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1998-141-RES WHEREAS, CITY COUNCIL DID HERETOFORE ONTHE 8TH DAY OF JUNE eretofore, on the 8th day of June, RESOLUTION NO. ~1 WHEREAS, tl1e City Council of the City of Paris did heretofore, on the 8th day of June, 1998, in Resolution No. 98-076, authorize the execution of a letter of commitment for city services to Panda Energy International, Inc.; and, WHEREAS, it is deemed appropriate that the City of Paris enter into a contract for water services with Panda Paris Power, L.P., a Delaware limited partnership; and, WHEREAS, the form of the Water Supply Agreement, attached hereto as Exhibit A, should, in all things, be approved, and the Mayor, Charles H. Neeley, should be authorized to execute the same; NOW, THERE~'0RE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PARIS, that the form of the Water Supply Agreement with Panda Paris Power, L.P., attached hereto as Exhibit A, be, and the same is hereby approved; and, BE IT ~'URTHER RESOLVED, that the Mayor, Charles H. Neeley, be, and he is hereby, authorized and directed to execute, on behalf of the City of Paris, the Water Supply Agreement, under the terms and conditions and in the form shown in Exhibit A, attached hereto. PASSED AND ADOPTED this 16th day of September, 1998. ATTEST: Charles H. Neeley, Mayor ~~I.~~~~) Mattle Cunningham, City Clerk APPROVED AS TO FOR~: / 2it?r$ fffL~ Scott P. Foster, City Attorney W ATER SUPPLY AGREEMENT THIS WATER SUPPLY AGREEMENT (this "Agreement"), dated as of this 16th day of September, 1998, is by and between the City of Paris, Paris, Texas, a home-rule municipality (the "City"), and Panda Paris Power, L.P., a Delaware limited partnership ("Panda"). ARTICLE I DEFINED TERMS AND INTERPRET A TION Section 1.01. Defined Terms. As used in this Agreement, including the schedules and other attachments hereto, each term with its initial letter capitalized and not otherwise defined shall have the meaning assigned to such term as set forth below: o "Affiliate" shall mean, in relation to any Person, any Person: (i) which directly or indirectly controls, or is controlled by, or is under common control with, such other Person; or (ii) which directly or indirectly beneficially owns or holds fifty percent (50%) or more of any class of voting stock of such other Person; or (iii) which has fifty percent (50%) or more of any class of voting stock that is directly or indirectly beneficially owned or held by such other Person; or (iv) who either holds a general partnership interest in such other Person or such other Person holds a general partnership interest in the Person. o "Approvals" shall mean any and all permits, clearances, licenses, visas, authorizations, consents, decrees, waivers, privileges, filings, exemptions or approvals of any Person or any federal, state, city, county, local or regional authorities, departments, bodies, commissions, corporations, branches, agencies, courts, tribunals, judicial authorities, legislative bodies, administrative bodies or regulatory bodies. o "Base Delivery Amount" shall have the meaning set forth in Section 7.01 hereof. o "Commercial Operations Date" shall mean the date that the Plant commences commercial operations as stated in a written notice from Panda to the City. o "Cost of Service" shall have the meaning set forth in Section 7.01 hereof. o "Day" shall mean a twenty-four (24) hour period commencing at 12:00 midnight, Paris, Texas time. o "Facilities" shall mean the Water Supply Facilities. o "Financial Closing" shall mean the date on which financing (debt and/or equity) sufficient to complete construction of the Plant has been obtained and the first draw thereunder has been made. o "Financing Persons" shall mean the lenders, security holders, investors, equity providers and others providing financing or refmancing to or on behalf of Panda, for the development, construction, ownership, operation and maintenance ofthe Plant or any portion thereof, or any trustee or agent acting on behalf of any of the foregoing. o "Force Majeure Events" shall mean all events and occurrences which (i) arise after the date hereof, (ii) are beyond the reasonable control of the Party claiming Force Majeure, (iii) are unforeseen, unavoidable or insurmountable, and (iv) prevent total or partial performance by any Party of this Agreement. Such events shall include, without limitation, earthquakes, typhoons, flood, fire, lightning, political disturbances, war and other events that are generally accepted as Force Majeure Events in commercial practice; such events specifically shall exclude any labor strikes, work stoppages or similar labor action. o "Invoice" shall have the meaning set forth in Section 7.0l o "Meters" shall mean the meters installed as part of the Facilities as set forth in this Agreement. o "Operations Fee" shall have the meaning set forth in Section 7.01 hereof. o "Party" shall mean a party to this Agreement and its successor and permitted assigns. o "PEDC" shall mean the Paris Economic Development Corporation. .1- G:\A TTORNEY\Scott\Current Work\water agr. final.doc 1 fXHIBIT A () "Person" shall mean any natural person, corporation, company, partnership, limited liability company, joint venture, trust, unincorporated organization, organization, association, sole proprietorship, government (or any agency, instrumentality or political subdivision thereof, including autonomous and quasi-autonomous entities) or other entity. o "Pipeline" shall mean the pipeline for delivery of Raw Water to the Plant to be constructed by Panda and transferred to the City pursuant to the terms of this Agreemen~ including any connections from the Pipeline to other applicable facilities included as part of the Water Supply Facilities. () "Plant" shall mean the electricity producing power plant to be constructed by Panda at the site reflected on Schedule 1 attached hereto, to be located within the city limits ofthe City. o "Raw Water" shall mean water that is appropriated for industrial purposes that has not been treated. () "Regulatory Requirements" shall mean all requirements and provisions of federal, state, city, county and local constitutions, laws, statutes, rules, regulations and ordinances enacted or issued from time to time, and all judicial and administrative orders, judgments and decrees of any governmental authority having jurisdiction concerning the matters contained herein issued from time to time. () "Source" shall mean Pat Mayse Lake, Lamar County, Texas or such other source of surface water acceptable to Panda (including, but not limited to, Lake Crook, Lamar County, Texas). () "Supply Delivery Point" shall mean the point at which the Water Supply Facilities connect to the Plant as more specifically described on Schedule I attached hereto. () "Term" shall mean the period commencing on the date hereof and terminating on the termination date of this Agreement. o "TNRCC" shall mean the Texas Natural Resource Conservation Commission. o "Water Supply Facilities" shall mean all meters, pumps, pumping stations, pipelines (including but not limited to the Pipeline), valves and equipment necessary for the maintenance and delivery of the Raw Water by the City from the Source to the Supply Delivery Point in accordance with the terms and conditions hereof. o "Wastewater" shall mean any and all domestic (sewage) and process wastewater from the Plant. ARTICLE II CONDITIONS PRECEDENT Section 2.01. Conditions Precedent. The obligations of Panda under this Agreement shall become effective on and Panda shall have no obligations hereunder until the date specified in a notice from Panda to the City stating that the following conditions precedent shall have been fulfilled to Panda's satisfaction or waived in writing by Panda: (a) If necessary, the City shall have received legal, valid and enforceable rights-of-way, easements and such other real property rights or interests as may be required to fmance and construct the Facilities and perform its obligations hereunder; (b) The City shall have obtained, as applicable: (i) fmancing sufficient to complete construction of the Facilities, or any applicable portion thereof, or commitments therefor in form and substance satisfactory to Panda and the Financing Persons, and (ii) all necessary Approvals for the construction and operation of the Facilities. (c) Panda shall have obtained all necessary Approvals for the construction and operation of the Pipeline; (d) Panda and the Financing Persons shall have received an opinion of legal counsel, in form and substance acceptable to Panda and the Financing Persons, to the effect that this Agreement constitutes the legal, valid and binding obligations of the City and may be enforced according to its terms in conformity with applicable law; and -2. G:\A TTORNEY\ScottlCurrent Worklwater agr - final.doc2 (e) The Financial Closing shall have occurred. ARTICLE III PURCHASE AND SUPPLY OF RAW WATER Section 3.01. Purchase and Supply of Raw Water. The City agrees to make available for sale to Panda at the Supply Delivery Point up to eight (8) million gallons per Day of Raw Water from the Source and Panda agrees to purchase from the City all or part of such Raw Water, subject to the terms and conditions set forth herein. The City shall deliver the Raw Water to Panda at the Supply Delivery Point through one or more Meters, which will measure the volume delivered. All Raw Water delivered hereunder shall be delivered at a maximum pressure of 60 pounds per square inch. The Raw Water shall be owned by the City until it is delivered to the Supply Delivery Point, and thereafter the Raw Water shall be owned by Panda. The Raw Water shall be used by Panda at the Plant in connection with the generation of electricity, including, without limitation, as cooling water for the cooling towers associated with the Plant. Panda shall not permit any Raw Water furnished hereunder to be used to supply any other Person for use other than in regard to the operation of the Plant without specific approval of the City. Section 3.02. Commencement of Delivery. Panda shall notify the City at least thirty (30) days in advance of when it desires the City to commence the initial delivery of Raw Water to the Supply Delivery Point for purchase and sale hereunder; provided that such delivery shall commence no earlier than October 1, 1999 and no later than the Commercial Operations Date. Notwithstanding anything contained herein to the contrary, in no event will Panda be obligated to purchase Raw Water hereunder until the Commercial Operations Date. Section 3.03. Quantity. The City agrees to deliver to Panda, at the Supply Delivery Point, the quantity of Raw Water requested by Panda (up to and including eight (8) million gallons per Day). To facilitate this process, the City and Panda shall cooperate and coordinate in the control of the equipment that regulates the delivery of Raw Water pursuant to this Agreement. ARTICLE IV COLLECTION AND TRANSPORT OF W ASTEW A TER Section 4.01. Wastewater Collection. Process Wastewater from the Plant will be collected, transported, and treated by the City in a manner to be separately agreed on by Panda and the City. Domestic Wastewater (sewage) will be collected and treated by the City in accordance with City Ordinances separate and apart from process Wastewater. The Parties agree to use their best efforts to promptly reach an agreement on all such Wastewater matters so that the City may be able to commence the collection of the process Wastewater contemporaneous with the delivery of Raw Water hereunder (in order to facilitate Panda's testing of the Plant's operations). ARTICLE V CONSTRUCTION OF PIPELINE; WASTEWATER FACILITIES Section 5.01. Construction of the Pipeline; Transfer. Panda agrees at its sole cost and expense to design, engineer, survey, construct and install the Pipeline in accordance with the terms and conditions contained herein. The Pipeline shall be designed, sized and constructed to transport and supply up to eight (8) million gallons per Day of Raw Water from the Source to the Supply Delivery Point and otherwise permit the City to perform its obligations hereunder (subject to the provisions of Section 5.09 herein). The Pipeline shall be designed, engineered, and constructed in compliance with all TNRCC and EP A Regulatory Requirements for a potable water pipeline. Furthermore, the Pipeline shall be designed, engineered and constructed so that it conforms with and connects to any other applicable pipelines and related facilities of the Plant. Upon completion, Panda shall transfer title and ownership of the Pipeline to the City in consideration of any grant funds obtained by the City for such purpose and ten dollars ($10). Section 5.02. Alternate Construction of the Pipeline by PEDC; Transfer. The Parties agree that, if Panda so determines, the PEDC may design, engineer, survey, construct and install the Pipeline pursuant to a separate written agreement which may be entered into between PEDC and Panda. Upon completion, PEDC will .3. G:\A TTORNEY\Scott\Current Work\water agr - finaLdoc3 transfer title and ownership of the Pipeline to Panda in exchange for cash consideration equal to the PEDC's cost therefor, less the amount of any grant funds the PEDC may obtain for such purpose. Panda will transfer title and ownership of the Pipeline to the City promptly thereafter. Section 5.03. Required Completion Date. Panda shall notify the City of the date of Financial Closing on or before such date. The construction of the Pipeline shall be completed such that the City is able to perform its obligations hereunder. Section 5.04. Location ofPipeline~ Costs. The Pipeline shall be constructed along the route described in Schedule 3 attached hereto and made a part hereof. The City shall fully cooperate and support Panda's (or PEDC's) efforts to obtain any rights-of-way; provided, however, that in the event the alignment includes land owned by the City after the date of this Agreement, the City agrees to grant Panda any easement, right-of-entry or other permission necessary to utilize such land for the construction of the Pipeline at no additional cost to Panda, provided that any such easement, right-of-way or permission shall be non-exclusive. In addition, if any additional land, easement, right-of-way or property interest must be acquired to permit the construction of the Pipeline, the City agrees to negotiate and, if necessary, exercise its powers of eminent domain to acquire any such land, easemen~ right-of-way or property interest. All costs associated with the construction of the Pipeline shall be paid by Panda (or PEDe) using certain of the proceeds from the Financial Closing. Such costs shall include, but not be limited to design, engineering, surveying, construction, labor and the cost of all materials. Panda also agrees, if applicable, to pay to the City any permit processing fees, and post any performance or labor and material bonds normally required. Section 5.05. Meters. The supply of Raw Water pursuant to this Agreement shall be measured by an appropriate recording flow Meter(s) specified by the City and agreed to by Panda, with such Meter being installed as specified by the City and agreed to by Panda, which includes a flow versus time recording device and a pressure versus time recording device, which shall be located at the Supply Delivery Point. Should Panda request that such Meter be replaced by a larger Meter, such replacement meter and all costs for the installation of the same shall be borne by Panda (separate and apart from any Raw Water charges pursuant to Section 7.01 and from any charges set forth in Section 6.02.) Section 5.06. Progress Reports and Observation Visits. From the date of Financial Closing until the completion of construction of the Pipeline, Panda (or PEDe) shall keep the City informed in writing on a quarterly basis of the status of the construction project and an estimated schedule for completion of the project. In addition, Panda (or PEDe) shall promptly notify the City of the occurrence of any incident which will or is reasonably expected to result in a material delay in the construction schedule. Panda (or PEDe) shall comply with all reasonable requests of the City for, and assist in arranging, any such observation visits to the Pipeline sites. The City shall have the right to provide a full time inspector. Any work not in compliance with the plans and specifications as provided to the City by Panda, will be reported to the City Engineer, then to Panda. Section 5.07. Testing. The Parties will cooperate with each other in coordinating schedules and providing reasonable assistance in connection with the testing of the Pipeline, the Facilities and the Plant. Section 5.08 Connections to the Pipeline. The City shall have the right to permit and construct connections, at no expense to Panda, to the Pipeline to supply Raw Water for other users. Notwithstanding any other provision herein to the contrary, Panda shall have priority over the use and transportation of the Raw Water. The City shall not enter into any agreement or construct any connection which would have an immediate or long-term consequence of diminishing the amount of Raw Water transported to the Plant by the Pipeline. Any agreements entered into by the City with any Person other than Panda shall contain language acknowledging that Panda has priority over the use and transportation of the amount of Raw Water provided for herein. .4- G:\A TTORNEY\Scott\Current Work\water agr. final.doc4 ARTICLE VI OPERATION AND MAINTENANCE Section 6.01. Operation and Maintenance. The City shall be solely responsible for operating and maintaining the Facilities in accordance with all Regulatory Requirements (cost initially paid by the City will be passed through the rate pursuant to Schedule 5). In addition, subject to Section 6.02, the City shall operate, maintain and repair the Facilities as necessary to permit the City to perform its obligations hereunder; including, without limitation, supplying up to eight (8) million gallons of Raw Water per day to the Supply Delivery Point. Section 6.02. Meters. (a) Inspections and Testing. (i) At least once every calendar quarter, at a time reasonably agreed to (in advance) by Panda, the City shall inspect and clean the Meters applicable to the Facilities and this Agreement, and shall test and verify their accuracy. The City shall notify Panda of the date and time of any inspection of such Meters at least seven (7) days in advance thereof. All inspections, cleanings, testing, repairing, replacing, adjusting or recalibrating of such Meters shall be done in a manner that is least disruptive to the operation of the Plant as reasonably practicable. Panda shall be entitled to be present at its own expense throughout any inspection, cleaning, testing, repairing, replacing, adjusting or recalibrating of such Meters. At all such inspections, such Meters shall immediately be repaired, replaced, adjusted or recalibrated as necessary to adjust such Meters into an accuracy of at least two percent (2%). Including as provided in paragraph (ii) below, the cost of the inspection, testing and, if applicable, the repair, replacement, adjustment or recalibration of such Meters hereunder shall be borne by the City and Panda on an equal basis. Any reasonable expense beyond normal inspection expenses shall be agreed to by the Parties before incurred. (ii) Panda may request that any or all of the Meters be inspected and tested in the event that Panda believes that such Meter(s) are inaccurate. The City shall use its commercially reasonable best efforts to schedule the inspection and test within seven (7) days after such request has been made, and the City shall promptly notify Panda of the date and time thereof. If any Meter being tested is found to have errors in excess of the permissible limit two percent (2%), such Meter shall immediately be repaired, replaced, adjusted or recalibrated as necessary to bring such Meter into an accuracy of at least two percent (2%). (b) Meter Readings. The City shall take monthly readings of the Meters on the fIrst business day of each calendar month. Panda shall be entitled to be present at its own expense at any such reading of the Meters. (c) Invoicing Corrections. In the event any inspection of Meters reflects an error greater than two percent (2%), Panda and the City shall reasonably determine the point in time the error developed and adjust applicable Invoices (hereinafter defmed) accordingly. If a point in time cannot be determined and a basis for adjustment is not agreed upon between the City and Panda within thirty (30) days of the inspection, adjustments to applicable Invoices (hereinafter defmed), shall be made on the basis that the error has applied to one-half (50%) of the time since the last determination of accuracy. Section 6.03. Coordination. The City shall use its best efforts to coordinate its maintenance program for the Facilities with the scheduled maintenance periods of Panda for the Plant so as to minimize any disruption to the operation of the Plant. The Parties agree to notify each other as promptly as practicable regarding their respective maintenance programs and schedules in order to facilitate this coordination. ARTICLE VII CHARGES AND INVOICING Section 7.01. Raw Water Charges. For the supply of Raw Water to the Supply Delivery Point, Panda will pay a Raw Water charge to the City for the actual Cost of Service to provide such Raw Water ("Cost of Service") where the Cost of Service would be computed as for any fIscal year of the City: .5- G:\A TTORNEY\Scott\Current Work\water agr. finaldoc5 Cost of Service = BDA + Operations Fee where BDA is the Base Delivery Amount used by the Plant, and in essence, is the cost of delivery of Raw Water by the City to the Plant, as more specifically detailed in Schedule 5. Operations Fee is the general fee charged by the City to provide Raw Water service hereby, and is equal to ten percent (10%) ofthe BDA on an annualized basis. For monthly billing purposes pursuant to Section 7.02, the BDA and the Operation Fee for any fiscal year shall be estimated based on the annual operating budget of the City prepared in regard to such fiscal year and invoiced on a monthly basis according to use. The City shall provide such estimated amounts and shall provide Panda the opportunity to comment thereon to applicable City officials, as soon as practicable after the adoption thereof. Promptly after any such fiscal year is completed and the annual audit of the City's operating budget is conducted, a final adjustment to increase or decrease the applicable Raw Water charges, as the case may be, shall be performed and agreed to between the Parties. Should a sum be due Panda, City shall credit Panda's account in the amount of the sum (to be fully and immediately applied against any amounts owed by Panda hereunder until such credit is exhausted). Should a sum be due the City, Panda shall make a payment to the City. At Panda's request, the sum may be paid out at no interest over a period of time not to exceed twelve (12) months. A lump sum payment shall be made in regard to the final year of this Agreement, as amended and extended. Section 7.02. Invoices. The City shall prepare and deliver a monthly invoice to Panda (an "Invoice"), which shall include charges for the Raw Water delivered (calculated pursuant to Section 7.01) during the previous month. Panda shall pay the amounts due pursuant to each Invoice in accordance with the payment instructions contained therein within thirty (30) days after receipt thereof. In regards to matters applicable to Section 6.02, such matters shall be addressed in accordance with Section 6.02. Panda shall notify the City of any other disputed amounts indicating the amount of the dispute and the basis therefor. In the event that the City agrees with Panda, it shall notify Panda and reflect the appropriate adjustments in the next Invoice delivered to Panda. Otherwise, the City shall give written notice to Panda of its disagreement with Panda regarding the disputed amount, stating the reasons therefor, within thirty (30) days after receipt of the notification of the disputed amount by Panda. If the Parties fail to reach an agreement with respect to such Invoice dispute within sixty (60) days after delivery of the City's notice to Panda, the provisions of Article XIII shall apply with respect thereto. Section 7.03. Minimum Payment. In the event Panda does not use an average of eight (8) million gallons per Day of Raw Water from the Source pursuant to this Agreement, during any fiscal year of the City and after the Commercial Operations Date, Panda shall owe a Minimum Payment (herein so called) to the City, payable within thirty (30) Days after receipt of a separate written invoice from the City in this regard equal to the following: the amounts derived from Items 6 and 9 under Base Delivery Amount in Schedule 5 which are attributable to the reservation of an average of eight (8) million gallons per Day of Raw Water (as described above) minus the amount calculated in such Items for purposes of determining the Base Delivery Amount under Schedule 5 (all such amounts in the formula immediately above shall use the procedure set forth in Item I of "Calculations" of Schedule 5 hereto). ARTICLE VIII ADDITIONAL OBLIGATIONS AND COVENANTS Section 8.01. Insurance. (a) The City agrees to maintain insurance applicable to its performance under this Agreement with the Texas Municipal League or any other appropriate and equivalent insurance carrier during the term of this Agreement. (b) During construction of the Pipeline, Panda agrees to maintain general liability insurance applicable to its performance under this Agreement with a reputable insurance company, including coverage for the protection and/or restoration of any damage to the City's rights-of-way. Section 8.02. Approvals: Assistance. The City agrees to acquire and maintain in full force and effect throughout the Term all Approvals necessary for it to fulfill its obligations hereunder and to comply with all Regulatory Requirements in its performance of its obligations hereunder. The City agrees to secure all modifications -6- G:\A TTORNEY\Scott\Current Work\water agr - finaLdoc6 to its Approvals as necessary and maintain compliance with all its Approvals as necessary for it to fulfill its obligations hereunder in compliance with all Regulatory Requirements. The City agrees to issue or cause to be issued to Panda all Approvals that are within its jurisdiction that are necessary for Panda to collect and use the Raw Water as contemplated herein and perform other operations of the Plant relating to the subject matter of this Agreement. The City agrees to give reasonable assistance to Panda as requested in connection with obtaining Approvals that are necessary for Panda to collect and use the Raw Water as contemplated herein and perform other operations of the Plant relating to the subject matter of this Agreement. Section 8.03. Sufficiency of Supply of Raw Water and Facilities. The City agrees that it will at all times during the Term have sufficient rights to and supply of Raw Water to satisfy its obligations hereunder. The City agrees that it will acquire additional rights to and sources of Raw Water as reasonably needed. Panda will share the costs of such acquisition pursuant to Schedule 5, Item 9 (in Base Delivery Amount). The City shall promptly notify Panda immediately of any proposed or enacted legislation or regulations (either federal, state, city, county or local level), or agreement, which comes to the attention of the City and which could adversely affect the operation of the Facilities or the ability of the City to perform any of its obligations hereunder. The City will not take any action or omit to take any action that would or could impair, restrict or adversely affect the ability of the City to perform its obligations hereunder. Section 8.04. Emergencies. Panda shall be entitled to work on or interfere with the Facilities without the prior written consent of the City where such actions are taken to prevent immediate injury, death or property damage. In such event, Panda shall promptly inform the City of such work or interference. Section 8.05. Hold Harmless. During the Term ofthis Agreement, Panda agrees to hold harmless the City and its respective employees and agents from all losses or claims arising directly from actions ofpanda's employees or agents under this Agreement; provided that Panda shall have no such obligation where the negligence of any employee or agent of the City contributed to any such loss or claim. Section 8.06. Waiver ofImmunitv. As a part of the consideration for this Agreement, the City represents and warrants that it is subject to suit for any breach of this Agreement or to enforce any covenant contained herein, consents to such suit, and waives any immunity it may have from suit for breach or enforcement of this Agreement. ARTICLE IX REPRESENT A TIONS AND WARRANTIES Section 9.01. Representations and Warranties of the City. The City hereby represents and warrants to Panda that the following are true, legal, and correct as of the date hereof: (a) The City is a home-rule municipality validly existing and in good standing under the laws of the State of Texas. The City has all requisite power and authority to conduct its business, own its properties and execute and deliver this Agreement and perform its obligations hereunder in accordance with the terms hereof. This Agreement has been duly executed and delivered by a representative of the City who has the requisite power and authority to execute and deliver this Agreement in the name of and on behalf of the City. (b) The City has obtained all Approvals and satisfied all requirements of a constitutional, legal, statutory, administrative or other similar character necessary for the execution, delivery and performance by the City of this Agreement, which requirements are listed on Schedule 6 hereto. The execution, delivery and performance of this Agreement by the City do not require any approval, consent, order, authorization, waiver or any other action, or registration, declaration or filing with, any Person, board or body, public or private (including any holder (or any trustee for any holder) of an indebtedness or other obligation of the City or of any other Person), except those which are listed on Schedule 6. This Agreement has been duly executed and delivered on behalf of the City and constitutes the legal, valid and binding obligations of the City, enforceable against the City in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general equitable principles. (c) The City holds a valid Certificates issued by the appropriate State agencies in regard to the Raw Water to be delivered hereby. The City owns the rights to an amount of appropriated and uncommitted surface water dedicated for industrial use from Lake Pat Mayse, Lamar County, Texas, to allow the City to fulfill its obligations to supply Raw Water hereunder. -7. G:\ATTORNEY\Scott\Current Work\water agr - final ,doc? (d) Neither the execution, delivery or performance of this Agreement (i) conflicts with, or results in a violation or breach of the terms, conditions or provisions of, or constitutes a default under, the constitutive law, statutes or regulations of the City, or any agreement, Approval, treaty, convention, franchise, contract, indenture or other instrument under which the City or its assets are bound, nor (ii) violates or conflicts with any applicable Approval, law, rule, ordinance or regulation or any judgment, decree, order, writ, injunction or award applicable to the City. There is no pending legislation and no legal actions, arbitration proceedings, administrative proceedings or investigations instituted or threatened or adversely affecting, or that could adversely affect, (i) the legality, validity and enforceability of this Agreement against the City, (ii) the performance by the City of its obligations under this Agreement, (iii) any Approval of the City identified in Schedule 6, or (iv) the condition (fmancial or otherwise), business or operations of the City, nor does the City know of any basis for any such action, proceeding or investigation. Section 9.02 Representations and Warranties of Panda Panda hereby represents and warrants to the City that the following are true, legal, and correct as of the date hereof: (a) Panda is a limited partnership validly existing and in good standing under the laws of State of Delaware. Panda has all requisite power and authority to conduct its business, own its properties and execute and deliver this Agreement and perform its obligations hereunder in accordance with the terms hereof. This Agreement has been duly executed and delivered by Panda. (b) This Agreement has been duly executed and delivered on behalf of Panda and constitutes the legal, valid and binding obligations of Panda, enforceable against Panda in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general equitable principles. (c) Neither the execution, delivery or performance of this Agreement (i) conflicts with, or results in a violation or breach of the terms, conditions or provisions of, or constitutes a default under, the charter documents of Panda, or any agreement, contract, indenture or other instrument under which Panda or its assets are bound, nor (ii) violates or conflicts with any applicable law, rule, ordinance or regulation or any judgment, decree, order, writ, injunction or award applicable to Panda. There is no pending legislation and no legal actions, arbitration proceedings, administrative proceedings or investigations instituted or threatened or adversely affecting, or that could adversely affect, (i) the legality, validity and enforceability of this Agreement against Panda, (ii) the performance by Panda of its obligations under this Agreement or (iii) the condition (fmancial or otherwise), business or operations of Panda, nor does Panda know of any basis for any such action, proceeding or investigation. ARTICLE X TERM AND TERMINATION Section 10.01. Term. Unless sooner terminated or extended pursuant to the terms hereof, this Agreement shall be effective immediately upon its execution and shall continue in effect for an initial period ending on the date that is fifteen (I5) years after the Commercial Operations Date (the "Initial Term"). Panda shall have the option, exercisable by written notice at least three (3) months prior to expiration of the Initial Term or any extension thereof, to extend the term of this Agreement for up to ten (10) successive five (5) year terms. Section 10.02. Early Termination. After satisfaction of the conditions precedent set forth in Article II, hereof, Panda may elect early termination of this Agreement, prior to completion of the construction of the Pipeline, or the Water Supply Facilities, as the case may be, by written notice delivered to the City and by payment to the City of an amount equal to the expenditures of the City to date in regard to the Pipeline, or the Water Supply Facilities in relation to this Agreement, as the case may be. ARTICLE XI REMEDIES Section 11.01. Events of Default. The occurrence of anyone of the following shall constitute an Event of Default under this Agreement: (a) the failure of either Party to perform any material covenant, condition or obligation under this Agreement, which failure continues for thirty (30) days after receipt of written notice -8- G:\A TTORNEY\Scott\Current Work\water agr - final,doc8 from the other Party, (b) the breach by either Party of a material warranty or representation made by that Party in this Agreement, which failure continues for ninety (90) days after receipt of written notice from the other Party, or (c) with respect to a breach or breaches by the City of the provisions of Section 3.01 herein, if such breach or breaches, in the aggregate, result in the unexcused failure of the City to timely deliver Raw Water of the quality and in the quantities required pursuant to this Agreement. Section 11.02. Remedies and Waiver. Upon the occurrence of any Event or Default, the non-defaulting party may pursue any available remedy, at law or in equity, including but not limited to specific performance. The pursuit by either Party of any remedy available under this Agreement shall not constitute an election or waiver of any other remedy available to that Party, at equity or in law, by reason of violation or breach of any of the terms, provisions, covenants, representations or warranties of this Agreement. No waiver of any violation or breach shall be deemed or construed to constitute a waiver of any other violation or breach, and forbearance to enforce one or more of the remedies available for a violation or breach shall not be deemed to constitute a waiver of that or any other violation or breach. ARTICLE XII FORCE MAJEURE Section 12.01. Notification Obligations. In the event a Party claims a Force Majeure Event hereunder, such Party shall promptly, but in no event more than thirty (30) Days after it knows or should have known of the occurrence of the Force Majeure Event, give the other Party written notice describing the details of the occurrence and the anticipated length of delay due to the Force Majeure Event; provided that if the Force Majeure Event results in a breakdown of communications rendering it not reasonably practicable to give notice within the applicable time limit specified herein, then the Party claiming a Force Majeure Event shall give such notice as soon as reasonably practicable after the reinstatement of communications, but no later than thirty (30) Days after such reinstatement. Within fifteen (15) Days after initial notification, such Party shall provide sufficient proof of the occurrence and duration of such Force Majeure Event to the other Party and shall thereafter provide the other Party with periodic supplemental updates to reflect any change in information given to the other Party. The Party claiming the Force Majeure Event shall give notice to the other Party of (a) the cessation of the relevant Force Majeure Event and (b) the cessation of the effects of such Force Majeure Event on the performance by it of its obligations under this Agreement as soon as practicable after becoming aware of each of (a) and (b) above. Section 12.02. Duty to Mitigate. The Parties shall use their reasonable efforts to mitigate the effects of such Force Majeure Event and to cooperate to develop and implement a plan of remedial and reasonable alternative measures to remove the Force Majeure Event; provided, further that the Party not claiming a Force Majeure Event shall not be required to expend any amount of money in connection with such Force Majeure Event. Section 12.03. Delay Caused by Force Maieure Event. To the extent provided in this Section 12.03 and subject to Section 12.04, neither Party shall be responsible or liable for or deemed in breach of this Agreement because of any failure or delay in complying with its obligations under or pursuant to this Agreement to the extent that such failure has been caused, or contributed to, by one or more Force Majeure Events or its effects or by any combination thereof, and in such event: (a) except as otherwise provided herein, the performance by the Party claiming the Force Majeure Event of its obligations hereunder shall be suspended, and in the event that such Party is required to start or complete an action during a specific period of time, such start date or period for completion shall be extended, on the condition that: (i) such suspension of performance and extension of time shall be of no greater scope and of no longer duration than is required by the effects ofthe Force Majeure Event; (ii) the Party claiming the Force Majeure Event complies with Section 12.01; and (iii) the Party claiming the Force Majeure Event uses its reasonable efforts to remedy its inability to perform; and (b) except as otherwise provided herein, the performance by the Party not claiming the Force Majeure Event of its obligations hereunder shall be suspended, and in the event that such Party is required to start or complete an action during a specific period of time, such start date or period for completion shall be extended; provided that such suspension of performance and extension of time shall be of no greater scope and of no longer duration than is required -9. G:IA TTORNEY\Scott\Current Work\water agr - finaLdoc9 by any suspension of performance or extension of time pursuant to the preceding clause (a) or other effects of the Force Majeure Event. Section 12.04. Performance Not Excused. The payment of money owed hereunder shall not be excused because of a Force Majeure Event. In addition, a Party shall not be excused under this Article from timely performance of its obligations hereunder to the extent that the claimed Force Majeure Event was caused by any negligent or intentional acts, errors, or omissions, or for any breach or default of this Agreement by such Party. Furthermore, no suspension of performance or extension of time shall relieve the Party benefiting therefrom from any liability for any breach of the obligations that were suspended or failure to comply with the time period that was extended to the extent such breach or failure occurred prior to the occurrence of the applicable Force Majeure Event. ARTICLE XIII RESOLUTION OF DISPUTES Section 13.01. Friendly Consultation: Mediation. In the event of any dispute, controversy or claim between the Parties arising out of or relating to this Agreement, or the breach, termination or invalidity thereof (collectively, a "Dispute"), the Parties shall attempt in the first instance to resolve such Dispute through friendly consultations or mediation between the Parties. If such consultations or mediations do not result in a resolution of the Dispute within thirty (30) days, then the Dispute may be submitted to judicial proceedings by either Party. The Parties agree to attempt to resolve all disputes arising hereunder promptly, equitably and in a good faith manner. The Parties further agree to provide each other with reasonable access during normal business hours to any and all non-privileged records, information and data pertaining to any such Dispute. Section 13.02. Tolling of Statute of Limitations. All applicable statutes of limitation and defenses based upon the passage of time and similar contractual limitations shall be tolled while the procedures specified in this Article XIII are pending. The Parties will take such action, if any, required to effectuate such tolling. Without prejudice to the procedures specified in this Article XIII, a Party may file a complaint for statute of limitations purposes, if in its sole judgment such action may be necessary to preserve its claims or defenses. Despite such action, the Parties will continue to participate in good faith in the procedures specified in this Article XIII. ARTICLE XIV MISCELLANEOUS Section 14.01. Financing Persons' Requirements. (a) The City acknowledges that Panda will borrow certain funds from the Financing Persons for the construction of the Plant and that, as a condition to making loans to Panda, the Financing Persons may from time to time require certain documents from the City. In connection therewith, the City agrees to furnish to the Financing Persons such written information, certificates, copies of invoices and receipts, lien waivers (upon payment), affidavits and other like documents as the Financing Persons may reasonably request. Upon the request of the Financing Persons, as a condition precedent to Financial Closing, the City shall state in writing whether or not it is satisfied with Panda's performance to that date. (b) The City shall promptly execute any additional documentation, as may be mutually agreed on, in form and substance reasonably requested by the Financing Persons, including, but not limited to, documents evidencing the City's consent to assignment of this Agreement as a security to the Financing Persons or otherwise upon the occurrence of events specified in such documents and any reasonable modifications to this Agreement. (c) In the event of Panda's default under this Agreement, the Financing Persons shall have the right to cure Panda's default and, in such event, the City's duties and obligations under this Agreement shall be unaffected. In that regard, the Financing Persons shall have (i) thirty (30) days from the date notice of default is delivered to the Financing Persons to cure such default if such default is the failure to pay amounts to the City which are due and payable under this Agreement or (ii) not fewer than ninety (90) days to cure such default if the breach or default cannot be cured by the payment of money to the City so long as the Financing Persons or their designee shall have commenced to cure the default within such ninety (90) day period and thereafter diligently pursues such cure to completion and continues to perform any monetary obligations under this Agreement and all other obligations under this Agreement are performed by Panda or the Financing Persons. The City further agrees to perform its obligations -10- G:\A TTORNEY\Scott\Current Work\water agr. final.doclO hereunder for the benefit of the Financing Persons in the event of Panda's default under this Agreement or under the applicable fmancing documents, provided that the Financing Persons (or their assignee) shall have cured all defaults of Panda's obligations hereunder and shall have paid all amounts then due, including costs to cure. In such event, the Financing Persons (or their assignee) shall have the rights and obligations of Panda under this Agreement, provided the Financing Persons shall have no personal liability to the City for the performance of such obligations, and the sole recourse of the City in seeking the enforcement of such obligations shall be to such Parties' interest in the Project. (d) The City acknowledges that Panda and/or its Affiliates will borrow funds from the Financing Persons in connection with the development, construction and operation of the Plant and that, as a condition to making loans to Panda and/or its Affiliates, the Financing Persons may from time to time require amendments to this Agreement and certain documents from the City. In connection therewith, the City agrees to furnish to the Financing Persons such written information, certificates, opinions, affidavits and other like documents as Panda may reasonably request. The City shall negotiate in good faith amendments to this Agreement reasonably requested by the Financing Persons. In addition, the City shall promptly execute any additional documentation, as may be mutually agreed upon in form and substance that is reasonably requested by the Financing Persons. Section 14.02. Assignment. (a) Except as expressly permitted in this Agreement, neither Party shall assign this Agreement or any portion hereof, or any of the rights or obligations hereunder, whether by operation of law or otherwise, without the prior written consent of the other Party. This Agreement shall inure to the benefit of, and be binding upon, the successors and permitted assigns of the Parties. (b) Panda shall be entitled to assign this Agreement and its rights herein without the consent of the City to any of Panda's Affiliates that has a direct or indirect interest in the Plant. In addition, the City hereby consents to the granting of a security interest in and an assignment by Panda of this Agreement and its rights herein to the Financing Persons and their successors, assigns and designees in connection with any financing or refinancing related to the development, construction, operation and maintenance of the Plant. In furtherance of the foregoing, the City acknowledges that the Financing Persons may under certain circumstances assume the interests and rights of Panda under this Agreement. (c) The City acknowledges that the Financing Persons may under certain circumstances foreclose upon and sell, or cause Panda to sell or lease the Plant and cause any new lessee or purchaser of the Plant to assume all of the interests, rights and obligations of Panda arising under this Agreement. In such event, the City agrees to the assignment by Panda and the Financing Persons of this Agreement and its rights herein to such purchaser or lessee and shall release Panda and the Financing Persons from all obligations hereunder upon any such assignment. Prior to such release, Panda and Financing Persons shall pay all payments and amounts due under this Agreement. Section 14.03. Representatives of Parties. Each Party shall designate in writing a natural person who shall act on its behalf in all matters related to the administration of this Agreement. Each Party may designate a new representative by giving written notice thereof to the other Party. Section 14.04. Good Faith Dealings. The Parties undertake to act in good faith in relation to the performance and implementation of this Agreement and to take such other reasonable measures as may be necessary for the realization of its purposes and objectives. Section 14.05. Confidentiality. The Parties agree that the contents of this Agreement and any information provided to a Party by the other Party whether of a business, technical, engineering, economic or other nature relating to the Plant or the disclosing Party and its affiliates, relating to the negotiations or performance of this Agreement or otherwise provided pursuant this Agreement (the "Confidential Information") shall be treated as confidential and secret and that the receiving Party, without the prior written consent of the disclosing Party, shall not disclose Confidential Information to any Person, except as permitted herein. Upon the request of the disclosing Party and to the extent reasonably practicable to do so, the receiving Party shall return all written and electronic information containing Confidential Information of the disclosing Party. Notwithstanding the above, the Parties acknowledge and agree that (a) Panda may disclose Confidential Information to the Financing Persons, potential lenders or investors for the Plant, contractors, Panda's affiliates, agents, representatives and contractors, suppliers and manufacturers (and potential suppliers and manufacturers) of equipment, materials or other goods for the Plant and other Persons as may be necessary or advisable for Panda to perform its obligations under this Agreement and the other agreements entered into in connection with the Plant, and (b) the City may disclose Confidential Information to its agents, contractors and other -11- G:\A TTORNEY\Scott\Current Work\water agr - final.docll Persons as may be necessary or advisable for the City to perform its obligations under this Agreement. To the extent that such disclosures are necessary, each Party shall endeavor in disclosing Confidential Information to seek to preserve the confidentiality of such disclosures. Notwithstanding the foregoing, this Section shall not prevent either Party from disclosing any such Confidential Information, including the contents of this Agreement, if and to the extent: (a) required to do so by applicable law or any court, governmental or regulatory authority, provided that, if feasible, the disclosing Party shall give prior notice to the other Party of such required disclosure and, if so requested by such other Party, shall use all reasonable efforts to oppose the requested disclosure, appropriate under the circumstances; (b) disclosed to the professional advisers, consultants or auditors of such Party; (c) disclosed to the existing or potential lenders, shareholders, partners and equity investors of such Party; (d) such disclosure is reasonably deemed necessary by the disclosing Party pursuant to the rules and regulations of any securities commission, securities exchange, securities trading market or similar body or agency; or (e) Confidential Information has come into the public (except as a result of a breach of this Section). Section 14.06. Notice. Whenever this Agreement requires or permits any consent, approval, notice, reques~ or demand from one Party to another, the consent, approval, notice, request, or demand must be in writing to be effective and shall be deemed to be delivered and received (a) if personally delivered or if delivered by telegram or courier service, when actually received by the Party to whom notice is sent, (b) if delivered by telex or facsimile, on the first business day following the day transmitted (with confirmation of receipt), or (c) if delivered by mail (whether actually received or not), at the close of business on the third business day following the day when placed in the mail, postage prepaid, certified or registered, addressed to the appropriate Party, at the address and/or facsimile numbers of such Party set forth below (or at such other address as such Party may designate by written notice to the other Party in accordance with this Section): If to the City: City of Paris, Paris, Texas P. O. Box 9037 Paris, Texas 75461 Attn: City Clerk If to Panda: Panda Paris Power, L.P. 4100 Spring Valley, Suite 1001 Dallas, Texas 75244 Attn: General Counsel Section 14.07. Waiver. No delay, failure or refusal on the part of any Party to exercise or enforce any right under this Agreement shall impair such right or be construed as a waiver of such right or any obligation of another Party, nor shall any single or partial exercise of any right hereunder preclude other or further exercise of any right. The failure of a Party to give notice to the other Parties of a breach of this Agreement shall not constitute a waiver thereof. Any waiver of any obligation or right hereunder shall not constitute a waiver of any other obligation or righ~ then existing or arising in the future. Each Party shall have the right to waive any of the terms and conditions of this Agreement that are for its benefit. To be effective, a waiver of any obligation or right must be in writing and signed by the Party waiving such obligation or right. Section 14.08. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the Term, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. Section 14.09. Governing Law. This Agreemen~ and the rights and obligations of the Parties under or pursuant to this Agreement, shall be interpreted and construed according to the laws of the State of Texas. Section 14.10 Entire Agreement; Amendments. This Agreement contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements, discussions and undertakings between the Parties (whether written or oral) with respect to the subject matter hereof. This Agreement may only be amended by written instrument signed by all the Parties. The City and Panda agree that the Financing Parties are intended to be a third party beneficiary of Sections 14.01, 14.02 and this Section 14.10. In that regard, the .12- G:\A TTORNEY\Scott\Current W ork\water agr - final ,doc 12 City and Panda will not, without the prior written consent of the Financing Persons, amend or modify Sections 14.0 I, 14.02 or this Section 14.10 in any respect. Section 14.11. Independent Contractors. The Parties are independent contractors. This Agreement shall not be interpreted or construed to create an association, joint venture, or partnership between the Parties or to impose any partnership obligation or liability upon either Party. Neither Party shall have any right, power or authority to enter into any agreement or undertaking for, or act on behalf of, or to act as or be an agent or representative of, or to otherwise bind, the other Party. Section 14.12. Expenses and Further Assurances. Each Party shall pay its own costs and expenses in relation to the negotiation, preparation, execution and carrying into effect of this Agreement. Each Party shall, from time to time on being requested to do so by, and at the cost and expense of, the other Party, do all such acts and/or execute and deliver all such instruments and assurances as are reasonably necessary for carrying out or giving full effect to the terms of this Agreement. Section 14.13. No Third Party Beneficiary. Except with respect to the rights of the Financing Persons and as provided above, (a) nothing in this Agreement nor any action taken hereunder shall be construed to create any duty, liability or standard of care to any Person that is not a Party, (b) no person that is not a Party shall have any rights or interest, direct or indirect, in this Agreement or the services to be provided hereunder and ( c) this Agreement is intended solely for the benefit of the Parties, and the Parties expressly disclaim any intent to create any rights in any Third Party as a third-party beneficiary to this Agreement or the services to be provided hereunder. Section 14.14. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF the Parties have executed and delivered this Agreement as of the date first above written. ATTEST: CITY OF P ARIS, PARIS, TEXAS By: Mattie Cunningham, City Clerk Charles H. Neeley, Mayor WITNESS: PANDA PARIS POWER, L.P. By PANDA PARIS I (its general partner) By: Name Name: Title: -13- G:\ATTORNEY\Scott\Current Work\water agr - final.doc13 Schedule 1 Location of Plant Site, Supply Delivery Point The Plant site is reflected on the map attached to this Schedule 1. The Supply Delivery Point will be at the Plant site. Schedule 2 Raw Water Quality Limits Raw Water Quality Limits shall be established by regulatory action from time to time. Schedule 3 Location of Pipeline The Pipeline location is reflected on the map attached to Schedule 1. " Schedule 4 Location of Wastewater Facilities To be agreed upon by the Parties in a subsequent agreement pursuant to Section 4.01. Schedule 5 Base Delivery Amount and Operations Fee; 1997 - 1998 Hypothetical Amount; Miscellaneous BASE DELIVERY AMOUNT (BDA) - Expenses incurred by the City in regard to any fiscal year of the City. The Initial Numbers (herein so called) derived from the Items below will then be adjusted (in order to determine the applicable Base Delivery Amount owed by Panda regarding such fiscal year) as set forth in the "Calculations" section below. 1. Administration Expense: reasonable expenses of City administrative personnel incurred in administering Raw Water services to all of its Raw Water customers (including Raw Water used to create treated water for any such customers) (other than expenses described in Item 4 below). 2. Reserve Requirements - (shortfall): the shortfall, if any, in the pro rata amount (based on the percentage of the applicable debt used to service the Water Supply Facilities) required (by the financial covenants in any existing debt instruments of the City used to directly finance the Water Supply Facilities of the City) to be maintained by the City at the end of each fiscal year of the City. 3. Warehouse: reasonable expenses incurred in the maintenance of the pro rata portion of the warehouse (based on the percentage amount of the warehouse dedicated to spare parts for the Water Supply Facilities) which is used by the City to store spare parts for its Water Supply Facilities. 4. Billing & Collecting (net of transfers): reasonable expenses of administrative personnel directly related to billing and collections for the City's Raw Water service to all of its Raw Water customers (including Raw Water used to create treated water for any such customers). 5. Electricity: reasonable expenses for electricity directly related to the City's delivery of Raw Water to all of its Raw Water customers (including Raw Water used to create treated water for any such customers). 6. 0 & M - Pat Mavse Lake: reasonable operations and maintenance expenses directly incurred by the City in operating its Pat Mayse Lake Raw Water facilities. 7. Water Distribution Capacity 0 & M: reasonable expenses incurred by the City in operating and maintaining water pipelines (other than the Pipeline, which is discussed in Item 12 hereinbelow) used by the Plant and by all of the City's Raw Water customers (including customers who use Raw Water to create treated water). 8. Other 0 & M: other reasonable operations and maintenance expenses, if any, directly related to the City's delivery of Raw Water to all of its Raw Water customers (including Raw Water used to create treated water for any such customers). This includes spare parts used to repair those parts of the Water Supply Facilities of the City not addressed in Item 11 hereinbelow. 9. Corps of Engineers Water Reservation Fee: the expense incurred each fiscal year by the City to reserve water at Pat Mayse Lake with the U. S. Army Corps of Engineers, or to reserve or obtain additional Raw Water as may be applicable to this Agreement pursuant to Section 8.03. 10. Debt Coverage: amortized actual scheduled payments on the pro rata portion of debt (based on the percentage of the applicable debt used to service the Water Supply Facilities) of the City directly related to the Water Supply Facilities. The Parties recognize that this Item covers significant capital expenditures related to the City's Water Supply Facilities used by Panda and other Raw Water customers (including Raw Water used to create treated water for customers) of the City. The Parties also recognize that in the event any debt were to be incurred by the City solely in regard to the Pipeline, the amortized actual scheduled payments thereon in any fiscal year would be covered by Item 12 hereinbelow; provided that any unscheduled lump sum payments on such debt would be treated as under this Item and Item 2 of "Calculations" . 11. Spare Parts: fair market value of spare parts, kept on hand in the warehouse (discussed in Item 3 above), that are actually used to service or repair any part of the Pipeline related to the delivery of Raw Water hereunder. 12. Pipeline: reasonable expenses directly incurred by the City in operating and maintaining the Pipeline (other than as discussed in Item 11 hereinabove). 13. Capital Expenditures Without the Issuance of Debt: Any capital expenditures by the City (other than as financed by debt as contemplated by Item 10 herein above) directly incurred to repair or improve the Water Supply Facilities. When Panda's pro rata share of a capital expenditure exceeds fifty percent (50%) of Panda's annual cost of Raw Water for the previous year ($25,000 for the first year of operations), such pro rata share will be amortized over a period often to twenty years as agreed to by the Parties (as such pro rata share is calculated pursuant to this Item and Item 4 in "Calculations" below). The Parties recognize that, in the event any such capital expenditure were to be incurred by the City in regard to the Pipeline, the capital expenditures would be covered by Item 12 herein, subject to the provisions of the immediately preceding sentence. 14. Gross Receipts Fee: Three percent (3%) of the estimated gross receipts to be received by the City during any fiscal year of the City in regard to Raw Water. 15. Electricity Cost for Pipeline: Reasonable expenses for electricity directly related to the City's delivery of Raw Water in connection with the operation of the Pipeline. OPERATIONS FEE 1. Ten percent (10%) of the BDA (calculated hereby) charged by the City to Panda during any applicable fiscal year of the City. CALCULATIONS 1. In determining the amounts due under Section 7.0 I of the Agreement, during any fiscal year of the City, under Items 1-9 and 14 of "Base Delivery Amount" above, each such amount due shall be Panda's pro rata share (calculated by dividing Panda's actual amount of Raw Water used and derived from the Source during such fiscal year by the sum of all Raw Water and treated water sold by the City and derived from the Source during such fiscal year) of the respective Initial Numbers determined pursuant to Items 1-9 and 14 of "Base Delivery Amount" above in regard to such fiscal year. 2. In determining the amounts due under Section 7.01 of the Agreement, during any fiscal year of the City, under Item 10 of "Base Delivery Amount" above, each such amount due shall be Panda's pro rata share (calculated by dividing Panda's actual amount of Raw Water used and derived from the Source and transported through the applicable portion of the Water Supply Facilities during such fiscal year by all Raw Water and treated water sold by the City and derived from the Source and transported through the applicable portion of the Water Supply Facilities during such fiscal year) of the applicable Initial Number reflecting the actual scheduled payments on such debt during such fiscal year as determined pursuant to Item 10 of "Base Delivery Amount" above. In the event of any unscheduled lump sum payments on such debt are paid by the City, Panda's pro rata portion thereof shall be amortized over a period of time agreed to by the Parties (but in no event less than 10 years). 3. In determining the amounts due under Section 7.01 of the Agreement and Items 11, 12, and 15 of "Base Delivery Amount" above, during any fiscal year of the City, so long as Panda is the sole user of the Pipeline, all of such amounts due shall be allocated to Panda; provided, however, that in the event other customers also utilize the Pipeline, then each such amount due shall be Panda's pro rata share (calculated by dividing Panda's actual amount of Raw Water used and derived from the Source during such fiscal year and transported through the Pipeline by all Raw Water and treated water used and derived from the Source and used by other customers of the City and derived from the Source and transported through the Pipeline) of the respective Initial Numbers determined pursuant to Items II, 12, and 15 of "Base Delivery Amount" above in regard to the applicable fiscal year. 4. In determining the amounts due under Section 7.01 of the Agreement and Item 13 of "Base Delivery Amount" above, during any fiscal year of the City, each such amount due shall be Panda's pro rata share (calculated by dividing Panda's actual amount of Raw Water and treated water used and derived from the Source and transported through the applicable portion of the Water Supply Facilities by the sum of all Raw Water and treated water sold by the City and derived from the Source and transported through the applicable portion of the Water Supply Facilities) of the Initial Number determined pursuant to Item 13 of "Base Delivery Amount" above, and Panda's payment thereof shall be amortized over a period of time agreed to by the Parties (but in no event less than 10 nor more than 20 fiscal years of the City). 1997-1998 HYPOTHETICAL AMOUNT Attached hereto is a schedule prepared by the City which reflects BDA, as it would be calculated in regard to the City's 1997-1998 fiscal year, reflected in Column C thereof (on a per 1,000 gallon of Raw Water basis yielding approximately: $0.15 per 1,000 gallons). MISCELLANEOUS 1. In order to assist the Parties in the calculation of Base Delivery Amount hereunder, the City agrees to allow Panda, no more than once per fiscal year of the City, upon at least seven (7) days written notice to the City, the right to review the City's applicable books and records during reasonable business hours. 2. All defined terms used herein shall have the meaning ascribed thereto in the Agreement to which this Schedule is attached. Schedule 6 Approvals which City is Required to Obtain for Performance of this Agreement (Section 9.01) None.