item 1.01) and Creation of a Direct Financial Obligation (Item 2.03).
Through its wholly owned subsidiary, Superior Ethanol, LLC, the company entered into a Design Build Contract with Agra Industries, Inc. to engineer, design, and construct a 50 million gallon per year natural gas dry mill ethanol plant near Superior, Iowa.
Key Financial Metrics and Obligations
- Guaranteed Maximum Price: $75,953,276 (Cost of work plus 8% design builder's fee).
- Contingency Fund: $4,000,000 required to be made available for specific line item cost increases.
- Initial Mobilization Payment: $7,595,328 (10% of the guaranteed maximum price).
- Payment Terms: Progress payments due within 15 days of submission; 7% retainage held up to $4,000,000.
- Interest on Late Payments: 10% per annum on undisputed amounts not paid when due.
- Liquidated Damages: $7,500 per day for delays beyond the completion date, capped at $2,000,000.
- Early Completion Bonus: $2,500 per day for early completion, subject to performance guarantees.
Material Changes and Project Timeline
The filing represents a new material obligation not present in prior periods. The Construction Agreement was dated August 1, 2006, and mutually executed on August 7, 2006.
- Project Duration: Substantial completion required within 15 months from the date of commencement.
- Completion Criteria: Includes construction per plans, certificate of occupancy, agreed punch list, and performance guarantees achieving 90% or better results.
Outlook, Risks, and Contingencies
Funding Status: The company has secured necessary equity funding but is still in the process of securing a loan commitment equal to the cost of constructing and developing the plant. While feedback from the lending institution is favorable, there is no assurance the loan will be obtained on anticipated terms or at all.
Contractual Risks:
- Agreement Validity: The agreement becomes null and void if the initial mobilization payment is not made within 45 days of execution.
- Change Orders: Authorized changes are billed at cost plus 8%.
- Termination: Both parties may terminate for cause. The company may terminate without cause, though Agra would be entitled to payment for design services, costs incurred, and reasonable overhead/profit on incomplete design work.
- Delays: Agra may adjust the completion date for delays caused by government actions, force majeure, strikes, material delays (up to 75 days), or abnormal weather.
Investor Verification Checklist
- Confirm the status of the required loan commitment for the plant construction.
- Verify the timeline for the initial mobilization payment of $7,595,328 to ensure the agreement does not become void.
- Monitor the 15-month construction timeline and potential impact of the $4,000,000 contingency fund on total project costs.
- Review the specific performance guarantees required for the plant to achieve substantial completion.