APPLIANCE EARLY RETIREMENT & RECYCLING AGREEMENT

APPLIANCE EARLY RETIREMENT & RECYCLING AGREEMENT
FOR REFRIGERATORS, FREEZERS, AND ROOM AIR CONDITIONERS


BETWEEN


APPLIANCE RECYCLING CENTERS OF AMERICA, INC.


AND


THE CALIFORNIA PUBLIC UTILITIES COMMISSION


APPLIANCE EARLY RETIREMENT & RECYCLING AGREEMENT
FOR REFRIGERATORS, FREEZERS, AND ROOM AIR CONDITIONERS


TABLE OF CONTENTS


1. DEFINITIONS.............................................................2


2. GENERAL TERMS...........................................................5


3. CONTRACT DOCUMENTS......................................................5


4. SCOPE OF WORK...........................................................5


5. CUSTOMER AND APPLIANCE ELGIBILITY......................................10


6. OWNERSHIP AND CONFIDENTIALITY..........................................12


7. COMMERCIAL TERMS.......................................................14


8. BILLING................................................................16


9. RIGHT TO AUDIT.........................................................17


10. CHANGES................................................................17


11. PERMITS, CODES AND STATUTES............................................17


12. WARRANTY...............................................................18


13. TITLE..................................................................18


14. INSURANCE..............................................................18


15. INDEMNITY..............................................................20


16. TERM AND TERMINATION...................................................21


17. WRITTEN NOTICES........................................................21


18. SUBCONTRACTS...........................................................22


19. NON-WAIVER.............................................................22


20. ASSIGNMENT.............................................................23


21. FORCE MAJEURE..........................................................23


APPLIANCE EARLY RETIREMENT & RECYCLING AGREEMENT
FOR REFRIGERATORS, FREEZERS, AND ROOM AIR CONDITIONERS


TABLE OF CONTENTS


22. GOVERNING LAW..........................................................23


23. SECTION HEADINGS.......................................................23


24. SURVIVAL...............................................................23


25. NONRELIANCE............................................................24


26. COOPERATION............................................................24


27. ENTIRE AGREEMENT.......................................................24


28. NON DISCRIMINATION CLAUSE..............................................24


29. CERTIFICATION CLAUSE...................................................24


30. CHILD SUPPORT COMPLIANCE...............................................24


31. UNION ORGANIZING.......................................................25


32. SETTLEMENT OF DISPUTES.................................................25


33. MEDIA RELATIONS........................................................25


34. TERMINATION-BANKRUPTCY.................................................26


35. TERMINATION IN EVENT OF BREACH.........................................26


36. CONFLICT OF INTEREST...................................................27


37. COUNTERPARTS...........................................................27


THIS AGREEMENT ("Agreement") is made and entered into as of the lst day of June, 2001, by and between THE CALIFORNIA PUBLIC UTILITIES COMMISSION, an agency of the State of California ("CPUC") and APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a Minnesota corporation ("Contractor"). The CPUC and Contractor are also each individually referred to herein as "Party" and collectively as "Parties." The Term of this Agreement shall be from June 1, 2001 through May 31, 2002 and shall not exceed $14,624,856 unless changed by an amendment to this Agreement.


RECITALS


WHEREAS, the Parties wish to enter into an agreement with respect to the early retirement and recycling of older inefficient refrigerators, freezers, and room air conditioners to achieve electric energy savings and peak load demand reductions under the terms set forth below for the period June 2001 through May 2002 (the "Agreement").


WHEREAS, the CPUC desires to ensure the safe, lawful recovery and recycling or lawful disposal, as necessary, of CFCs/HCFCs/HFCS, PCBS, mercury, and used oil ("Hazardous Materials") contained in refrigerators, freezers, and room air conditioners ("Appliances").


WHEREAS, in furtherance thereof, the CPUC desires to contract with Contractor for the turnkey implementation of its Statewide Appliance Early Retirement and Recycling Program for Refrigerators, Freezers, and Room Air Conditioners ("Program").


WHEREAS, Contractor desires to contract with the CPUC for the turnkey implementation of the Program, said implementation to include marketing/advertising, collection and dismantling of Appliances; removal of Hazardous Materials from collected Appliances; handling storage and legal disposal of Hazardous Materials; recycling of metals, CFCs/HCFCs/HFCs, mercury, and oil; proper disposal of PCB articles; providing Incentives to participating eligible jurisdictional electric Customers who relinquish working Appliances; conducting a customer survey; and providing reports and data to assist the CPUC in tracking program expenditures and evaluating the Program.


WHEREAS, Contractor represents (i) that it has knowledge of the federal Clean Air Act, the Resource Conservation and Recovery Act, and Toxic Substances Control Act as well as the California Health and Safety Act (Article 10.1, commencing with Section 25211 of Chapter 6.5 of Division 20), the California Public Resources Code (Chapter 3.5, commencing with Section 42160 of Part 3 of


1


Division 30), and all other applicable federal, state, and local regulations regarding the proper processing and recycling of Appliances and Hazardous Materials contained within the Appliances, (ii) that it has knowledge of the hazards associated with the removal, handling, storage, recycling, and legal disposal of Hazardous Materials, (iii) that it has experience and expertise in such removal, handling, storage, recycling, and legal disposal, (iv) that it uses only qualified personnel, (including subcontractor's and agent's personnel) who have been instructed and certified in the proper safety procedures to be used in such removal, handling, storage, recycling, or legal disposal, and (v) that it has established and will continue to operate and maintain its recycling center in the City of Compton or other areas acceptable to Contractor and the CPUC.


WHEREAS, the Parties hereto desire to set forth terms and conditions under which the aforesaid turnkey implementation services shall be performed and which shall constitute the Parties' agreement.


NOW THEREFORE, in consideration of the foregoing Recitals, the mutual covenants contained herein, the payments and agreement to be made and performed by the CPUC as set forth in the pricing schedule attached hereto as EXHIBIT A and incorporated by reference herein, the Parties agree as follows:


1. DEFINITIONS


1.1 Agreement: This document, the terms and conditions contained
in this Agreement as amended from time to time.


1.2 Amendment: supplemental terms and conditions for performing
the Work as mutually agreed to and signed by Contractor and
the Commission's Project Manager.


1.3 CFCs/HCFCs/HFCs: Chlorofluorocarbons,
hydrochlorofluorocarbons, and hydrofluorocarbons used as
refrigerant gases in refrigerators, freezers, and room air
conditioners.


1.4 CFC-11: Chlorofluorocarbons used as the blowing agent in the
polyurethane foam insulation used in refrigerators and
freezers.


1.5 Change Order: Document issued by the CPUC to Contractor to
change a Purchase Order otherwise known as an Amendment.


2


1.6 Contract Period: June 1, 2001 to May 31, 2002, or as extended
by mutual agreement of the Parties and approved by the
Commission's Executive Director or designee.


1.7 Disposition Code: Code assigned to each customer order that
identifies whether a working Appliance was collected, or
disabled with the customer's permission, if the order was
cancelled by the customer and other similar details regarding
each order.


1.8 Documentation: Specifications, procedures, instructions,
reports, test results, analyses, calculations, manuals, and
other data specified in the Purchase Order, Change Order, this
Agreement, and any amendment to this Agreement, as required by
any legal entity having jurisdiction over the Work.


1.9 Eligible Appliances: Refrigerators, Freezers, and Room Air
Conditioners that meet the Program appliance eligibility
criteria as set forth in Section 5.


1.10 Eligible Customers: Jurisdictional residential electric
service customers who meet the customer eligibility criteria
in Section 5.


1.11 Freezer: a free-standing freezer utilized by customer
concurrently with primary refrigerator.


1.12 Hazardous Materials: Any substance or material which has been
designated as hazardous or toxic by the U.S. Environmental
Protection Agency, the California Department of Toxic
Substances Control and/or any other governmental agency now or
hereinafter authorized to regulate materials in the
environment, including, but not limited to "Materials which
require special handling" as defined in California Public
Resources Code Section 42167, which is contained in or is
derived from the Refrigerators, Freezers, or Room Air
Conditioners.


1.13 Program: The Appliance Early Retirement and Recycling Program
for Refrigerators, Freezers, and Room Air Conditioners as
defined by this Agreement.


1.14 Program Participants: Eligible customers who turn in
qualifying Refrigerators, Freezers, or Room Air Conditioners.


1.15 PCBS: Polychlorinated Biphenyls.


3


1.16 Purchase Order: Amendment document issued by the CPUC to
Contractor and executed by the Parties, which contains
additional terms and conditions for the Work described herein
and approved by the Commission's Executive Director or
designee.


1.17 Recycling Center: The site at which Contractor will process
Appliances, remove CFCs/HCFCs/HFCs, PCBS, mercury, used oils
and other Hazardous Materials, and recycle or legally dispose
of Hazardous materials.


1.18 Basic Recycling Charge: Per-unit price for services performed
by Contractor under scope of work, excluding
marketing/advertising, CFC-11 recovery services, customer
Incentives, and financing services.


1.19 Primary refrigerator: refrigerator currently in use by
customer as the main refrigeration appliance.


1.20 Secondary refrigerator: Surplus refrigerator utilized by
customer concurrently with primary refrigerator.


1.21 Room air conditioner: a window/wall air conditioner utilized
by customer to provide space cooling in a room.


1.22 Subcontractor: Either an entity contracting directly with
Contractor to furnish services or materials as part of or
directly related to, the Work; or an entity contracting with
Subcontractor of any tier to furnish services or materials as
a part of, or directly related to, the Work.


1.23 Work: Any and all obligations of Contractor to be performed
pursuant to this Agreement or a subsequent Purchase Order or
Change Order incorporating this Agreement, such as Appliance
marketing/advertising, customer services, Appliance
collection, Appliance processing, handling, storing,
recycling, and legal disposal, of Hazardous Materials and
Documentation preparation.


1.24 Remote Area: a city or town that, because of its population
and distance from the Contractor's base of operations,
justifies the use of an extended timeframe (up to 25 business
days from the initial customer contact) to complete collection
when mutually agreed to by the parties.


4


2. GENERAL TERMS


2.1 Contractor shall perform the Work and its associated
obligations described below as an independent contractor.


2.2 This Agreement shall be supplemented by an Amendment
containing additional terms and conditions for performing the
work described below.


3. CONTRACT DOCUMENTS


3.1 This Agreement shall consist of the following documents: this
Agreement, any amendments to this Agreement and Change Orders.
In the event of any conflict or apparent conflict between any
of the provisions of the documents comprising this Agreement,
the following order of construction of the documents shall
apply:


3.1.1 Amendments to the Agreement in chronological order
from the most recent to the earliest;


3.1.2 Change Orders incorporating and reflecting any
Amendments to the Agreement in chronological order
from the most recent to the earliest; and


3.1.3 This Agreement.


3.2 Each Party shall notify the other immediately upon the
identification of any such conflict or inconsistency.


4. SCOPE OF WORK


4.1 Contractor shall be responsible for developing and placing
advertising and marketing to inform all eligible residential
customers of the Program. Advertising may include: television
ads, radio ads, newspaper ads, bill inserts, brochures,
postcards, and point-of-sale materials that are prepared in
both Spanish and English. Advertising and marketing materials
shall be approved by the CPUC Project Manager prior to their
use.


5


Contractor shall be responsible for customer service
activities, including providing inbound 800 telephone numbers
for Customers, a webpage which allows Customer access for
inquiries and/or qualification and signup 24 hours a day,
seven days a week, (see Section 4.9), all communication
services, verification of customer and appliance eligibility,
scheduling collection appointments, documentation of customer
data, and other activities.


Contractor shall be responsible, to the complete satisfaction
of the CPUC, for the management of customer complaints and the
Contractor shall undertake activities to resolve customer
complaints in an expedited manner including: ensuring adequate
levels of professional customer service staff, direct access
of customer complaints to supervisory and/or management
personnel and ensuring sufficient levels of delivery personnel
expected during times of high volumes. Contractor shall
provide on a monthly basis, information on the number,
characterization and resolution of customer complaints.


Contractor shall also develop advertising and marketing
suitable for use in encouraging Program by participating low-
and moderate-income customers, as defined as federal poverty
guidelines, which may include providing Program information to
local organizations providing other energy or economic
assistance services to the low- and moderate-income customers,
direct mail to targeted zip codes in the Program service areas
or other appropriate methods.


The CPUC agrees to provide assistance to the Program's
marketing/advertising efforts by promoting Appliance Early
Retirement & Recycling through press releases, Program-related
events, Flex Your Power Campaign activities, and formal
linkages to other Appliance energy efficiency/conservation
programs under the jurisdiction of the CPUC.


4.2 Contractor shall


(i) collect all Eligible Appliances from Customers' residences
within 20 business days from the date of initial customer
contact (unless otherwise requested by the Customer). In
Remote Areas, or as approved by the CPUC's Project Manager,
collection shall be no later than 25 business days from the
date of the initial customer contact, unless otherwise
requested by Customer. In the event of unanticipated high
demand (beyond the projected monthly participation estimates)
for Program services, Contractor and the CPUC Project Manager
shall, by mutual agreement, establish other appropriate time
limitations as necessary. For purposes of this section, the
Remote Areas shall be specified by Amendment to the Agreement
to include individual cities and towns the


6


Program services areas. EXHIBIT B shall be used to identify
these agreed upon cities and towns (including zip codes) that
the Parties agree are appropriate for inclusion in the Remote
Area list.


(ii) ensure that the Eligible Appliance is an operating unit
before removing it from a residence;


(iii) disable the unit prior to leaving pick-up location;


(iv) transport the Appliance to the Recycling Center.


4.3 Contractor shall be solely responsible for all methods,
techniques, sequences, and procedures for the dismantling of
Eligible Appliances, processing of metal panels and
components, recycling of recovered scrap metal, removal,
recycling, or lawful disposal of Hazardous Materials.


4.4 Contractor shall be solely responsible for all methods,
techniques, sequences, and procedures for the removal and
management of all Hazardous Materials found in Eligible
Appliances, and the removal and recycling or disposal
Hazardous Materials from the time Contractor collects Eligible
Appliances pursuant to this Agreement.


4.5 Contractor shall document and maintain records for services
under this Agreement, or Amendment incorporating this
Agreement, as follows:


4.5.1 A Customer Comment Tracking System for recording
customer inquiries, complaints, and positive
feedback.


4.5.2 Appliance Turn-in Order Form to collect data such as
customer name, address, home and work phone numbers;
utility distribution company name; Appliance
manufacturer's name; Appliance model and style;
defrost type; color, size (cubic footage for
refrigerators and freezers or BTUs for room air
conditioners), and estimated age of unit; location of
Appliance within the residence; amperage, final
disposition code (which indicates operating condition
of Appliance and/or Incentive received)
identification of units containing CFC-11; special
pick-up instructions (if applicable) and signature of
customer in the event Appliance is discovered not to
be an Eligible Appliance as certified, customer
acknowledges liability to the CPUC for program costs
associated with the services received.


7


4.5.3 Compilation of data in subsection 4.5.2 in electronic
mode, employing a software program suitable for
exchange of information with the CPUC, subject to the
approval of CPUC's Project Manager.


4.6 Contractor shall conduct a customer survey, comparable to
EXHIBIT C, which is attached and incorporated by reference
herein, using a stratified purposeful sample of 5% to 20% of
the Program Participants. The stratification and frequency of
the survey may be modified periodically the CPUC, provided
that an Amendment to this Agreement or a separate agreement
shall be entered into if any such modification necessitates
unreasonable labor, as substantiated by Contractor, requiring
the negotiation of a charge separate from the Recycling
Charge. The purpose of the survey shall be to elicit
information such as appliance use, customer demographics and
customer satisfaction. Survey questions and response
selections may be modified periodically as determined by the
CPUC provided modified survey is reasonably comparable to
EXHIBIT C.


4.7 Contractor and the CPUC shall establish and implement a
financial incentive service as follows:


4.7.1 Each Program Participant will be entitled to receive
a check in the amount of fifty Dollars ($50.00) for
each refrigerator or freezer and twenty-five Dollars
($25.00) for each room air conditioner.


4.7.2 Customer Incentive checks shall be processed and
mailed via the U.S. Postal System within 20 business
days of the date the Eligible Appliance was picked
up.


4.7.3 Contractor shall provide the CPUC with a weekly
listing of Customers qualifying for an Incentive.
Customers qualifying for an Incentive are Program
Participants who turn in an Eligible Appliance for
which the Program will pay a per-unit price as set
forth in Section 4.7.1.


4.7.4 Upon the CPUC's reimbursement of Contractor for the
Incentives described in Section 7.4 of this
Agreement, the CPUC shall be under no further
obligation with respect to reimbursement of such
amounts and such reimbursement shall constitute full
payment to Contractor on behalf of the Program
Participants entitled to Incentives. Moreover, upon
the CPUC's payment to Contractor of such
reimbursement, Contractor shall be deemed the holder
of such property as far as the interests of the


8


Program Participants entitled thereto are concerned
for any and all purposes, including, but not limited
to, complying with the unclaimed property laws of
California and any and all other applicable states.
The CPUC shall not assume any responsibility for
other disposition of the reimbursement payments after
such reimbursement is paid to Contractor and shall
not be entitled to the reversion of any amounts so
paid.


4.7.5 On a weekly basis, in arrears, Contractor shall
prepare an invoice for the CPUC to substantiate the
charges due for Contractor's payment of Customer
Incentives. The Invoice shall include an ATO report
showing the payment of Incentives during the billing
period. All invoices will be paid pursuant to Section
8.5.


4.8 Contractor shall provide the CPUC with reports for th ...