FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19621
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
MINNESOTA
(State or other jurisdiction of 41-1454591
incorporation or organization) (I.R.S. Employer
7400 Excelsior Blvd. Identification No.)
Minneapolis, Minnesota 55426-4517
(Address of principal executive
offices)
(612) 930-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES _X_ NO ___
As of May 14, 1999, the number of shares outstanding of the registrant's no par
value Common Stock was 2,266,744 shares.
<PAGE>
APPLIANCE RECYCLING CENTERS of AMERICA, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets as of
April 3, 1999 and January 2, 1999
Consolidated Statements of Operations for the
Three Months Ended April 3, 1999 and April 4, 1998
Consolidated Statements of Cash Flows for the
Three Months Ended April 3, 1999 and April 4, 1998
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosure about Market Risk
[Not Applicable]
PART II. OTHER INFORMATION
<PAGE>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 98,000 $ 14,000
Accounts receivable, net of allowance of $19,000
and $18,000, respectively 607,000 498,000
Inventories, net of reserves of $65,000 and $40,000, respectively 1,501,000 1,979,000
Other current assets 102,000 100,000
- ------------------------------------------------------------------------------------------------------------
Total current assets $ 2,308,000 $ 2,591,000
- ------------------------------------------------------------------------------------------------------------
Property and Equipment, at cost
Land $ 2,103,000 $ 2,103,000
Buildings and improvements 3,958,000 3,957,000
Equipment 3,439,000 3,597,000
- ------------------------------------------------------------------------------------------------------------
$ 9,500,000 $ 9,657,000
Less accumulated depreciation 3,804,000 3,876,000
- ------------------------------------------------------------------------------------------------------------
Net property and equipment $ 5,696,000 $ 5,781,000
- ------------------------------------------------------------------------------------------------------------
Other Assets $ 302,000 $ 319,000
Goodwill, net of amortization of $47,000 and $38,000, respectively 143,000 152,000
- ------------------------------------------------------------------------------------------------------------
Total assets $ 8,449,000 $ 8,843,000
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit $ 946,000 $ 1,081,000
Current maturities of long-term obligations 78,000 79,000
Accounts payable 935,000 1,202,000
Accrued expenses (Note 2) 643,000 700,000
- ------------------------------------------------------------------------------------------------------------
Total current liabilities $ 2,602,000 $ 3,062,000
Long-Term Obligations, less current maturities 4,947,000 4,965,000
- ------------------------------------------------------------------------------------------------------------
Total liabilities $ 7,549,000 $ 8,027,000
- ------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock, no par value; authorized 10,000,000
shares; issued and outstanding 2,267,000 and
1,237,000 shares, respectively (Note 3) $ 11,339,000 $ 10,857,000
Accumulated deficit (10,439,000) (10,041,000)
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 900,000 $ 816,000
- ------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,449,000 $ 8,843,000
============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
-----------------------------
April 3, April 4,
1999 1998
- -------------------------------------------------------------------------------
Revenues
Retail $ 1,893,000 $ 1,512,000
Recycling 925,000 1,123,000
- -------------------------------------------------------------------------------
Total revenues $ 2,818,000 $ 2,635,000
Cost of Revenues 1,898,000 1,995,000
- -------------------------------------------------------------------------------
Gross profit $ 920,000 $ 640,000
Selling, General and Administrative Expenses 1,186,000 1,463,000
- -------------------------------------------------------------------------------
Operating loss $ (266,000) $ (823,000)
Other Income (Expense)
Other income 65,000 233,000
Interest expense (197,000) (102,000)
- -------------------------------------------------------------------------------
Loss before provision for income taxes $ (398,000) $ (692,000)
Provision for (Benefit of) Income Taxes -- --
- -------------------------------------------------------------------------------
Net loss $ (398,000) $ (692,000)
===============================================================================
Basic and Diluted Loss per Common Share $ (0.23) $ (0.61)
===============================================================================
Weighted Average Number of Common Shares 1,769,000 1,137,000
===============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
April 3, April 4,
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $(398,000) $(692,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 104,000 220,000
Accretion of long-term debt discount 8,000 --
Gain on sale of equipment (50,000) (204,000)
Change in current assets and liabilities:
(Increase) decrease in:
Accounts receivable (109,000) 136,000
Inventories 478,000 (205,000)
Other current assets (2,000) (15,000)
Increase (decrease) in:
Accounts payable (267,000) 252,000
Accrued expenses (57,000) 29,000
- ------------------------------------------------------------------------------------------------------------
Net cash used in operating activities $(293,000) $(479,000)
- ------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of property and equipment $ (1,000) $(221,000)
Proceeds from disposal of property and equipment 58,000 209,000
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Net cash used provided by (used in) investing activities $ 57,000 $ (12,000)
- ------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in line of credit $(135,000) $ 413,000
Proceeds from long-term debt obligations -- 250,000
Net proceeds from issuance of Common Stock and warrants 482,000 --
Payments on long-term obligations (27,000) (58,000)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 320,000 $ 605,000
- ------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents $ 84,000 $ 114,000
Cash and Cash Equivalents
Beginning 14,000 13,000
- ------------------------------------------------------------------------------------------------------------
Ending $ 98,000 $ 127,000
============================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 164,000 $ 83,000
============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Appliance Recycling Centers of America, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. Financial Statements - In the opinion of the management of the Company,
the accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal, recurring accruals) necessary to
present fairly the financial position of the Company and its subsidiaries
as of April 3, 1999 and the results of operations and its cash flows for
the three-month periods ended April 3, 1999 and April 4, 1998. The results
of operations for any interim period are not necessarily indicative of the
results for the year. These interim consolidated financial statements
should be read in conjunction with the Company's annual financial
statements and related notes in the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1999.
Certain information and footnote disclosures included in the consolidated
financial statements in accordance with generally accepted accounting
principles have been condensed or omitted.
2. Accrued Expenses
Accrued expenses were as follows:
April 3, January 2,
1999 1999
--------- ---------
Compensation $ 155,000 $ 139,000
Warranty 171,000 157,000
Lease contingencies
and closing costs 64,000 124,000
Other 253,000 280,000
--------- ---------
$ 643,000 $ 700,000
========= =========
3. Sale of Common Stock - In February 1999, the Company sold in a private
placement 1,030,000 shares of Common Stock at a price of $0.50 per share.
The Company paid $31,500 of the proceeds and issued warrants to purchase
83,000 shares of Common Stock at $0.50 per share, subject to adjustment,
to an investment banker as a placement fee. The remaining proceeds were
used to repay certain indebtedness, to purchase inventory and for other
general corporate purposes. The warrants are valued at $27,800 using the
Black-Scholes option-pricing method and are recorded in equity.
4. Revenue Recognition - In prior reports, the Company had separately
reported byproduct revenues which now is included in recycling revenues.
<PAGE>
PART I: ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the Company's level
of operation and financial condition. This discussion should be read with the
consolidated financial statements appearing in Item 1.
RESULTS OF OPERATIONS
The Company generates revenues from two sources: retail and recycling.
Retail revenues are sales of appliances, warranty and service revenue and
delivery fees. Recycling revenues are fees charged for the disposal of
appliances and sales of scrap metal and reclaimed chlorofluorocarbons
("CFC's") generated from processed appliances. In prior reports, the
Company had separately reported byproduct revenues, which now is included
in recycling revenues.
Total revenues for the three months ended April 3, 1999 were $2,818,000
compared to $2,635,000 for the three months ended April 4, 1998, an
increase of 7%, mainly as a result of an increase in retail revenues.
Retail revenues for the three months ended April 3, 1999 were $1,893,000,
compared to $1,512,000 for the three months ended April 4, 1998, an
increase of 25%. Same-store retail sales increased 97% (a sales comparison
of seven stores that were open the entire first three months of both 1999
and 1998). The increase in retail sales was primarily due to increased
sales of Whirlpool products offset by a decrease in reconditioned
products. Currently, the Company has eight retail locations. The Company
plans to close three to four of its smaller stores and consolidate the
sales into its existing stores. The Company does not plan to expand its
retail business into new geographic markets at this time. The Company
experiences seasonal fluctuations and expects retail sales to be higher in
the second and third calendar quarters than in the first and fourth
calendar quarters, reflecting consumer purchasing cycles.
Recycling revenues decreased to $925,000 in the three months ended April
3, 1999 from $1,123,000 in the same period of 1998, a decrease of 18%. The
decrease in recycling revenues was primarily due to the decrease of
$181,000 in the sales of scrap metal and a slight decrease in refrigerator
recycling volumes related to the contract with Southern California Edison
Company ("Edison"). The decrease in the sales of scrap metal was primarily
due to a decrease in scrap metal prices. The recycling volumes from the
Edison contract decreased slightly in the first quarter of 1999 compared
to the previous year due to the absence of a contract in the first quarter
of 1999. In April 1999, the Company signed a contract with Edison to
continue its refrigerator recycling program through December 30, 1999.
Unlike the previous contracts, the contract for 1999 does not provide for
a minimum number of refrigerators to be recycled. The contract is expected
to generate higher recycling volumes in 1999 compared to 1998. Advertising
by Edison under the new contract did not begin until April 1999 compared
to late March 1998 for the previous year. The timing and amount of
revenues will be dependent on advertising by Edison.
<PAGE>
RESULTS OF OPERATIONS - Continued
Gross profit as a percentage of total revenues increased to 32.6% for the
three months ended April 3, 1999 from 24.3% for the three months ended
April 4, 1998. The increase was primarily due to discontinuing
unprofitable programs.
Gross profit as a percentage of total revenues for future periods can be
affected favorably or unfavorably by numerous factors, including the
volume of appliances recycled from the Edison contract, the mix of retail
product sold during the period and the price and volume of byproduct
revenues. The Company believes that gross profit as a percentage of total
revenues will improve in the second quarter due to anticipated higher
recycling revenues from the Edison contract without a corresponding
increase in expenses.
Selling, general and administrative expenses for the three months ended
April 3, 1999 decreased by $277,000 or 18.9% from the same period in 1998.
Selling expenses for the three months ended April 3, 1999 decreased by
$2,000 or .5% from the same period in 1998. General and administrative
expenses for the three months ended April 3, 1999 decreased by $275,000 or
26.6% from the same period in 1998. The decrease in general and
administrative expense was primarily due to a decrease in personnel costs
as a result of an aggressive overhead reduction program.
Interest expense was $197,000 for the three months ended April 3, 1999
compared to $102,000 for the same period in 1998. The increase was due to
a higher average borrowed amount in the three months ended April 3, 1999
than in the same period in 1998.
The Company recorded no benefit for income taxes for the three months
ended April 3, 1999 due to the uncertainty of realization of the net
operating loss carryforwards. The net operating loss carryforwards total
approximately $8,512,000 and expire in the years 2011 through 2013. At
April 3, 1999, the Company had a valuation allowance recorded against its
net deferred tax assets of approximately $4,349,000, due to uncertainty of
realization. The realization of deferred tax assets is dependent upon
sufficient future taxable income during the periods when deductible
temporary differences and carryforwards are expected to become available
to reduce taxable income.
The Company recorded a net loss of $398,000 for the three months ended
April 3, 1999 compared to a net loss of $692,000 in the same period of
1998. The decrease in the loss was primarily due to higher retail sales
and lower selling, general and administrative expenses offset by lower
recycling revenues and higher interest expense.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At April 3, 1999, the Company had a working capital deficit of $294,000
compared to a working capital deficit of $471,000 at January 2, 1999. Cash
and cash equivalents increased to $98,000 at April 3, 1999 from $14,000 at
January 2, 1999. Net cash used in operating activities was $293,000 for
the three months ended April 3, 1999 compared to $479,000 in the same
period of 1998. The decrease in cash used in operating activities was
primarily due to a decrease in the net loss and inventory offset by an
increase in accounts receivable and a decrease in accounts payable.
The Company's capital expenditures for the three months ended April 3,
1999 and April 4, 1998 were approximately $1,000 and $221,000,
respectively. The 1999 and 1998 capital expenditures were primarily
related to building improvements.
As of April 3, 1999, the Company had a $2.0 million line of credit with a
lender. The interest rate on the line as of April 3, 1999 was 12.75%. The
amount of borrowings available under the line of credit is based on a
formula using receivables and inventories. The line of credit has a stated
maturity date of August 30, 1999, and provides that the lender may demand
payment in full of the entire outstanding balance of the loan at any time.
The line of credit is secured by substantially all the Company's assets,
is guaranteed by the President of the Company and requires minimum monthly
interest payments of $5,625 regardless of the outstanding principal
balance. The Lender also has an inventory repurchase agreement with
Whirlpool Corporation that secures the line of credit. The line requires
that the Company meet certain financial covenants, provides payment
penalties for noncompliance, limits the amount of other debt the Company
can incur, limits the amount of spending on fixed assets and limits
payments of dividends. At April 3, 1999, the Company was in compliance
with such covenants and had unused borrowing capacity of $89,000.
In February 1999, the Company sold in a private placement 1,030,000 shares
of Common Stock at a price of $0.50 per share. The Company paid $31,500 of
the proceeds and issued warrants to purchase 83,000 shares of Common Stock
at $0.50 per share, subject to adjustment, to an investment banker as a
placement fee. The remaining proceeds were used to repay certain
indebtedness, to purchase inventory and for other general corporate
purposes. The warrants are valued at $27,800 using the Black-Scholes
option-pricing method and are recorded in equity.
In April 1999, the Company signed a contract with Edison to continue its
refrigerator recycling program through December 30, 1999. Unlike the
previous contracts, the contract for 1999 does not provide for a minimum
number of refrigerators to be recycled. The contract is expected to
generate higher recycling volumes in 1999 compared to 1998. The timing and
amount of revenues will be dependent on advertising by Edison.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - continued
The Company believes, based on the anticipated revenues from the Edison
contract, anticipated sales per retail store and its anticipated increased
gross profit, that its cash balance, anticipated funds generated from
operations and its current line of credit if renewed in August 1999, will
be sufficient to finance its operations and capital expenditures through
December 1999. The Company's total capital requirements will depend, among
other things as discussed below, the recycling volumes generated from the
Edison program in 1999 and the number and size of retail stores operating
during the fiscal year. Currently, the Company has three centers and eight
stores in operation. If revenues are lower than anticipated or expenses
are higher than anticipated or the line of credit cannot be maintained,
the Company may require additional capital to finance operations. Sources
of additional financing, if needed in the future, may include further debt
financing or the sale of equity (common or preferred stock) or other
securities. There can be no assurance that such additional sources of
financing will be available or available on terms satisfactory to the
Company or permitted by the Company's current lender.
YEAR 2000
Based on a recent assessment of the Year 2000 issue, the Company
determined that it will be required to modify or replace significant
portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company believes that with the
planned modifications to existing software and conversions to new
software, the Year 2000 issue will not have a material adverse impact on
the Company's operations. However, if such modifications and conversions
are not made, or are not completed in a timely manner, the Year 2000 issue
could have a material impact on the operations of the Company. The Company
has determined it has no exposure to contingencies related to the Year
2000 issue for products it has sold.
The Company will utilize both internal and external resources to replace
and test the software for Year 2000 modifications. The Company plans to
complete its Year 2000 project no later than September 30, 1999. The costs
of the project are expected to be funded through operating cash flows. A
portion of the costs will be used to purchase new software, which will be
capitalized. The remaining portion of the costs will be expensed as
incurred over the course of the project. The overall cost of the project
is expected to be approximately $260,000. To date, the Company has
incurred and expensed approximately $36,000 related to the assessment of,
and preliminary efforts in connection with, its Year 2000 project and
development of a remediation plan. The Company's cost and estimates to
complete the Year 2000 project include the cost of modifications to
existing software, the acquisition of new software and the estimated costs
and time associated with assessing the impact on the Company of third
parties' Year 2000 issue. All such estimates are based on presently
available information.
<PAGE>
YEAR 2000 - continued
The Company has initiated communications with all of its significant
suppliers and large customers to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their own Year
2000 issue. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have material adverse
effect on the Company.
At this time, the Company believes that its most likely worst case
scenario is that the Company could experience delays in receipt of
inventory and/or key customers could experience a delay in accounts
receivable payments to the Company. In the event that either of these
scenarios occur, management believes that it would not have a long-term
material adverse effect on the Company's financial condition and results
of operations.
The Company does intend to prepare contingency plans so that the Company's
critical business processes can be expected to continue to function on
January 1, 2000 and beyond. These plans are intended to mitigate both
internal risks as well as potential risks in the supply chain of the
Company's suppliers and customers, and will likely include identifying and
securing alternative supplies of inventory and sources of financing. The
Company intends to begin working on a contingency plan in the second
quarter of 1999 and to have it substantially finalized by September 1999.
The costs of the project and the date by which the Company plans to
complete the Year 2000 modifications and contingency plans are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of
certain resources, third party modification plans and other factors.
However, there can be no assurances that these estimates will be achieved
and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements regarding the Company's future operations, performance and
results, and anticipated liquidity discussed herein are forward-looking
and therefore are subject to certain risks and uncertainties, including
those discussed herein. In addition, any forward-looking information
regarding the operations of the Company will be affected by the ability of
Edison to deliver units under its contract with the Company, the timing of
such delivery and the timing of advertising by Edison for the program.
Additionally, forward-looking information will also be affected by the
ability of individual stores to meet planned revenue levels, the speed at
which individual retail stores reach profitability, costs and expenses
being realized at higher than expected levels, the continued ability to
purchase product from Whirlpool at acceptable prices, the Company's
ability to secure an adequate supply of used appliances for resale and the
continued availability of the Company's current line of credit.
<PAGE>
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1 - LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various legal
proceedings arising in the normal course of business, none of which
is expected to result in any material loss to the Company or any of
its subsidiars.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 16, 1999, the Company sold in a private placement to
accredited investors 1,030,000 shares of Common Stock at a price of
$0.50 per share. The sale was exempt from registration under Section
4(2) of the Securities Act. The sale represented approximately 45%
of Common Stock outstanding after such sale. The Company paid
$31,500 of the proceeds and issued warrants to purchase 83,000
shares of Common Stock at $0.50 per share, subject to adjustment, to
Aethlon Capital LLC as a placement fee. The warrants expire February
16, 2004. The remaining proceeds were used to repay certain
indebtedness, to purchase inventory and for other general corporate
purposes. This issuance of stock also triggered the resetting of the
exercise price of 700 warrants to purchase stock held by Medallion
Capital, Inc. (one of the Company's lenders) from $2.50 per share to
$0.60 per share.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 29, 1999, the Company held its Annual Meeting of
Shareholders. At the meeting, Edward R. Cameron, Duane S. Carlson,
Harry W. Spell, Marvin Goldstein and George B. Bonniwell were
elected as directors for 1999. The shareholders also approved
Amendments to the Restated 1997 Stock Option Plan to authorize an
additional 100,000 shares of Common Stock and ratified the
appointment of McGladrey & Pullen, LLP as independent auditors for
the fiscal year ending January 1, 2000.
ITEM 5 - OTHER INFORMATION - None
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 10.17 - Agreement dated March 19, 1999 between Southern
California Edison Company and Appliance Recycling Centers of
America, Inc.
Exhibit No. 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended April 3, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Appliance Recycling Centers of America, Inc.
--------------------------------------------
Registrant
Date: May 14, 1999 /s/ Edward R. Cameron
--------------------------------------------
Edward R. Cameron
President
Date: May 14, 1999 /s/ Kent S. McCoy
--------------------------------------------
Kent S. McCoy
Chief Financial Officer
Exhibit No. 10.17
1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
BETWEEN
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
AND
SOUTHERN CALIFORNIA EDISON COMPANY
THIS PROGRAM IS FUNDED BY CALIFORNIA UTILITY CUSTOMERS AND ADMINISTERED BY
SOUTHERN CALIFORNIA EDISON COMPANY UNDER THE AUSPICES OF THE CALIFORNIA PUBLIC
UTILITIES COMMISSION.
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
TABLE OF CONTENTS
Page
1 GENERAL TERMS..........................................................2
2 GENERAL TERMS..........................................................2
3 DEFINITIONS............................................................2
4 CONTRACT DOCUMENTS.....................................................4
5 SCOPE OF WORK..........................................................5
6 CUSTOMER AND REFRIGERATOR ELGIBILITY...................................9
7 OWNERSHIP AND CONFIDENTIALITY.........................................10
8 COMMERCIAL TERMS......................................................12
9 BILLING...............................................................14
10 RIGHT TO AUDIT........................................................16
11 CHANGES...............................................................16
12 PERMITS, CODES AND STATUTES...........................................16
13 WARRANTY..............................................................17
14 TITLE.................................................................18
15 INSURANCE.............................................................18
16 INDEMNITY.............................................................20
17 TERM AND TERMINATION..................................................21
18 WRITTEN NOTICES.......................................................22
19 SUBCONTRACTS..........................................................22
20 CALIFORNIA PUBLIC UTILITIES COMMISSION................................23
21 NON-WAIVER............................................................23
22 ASSIGNMENT............................................................23
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
TABLE OF CONTENTS
Page
23 FORCE MAJEURE.........................................................23
24 GOVERNING LAW.........................................................24
25 SECTION HEADINGS......................................................24
26 SURVIVAL..............................................................24
27 NONRELIANCE...........................................................24
28 ATTORNEYS'FEES........................................................24
29 COOPERATION...........................................................24
30 ENTIRE AGREEMENT......................................................25
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the 19th
day of March 1999, by and between SOUTHERN CALIFORNIA EDISON COMPANY, a
California corporation ("SCE") and APPLIANCE RECYCLING CENTERS OF AMERICA,
INC., a Minnesota corporation ('Contractor"). SCE and Contractor are also
each individually referred to herein as "Party" and collectively as
"Parties."
RECITALS
WHEREAS, the Parties have previously entered into agreements with
respect to the recycling of older inefficient refrigerators and freezers
and the disposal of hazardous materials.
WHEREAS the Parties desire to continue to implement a Refrigerator
Recycling Program ("the 1999 Refrigerator Recycling Program") for the
removal of older, inefficient refrigerators and freezers ("Refrigerators
and Freezers") from SCE Customer residences thereby reducing the load
demand on the electrical system under the terms set forth below.
WHEREAS, SCE desires to continue and increase its efforts to reduce
the load demand on the electrical system through the further removal of
older inefficient primary and second Refrigerators and Freezers,
WHEREAS, SCE desires to ensure the safe, lawful recovery and
recycling or lawful disposal, as necessary, of CFCs, PCBS, and Hazardous
Materials.
WHEREAS, in furtherance thereof, SCE desires to contract with
Contractor for the continued comprehensive management of the 1999
Refrigerator Recycling Program.
WHEREAS, Contractor desires to contract with SCE for the continued
comprehensive management of the 1999 Refrigerator Recycling Program, said
management to include collection and dismantling of primary and second
Refrigerators and Freezers; removal of CFCs, PCBS and other Hazardous
Materials from collected Refrigerators and Freezers; handling storage and
legal disposal of compressor oil, PCBs and other Hazardous Materials;
recycling of metal, sulfur dioxide, and CFCs; providing incentives to
participating SCE Customers who relinquish Refrigerators and Freezers; and
performance of a customer survey.
- 1 -
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
WHEREAS, Contractor represents (i) that it has knowledge of the Metallic
Discard Act, effective January 1, 1994, which prohibits the disposal of
Refrigerators and Freezers in landfills and requires that Refrigerators
and Freezers be shredded for metal recovery following removal of CFCS,
PCBS, and other Hazardous Materials contained in discarded Refrigerators
and Freezers, (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 purchased property and has established and will continue
to operate and maintain its recycling center on said purchased property in
the City of Compton or other area acceptable to Contractor and SCE.
WHEREAS, the Parties hereto desire to set forth tenrns and
conditions under which the aforesaid management 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 SCE as set forth in the pricing schedule attached hereto
as Exhibit A and incorporated by reference herein, the Parties agree as
follows:
1. Contractor shall perform the work and its associated obligations described
below as an independent contractor.
2. This Agreement shall be supplemented by a Purchase Order containing
additional terms and conditions for performing the work described below.
3. DEFINITIONS
3.1 Agreement: This document, the terms and conditions contained in this
Agreement as amended from time to time.
3.2 CFCs: Chlorofluorocarbons
3.3 CFC-11: Chlorofluorocarbons contained in refrigerator and freezer
insulating foam.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
3.4 Change Order: Document issued by SCE to Contractor to change a
Purchase Order.
3.5 Contract Period: March 19, 1999 to December 30, 1999, or as extended
by mutual agreement of the Parties.
3.6 CPUC: the California Public Utilities Commission.
3.7 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.
3.8 Eligible Customers: Residential customers in SCE service territory
who meet the customer eligibility criteria in Section 6.
3.9 Eligible Refrigerators and Freezers: Appliances that meet the 1999
Refrigerator Recycling Program appliance eligibility criteria as set
forth in Section 6.
3.10 Freezer: A freezer which provides supplementary cold storage to a
primary freezer or to the freezer section located within the primary
refrigerator in a residential household.
3.11 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 or Freezers.
3.12 1999 Refrigerator Recycling Program: Refrigerator Recycling Program
defined by this Agreement.
3.13 1999 Program Participants: Eligible customers who turn in qualifying
Refrigerators or Freezers.
3.14 PCB: Polychlorinated Biphenyl.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
3.15 Purchase Order: Document issued by SCE to Contractor and executed by
the Parties, which contains additional terms and conditions for the
Work described herein,
3.16 Recycling Center: The site at which Contractor will process
Refrigerators and Freezers, remove CFCs, PCBs and other Hazardous
Materials, and recycle or legally dispose of Hazardous materials.
3.17 Recycling Charge: Per-unit price for services performed by
Contractor under scope of work, including CFC-11 recovery services,
and excluding incentive and financing services.
3.18 Primary refrigerator: refrigerator currently in use by customer as
the main refrigeration appliance.
3.19 Second refrigerator: Surplus refrigerator utilized by customer
concurrently with primary refrigerator.
3.20 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.
3.21 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 Refrigerator and Freezer
collection, Refrigerator and Freezer processing, handling, storing,
recycling, and legal disposal, of Hazardous Materials and
Documentation preparation.
4. CONTRACT DOCUMENTS
4.1 This Agreement shall consist of the following documents: this
Agreement, any amendments to this Agreement, Purchase Orders, and
Change Orders. Except as provided below in Section 13 (Year 2000
warranty provision), 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:
4.1.1 Amendments to the Agreement in chronological order from the
most recent to the earliest;
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
4.1.2 Change Orders incorporating and reflecting any Amendments to
the Agreement in chronological order from the most recent to
the earliest.
4.1.3 This Agreement.
4.1.4 Purchase Order incorporating this Agreement.
4.2 Each Party shall notify the other immediately upon the
identification of any such conflict or inconsistency.
5. SCOPE OF WORK
5.1 Contractor shall be responsible for customer service activities,
including providing inbound 800 telephone numbers for Customers, all
connnunication services, scheduling Refrigerator and Freezer
collection appointments, verification of customer and appliance
eligibility, documentation of customer data, and other activities.
5.2 Contractor shall (i) collect all Eligible Refrigerators and Eligible
Freezers from Customers' residences within 10 to 15 working days
from the date of initial customer contact (unless otherwise
requested by the Customer), in remote areas of the service
territory, or as approved by SCE's 1999 Program Manager, collection
shall be no later than 25 working days from the date of the initial
customer contact, unless otherwise requested by Customer; (ii)
ensure Refrigerator or Freezer is an operating unit before removal
from residence; (iii) disable the unit prior to leaving pick-up
location; and (iv) process unit at its Recycling Center.
5.3 Contractor shall be solely responsible for all methods, techniques,
sequences, and procedures for the dismantling of Refrigerators and
Freezers, processing of metal panels and components, recycling of
recovered scrap metal, removal, recycling, or lawful disposal of
Hazardous Materials.
5.4 Contractor shall be solely responsible for all methods, techniques,
sequences, and procedures for the removal and management of all
capacitors found in Refrigerators and Freezers, and the removal and
disposal of compressor oil, PCBS, and other Hazardous Materials from
the time Contractor collects Refrigerators and Freezers pursuant to
this Agreement.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
5.5 Contractor shall document and maintain records for services under
this Agreement, or any Purchase order incorporating this Agreement,
as follows:
5.5.1 A Customer Comment Tracking System for recording customer
inquiries, complaints, and positive feedback.
5.5.2 Appliance Turn-in Order Form to collect data such as customer
name, address, home and work phone numbers; utility account
number, Refrigerator or Freezer manufacturer's name;
Refrigerator or Freezer model and style; defrost type; color,
size, and estimated age of unit; location of Refrigerator or
Freezer within the residence; amperage, final disposition code
(which indicates operating condition of Refrigerator or
Freezer), identification of units containing CFC-11; special
pick-up instructions (if applicable) and signature of customer
in the event refrigerator or freezer is discovered not to be
an Eligible Refrigerator or Freezer as certified, customer
acknowledges liability to SCE for recycling costs.
5.5.3 Compilation of data in subsections 5.5.1 and 5.5.2 in
electronic mode, employing a software program suitable for
exchange of information with SCE, subject to the approval of
SCE's Program Manager.
5.6 Contractor shall conduct a customer survey, comparable to EXHIBIT B,
which is attached and incorporated by reference herein, using a
stratified purposeful sample of 5% to 20% of the 1999 Program
Participants. The stratification and frequency of the survey may be
modified periodically by SCE, 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. Stratification and frequency of survey shall
be modified periodically as determined by SCE provided modified
survey is comparable to Exhibit B.
5.7 Contractor and SCE shall establish and implement a financial
incentive service as follows:
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
5.7.1 The incentive to each 1999 Program Participant will be a check
in the amount of Thirty-Five Dollars ($35.00) or an item with
a retail value of at least Thirty-Five dollars ($35.00), or
subject to availability, an 18 quart/17 liter Igloo(R)
KoolCruiser 18 thermoelectric cooler ("Cooler) (the "Cooler
Promotion"). The check, the retail item, and the Cooler are
each referred to individually as the "Incentive". Each 1999
Program Participant has a right to receive one Incentive, at
his or her discretion. The Parties may agree in the future to
increase the number of Incentives a 1999 Program Participant
may receive.
The Coolers shall be delivered to Contractor at a location to
be mutually agreed upon by the Parties. SCE shall require the
cooler manufacturer to deliver the Coolers in packages
designed to diminish the possibility of damage to the Coolers
during transit. SCE shall use its best efforts to have the
manufacturer deliver the Coolers in lots of a minimum of One
Thousand Nine Hundred (1,900) Coolers.
5.7.2 Contractor shall deliver Coolers or the retail items to 1999
Program Participants at the time the eligible Refrigerator or
Eligible Freezer is picked up. Each Program Participant must
sign a receipt acknowledging that he/she received the
Incentive. Requests for checks shall be processed and mailed
via the U.S. Postal System within 15 business days of the date
the Eligible refrigerator or freezer was picked up.
5.7.3. Contractor shall provide SCE with a weekly listing of
Customers qualifying for an Incentive for SCE's approval.
Customers qualifying for an Incentive are 1999 Program
Participants who turn in an Eligible Refrigerator or Freezer
for which SCE will pay a per-unit price as set forth in
Section 8.2 of this Agreement.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
5.7.3 Upon SCE's reimbursement of Contractor for the Incentives
described in Section 8.4 of this Agreement, SCE 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 1999 Program Participants
entitled to Incentives. Moreover, upon SCE's payment to
Contractor of such reimbursement, Contractor shall be deemed
the holder of such property as far as the interests of the
1999 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. SCE 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.
5.8 Contractor shall provide SCE with reports for the services performed
under this Agreement as follows:
5.8.1 A monthly report, provided no later than the 15th day of the
month, listing the number of Refrigerators and Freezers
processed through the Recycling Center during the previous
month and the size in cubic feet, year of manufacture, style,
and defrost type.
5.8.2 A quarterly report, presented within fifteen (15) days of the
new quarter, summarizing the monthly report information from
the previous quarter and containing environmental data such as
an estimated breakdown of amount of refrigerants recovered;
number of pounds of capacitors removed; number and size of
CFC-11 units and amount of CFC-11 recovered; amount of sulfur
dioxide recovered, amount of compressor oil recycled; and
weight of metals and nonrecyclable materials sold for
shredding.
5.8.3 A quarterly report presented within fifteen (15) days of the
new quarter summarizing the monthly Customer Comment Tracking
System information required pursuant to Section 5.5. 1.
5.8.4 By the 15th day of each month during the term of this
Agreement, Contractor shall provide SCE with monthly aging
reports indicating the number of Refrigerators and Freezers
that were collected during the preceding month and that were
scheduled for collection from
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
customers during that month, the date of the initial contact
with the Customer, the date or dates the appliance was
scheduled for collection, and the actual collection date.
5.8.5 A final report no later than thirty (30) days after the
termination of this Agreement of all amounts paid by
Contractor in compliance with any unclaimed property laws
pursuant to Section 5.7.3 hereof.
5.8.6 Upon reasonable written request from an authorized
representative of SCE, special and nonrecurring reports during
the course of the 1999 Refrigerator Recycling Program. Such
report content will be developed by the Parties in
anticipation of requests from the CPUC, SCE internal audits,
or compilation of data relevant to Rebuild LA activities. An
amendment to this Agreement or a separate agreement shall be
entered into only if any such report necessitates unreasonable
labor, as substantiated by Contractor, requiring the
negotiation of a charge separate from the Recycling Charge.
5.8.7 Contractor shall modify its current computer software program
so that the Contractor's Appliance Turn-In Order Form ("ATO")
can be coded for each 1999 Program Participant indicating
which Incentive was selected by the 1999 Program Participant.
In all cases, when Contractor picks up an Eligible
Refrigerator or Eligible Freezer from a 1999 Program
Participant, Contractor shall obtain the 1999 Program
Participant's signature on the Contractor's ATO. On a weekly
basis, Contractor shall prepare an invoice for SCE to
substantiate the Cooler Fees due for Contractor's delivery of
Coolers under the Cooler Promotion and the costs, if any,
incurred by Contractor pursuant to Section 9.6 of this
Agreement (the "Invoice"). The Invoice shall include an ATO
report showing the delivery of Coolers during the billing
period. All Invoices will be paid pursuant to Section 9.5.3.
6. CUSTOMER AND REFRIGERATOR ELIGIBILITY
6.1 Customer eligibility for the 1999 Refrigerator Recycling Program
shall depend on the following:
6.1.1 Customer is a resident in the SCE service territory and
occupies a single-family residential (Domestic Rate) or
multi-unit
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
dwelling or mobile home. Eligible customers include customers
who reside in SCE's service territory but who take
distribution services from an entity other than SCE.
6.1.2 Customer is the owner of the Eligible Refrigerator or Freezer
or possesses written consent from the actual owner to turn in
the Eligible Refrigerator or Freezer.
6.1.3 Customer turns in no more than two Eligible Refrigerators or
Freezers per year unless written SCE approval is obtained for
any additional Refrigerator or Freezer.
6.2 Commercial customers do not qualify for the 1999 Refrigerator
Recycling Program. Landlords are considered commercial customers.
6.3 Refrigerator and Freezer eligibility for the 1999 Refrigerator
Recycling Program shall depend on the following:
6.3.1 Refrigerator or Freezer must be capable of cooling or
freezing, or both, as applicable, at time of collection.
6.3.2 Refrigerator or Freezer minimum size is 10 cubic feet and
maximum size is 25 cubic feet.
6.4 Commercial refrigerators, ammonia-containing gas refrigerators,
commercial freezers, and room air conditioners do not qualify for
the 1999 Refrigerator Recycling Program.
7. OWNERSHIP AND CONFIDENTIALITY
7.1 All information disclosed by SCE during meetings or negotiations
with regard to the 1999 Refrigerator Recycling Program, and any
information contained in drawings, specifications, technical
reports, and data provided by SCE to Contractor during performance
of this Agreement shall be held in confidence by Contractor and used
only for the performance of the Work pursuant to this Agreement.
7.2 Contractor, its employees, and any subcontractors shall not disclose
any 1999 Refrigerator Recycling Program or customer information to
any person other than SCE's personnel either during the term of this
Agreement or after its completion, without Contractor having
obtained the prior written consent
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
of SCE, except as provided by lawful court order or subpoena and
provided Contractor gives SCE advance written notice of such order
or subpoena. Prior to any approved disclosure, persons receiving
said information, including Contractor, its employees, or third
parties, must enter into a nondisclosure agreement with SCE.
Contractor agrees to require its employees and subcontractors to
execute a nondisclosure agreement prior to performing any services
under this Agreement.
7.3 All materials provided by SCE to Contractor during the performance
of this Agreement shall be returned to SCE after this Agreement is
terminated or at the request of SCE. Contractor shall not duplicate
any material furnished by SCE without prior written approval from
SCE.
7.4 All information, material, and documents prepared or caused to be
prepared under this Agreement by Contractor shall become the
property of SCE. Such information, or derivative information,
materials, and documents, shall be used by Contractor only for work
performed directly for SCE, and shall not be used in Contractor's
general course of business, disclosed nor revealed in any way to a
third party without the prior express written consent of SCE.
7.5 All information disclosed by Contractor to SCE during meetings or
negotiations with regard to the 1999 Refrigerator Recycling Program,
and any information contained in drawings, specifications, technical
reports, and data provided by contractor to SCE during performance
of this Agreement, shall be held in confidence by SCE, and used only
in relation to the Work pursuant to this Agreement.
7.6 Except as required by the CPUC, SCE, its employees and any
subcontractors of SCE shall not disclose any confidential or
proprietary information provided by Contractor ("Contractor's
Confidential Information") to any person other than Contractor's
personnel, either during the term of the Agreement, or after its
completion, without having obtained the prior written consent of
Contractor. By way of example, Contractor's Confidential Information
shall include, without limitations Contractor's systems for oil
degassing, CFC recovery, CFC-11 recovery and contractor's computer
software. Prior to any approved disclosure, persons to receive
Contractor's Confidential Information, including SCE, its employees
or any third-party, must enter into a nondisclosure agreement with
Contractor. SCE agrees to require its employees to execute
appropriate nondisclosure agreements prior to any contact with, or
evaluation of Contractor's Confidential Information.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
7.7 SCE agrees that, without the prior written consent of Contractor, it
will not, during the term or after termination of this Agreement,
directly or indirectly, disclose to any individual, corporation, or
other entity, or use for its own or such other's benefit, any of
Contractor's Confidential Information, whether reduced to written or
other tangible form, which:
7.7.1 Is not generally known to the public or in the industry;
7.7.2 Has been treated by Contractor or any of its subsidiaries as
confidential or proprietary; and
7.7.3 Is of a competitive advantage to Contractor or any of its
subsidiaries and in the confidentiality of which Contractor or
any of its subsidiaries has a legally protectable interest.
7.8 Contractor's Confidential Information which becomes generally known
to the public or in the industry, or, in the confidentiality of
which, Contractor and its subsidiaries cease to have a legally
protectable interest, shall cease to be subject to the restrictions
of this Section 7.
8. COMMERCIAL TERMS
8.1 Payment
No payment shall be made under this Agreement until SCE has received
a signed "Acceptance Copy" of the Purchase Order from Contractor.
SCE shall pay to Contractor, as full compensation for completing the
Work, the prices set forth in EXHIBIT A in accordance with the
payment provisions set forth below in subsections 8.2 through 8.4.
8.2 Summary of Charges
8.2.1 Recycling Charge. SCE shall pay to Contractor a per-unit
Recycling Charge for the number of units collected pursuant to
this Agreement at the price or prices set forth in Section 8.3
below. The Recycling Charge covers the scope of work described
in Section 5, including CFC-11 Recovery and excluding
incentive purchasing and financing services.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
8.2.2 Other Charges. All other costs for services shall be
negotiated between the parties and implemented by an amendment
to the Agreement.
8.2.3 SCE shall pay Contractor a fee of Two Dollars ($2.00) ("Cooler
Fee") per Cooler for each Cooler distributed to 1999 Program
Participants in accordance with Subsection 9.5.3. The Cooler
Fee shall compensate Contractor for the storage, handling and
delivery of the Coolers, additional labor, and any and all
other costs and expenses in connection with the Cooler
incentive, including any additional documentation and reports
that may be necessary or required as a result of the Cooler
incentive. SCE shall not be responsible for any other
compensation or reimbursement to Contractor as a result of the
Cooler incentive except for the Cooler Fee.
8.2.4 Incentive Cost and Finance Charges. SCE shall pay to
Contractor Incentive costs and finance charges as specified in
Section 8.4 below.
8.3 Pricing Recycling Charge
8.3.1 The per-unit Recycling Charge to be paid by SCE for the
Contract Period shall be as set forth in Exbib]'Lt A.
8.4 Pricing Incentive Costs and Finance Charges
8.4.1 SCE shall reimburse Contractor for the cost of each incentive
payment distributed to 1999 Program Participants.
8.4.2 SCE shall pay to Contractor monthly interest at the rate of
three-quarter of one percent (0. 75%) on the average monthly
balance of the outstanding incentive costs.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
8.5 Miscellaneous
Contractor agrees that any agreement it has, or in which it may
enter with other utilities or agencies for a recycling program,
shall not detrimentally affect Contractor's services under this
Agreement.
9. BILLING
9.1 Contractor shall submit a weekly invoice reflecting the per-unit
charge for the refrigerators and freezers collected, processed, and
recycled, and for the purchase and approval of incentives.
Contractor shall apply a per-unit charge on units that have been
disabled and only for the following transactions:
9.1.1 Collection of an Eligible Refrigerator or Freezer.
9.1.2 Collection contact made for Eligible Refrigerator or Freezer
that cannot be removed due to obstruction because of size or
structural barrier provided that Contractor obtains written
permission from Customer to permanently disable said unit, and
Contractor then permanently disables the unit.
9.1.3 Collection of an oversized Eligible Refrigerator or Freezer
that requires additional trips, personnel, or equipment to
execute removal. Additional services for removal of an
oversized Eligible Refrigerator or Freezer shall be charged as
a single appointment with no extra charge for said additional
services.
9.1.4 Collection of an Eligible Refrigerator or Freezer that could
not be inspected for eligibility confirmation.
9.2 Contractor shall submit a final invoice for the Contract Period in
hard copy and in electronic fonnat acceptable to SCE.
9.3 Contractor shall apply a 25% per unit discount to the Recycling
Charge to any additional units when two or more refrigerators or
freezers are removed during a single collection appointment from
Customer's residence. Said discount shall be clearly documented and
identified in Contractor's invoice.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
9.4 Contractor shall submit a weekly invoice for the purchase price of
the incentive payments and a monthly invoice for the interest charge
identified in subsection 8.4.2.
9.5 SCE shall make payment (less any unsubstantiated or incorrect
charge):
9.5.1 For check incentive services, within thirty days of receipt of
an Invoice by SCE's Accounts Payable Department.
9.5.2 Of Recycling Fee, within thirty days of receipt of an Invoice
from Contractor approved by SCE.
9.5.3 For Cooler Fees within thirty days of receipt of an Invoice
from Contractor approved by SCE.
9.6 Upon receipt of each shipment of the Coolers, Contractor shall
inspect the shipment for any damaged or defective Coolers.
Contractor shall return any damaged and/or defective Cooler directly
to the manufacturer for a replacement Cooler. SCE shall reimburse
Contractor for all costs associated with the return of any such
damaged and/or defective Coolers.
9.7 On a weekly basis, Contractor shall provide SCE with an unaudited
accounting of Coolers remaining in Contractor's inventory of
Coolers. At the end of the program year, Contractor shall complete
and provide SCE with a reconciliation to account for the Coolers
that were defective, damaged, or stolen. Contractor shall reimburse
SCE for any and all Coolers stolen from Contractor after delivery to
Contractor.
9.8 If after a Cooler is delivered by Contractor any 1999 Program
Participant alleges that a Cooler is damaged or defective, SCE shall
replace such defective and/or damaged Cooler. SCE shall be
responsible for the replacement of the damaged and/or defective
Cooler, including, but not limited to, the delivery of a new Cooler
to the 1999 Program Participant. If the damage to a Cooler is the
result of any action by Contractor, SCE shall be relieved of any
obligation to pay Contractor a Cooler Fee for the damaged Cooler.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
10. RIGHT TO AUDIT
SCE, or its Authorized Representative, shall have the right and free
access, at any reasonable time during normal business hours, to examine,
audit, and copy all Contractor's records and books as related to
Contractor's obligations under this Agreement, including, but not limited
to, verification of costs to SCE, as claimed by Contractor.
11. CHANGES
Changes to this Agreement shall be made by mutual agreement of the Parties
through a written amendment to the Agreement. Such written amendment may
be incorporated into this Agreement through a subsequent Purchase Order or
Change Order.
12. PERMITS, CODES, AND STATUTES
12.1 Contractor shall perform the Work set forth in this Agreement in
accordance with all applicable federal, state, and local laws,
rules, and/or ordinances. Prior to performance of any services,
Contractor shall, at its own cost, have obtained, and shall have
required all Subcontractors to obtain, all licenses and permits
required by law, rule, regulation, and ordinance, or any of them, to
engage in the activities required in connection with this
transaction. Contractor also represents and warrants that, to the
best of its knowledge, based upon reasonable and prudent inquiry,
any storage site and any disposal facility to which the Hazardous
Materials may be moved are in compliance with any and all federal,
state and local laws and regulations pertaining thereto and that
such storage sites and disposal facilities are suitable and may
lawfully receive and/or dispose of the Hazardous materials.
12.2 Contractor shall comply with all applicable local, state, and
federal safety and health laws in effect an the date of this
Agreement, including, but not limited to, EPA, California EPA, RCRA,
the Occupational Safety and Health Act of 1970 (OSHA), and all
standards, rules, regulations, and orders issued pursuant to such
local, state, and federal safety and health laws. Should any such
law, rule, or regulation be enacted or promulgated subsequent to the
date of this Agreement, which renders Contractor's performance
impractical, Contractor and SCE shall, in good faith, negotiate an
amendment to this Agreement reasonably compensating Contractor for
its additional costs.
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SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
13. WARRANTY
13.1 Contractor warrants to SCE that the Work shall be performed in a
competent manner, in accordance with this Agreement, and that the
acceptance, handling, storage, recycling, and disposal of the
Refrigerators and Freezers and the Hazardous Materials shall be in
accordance with (i) the requirements of this Agreement and (ii) the
applicable local, state, and federal laws and regulations in effect
at the time of the work performed.
13.2 Year 2000 Warranty. Contractor hereby represents and warrants to SCE
and agrees that its software, hardware and equipment, and any piece,
part, component or system thereof, and/or work provided hereunder
will (a) at the time of delivery or performance be and will remain
Year 2000 Compliant and (b) not fail to meet, or to be delivered in
accordance with, all the requirements and specifications of this
Agreement, as a result of any failure of Contractor or of its
operations, suppliers, software, hardware or equipment to be Year
2000 compliant. In order for the software to be Year 2000 Compliant,
it must (i) accurately process date/time data (including, but not
limited to, calculating, comparing, sorting, sequencing and calendar
generation), including single century formulas and multi-century
formulas, from, into" within and between the twentieth and
twenty-first centuries, including all dates and leap year
calculations, and will not malfunction or generate abnormal endings,
incorrect values or invalid results involving such date/time data;
(ii) accurately interface with other software, hardware or
equipment, as necessary and appropriate, in order to supply,
receive, process or transmit date/time and other data; (iii) provide
that date/time-related functionalities, date/time fields and any
user input interfaces include a four digit year format and/or other
appropriate indication of century; (iv) not cause any of SCE's other
software, hardware or equipment that SCE deems to be otherwise Year
2000 compliant to fail to be Year 2000 compliant; and (v) not cause
any of SCE's other software, hardware or equipment that SCE deems to
be otherwise Year 2000 ready to fail to be Year 2000 ready. For
purposes of this Agreement, SCE shall deem software, hardware or
equipment to be "Year 2000 compliant' if it has been or IS
determined by SCE to accurately process date/time data from, into,
within and between the twentieth and twenty-first centuries
including all dates and leap year calculations. For purposes of this
Agreement,
- 17 -
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
SCE shall deem software, hardware or equipment to be "Year 2000
ready' if it has been or is determined by SCE to be suitable for
continued use into the Year 2000 and beyond.
13.3 Year 2000 Warranty Controlling. In the event of any conflict or
apparent conflict between any other provisions of this Agreement the
terms and conditions of this Year 2000 Warranty shall control.
Nothing in this Year 2000 Warranty shall be construed to limit any
rights or remedies SCE may otherwise have under any other provision
of this Agreement, or under any other contract or agreement between
the Parties.
14. TITLE
14.1 Title to the Hazardous Materials shall pass to Contractor when
Contractor collects refrigerators and freezers from customers.
14.2 Title of collected Refrigerators and Freezers shall pass to
Contractor.
15. INSURANCE
15.1 Without limiting Contractor's liability to SCE, including the
requirements of Section 16.0 Indemnity, Contractor shall maintain
For the work, and shall require that each Subcontractor of the first
tier maintain, at all times during the work and at its own expense,
valid and collectible insurance as described below. This insurance
shall not be terminated, expire, not he materially altered, except
on thirty days prior written notice to SCE. Contractor shall furnish
SCE with certificates of insurance and forms acceptable to SCE and
shall require each Subcontractor of the first tier to furnish
Contractor with certificates of insurance, as evidence that policies
do provide the required coverage and limits of insurance listed
below. Such certificates shall be furnished to SCE's 1999 Program
Manager by Contractor upon receipt of the Purchase Order, and by
Subcontractor for the first tier upon receipt of its subcontract,
but in any event prior to start of its portion of the Work. Any
other insurance carried by SCE, its officers, agents, and employees,
which may be applicable, shall be deemed to be excess insurance, and
Contractor's insurance shall be deemed primary for all purposes
notwithstanding any conflicting provision in Contractor's policies
to the contrary.
(i) Workers' Compensation Insurance with statutory limits, as
required by the state in which the Work is performed, and
- 18 -
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
Employer's Liability Insurance with limits of not less than
$5,000,000. Carriers furnishing such insurance shall be
required to waive all rights of subrogation against SCE, its
officers, agents, employees, and other contractors and
subcontractors.
(ii) Comprehensive Bodily Injury and Property Damage Liability
Insurance, including owners, and contractors'protective
liability, product/completed operations liability, contractual
liability, and coverage for liability incurred as a result of
sudden and accidental discharge, dispersal, release or escape
of polluting materials, (excluding automobile) with a combined
single limit of not less than $3,000,000 for each occurrence.
Such insurance shall: (a) acknowledge SCE, its officers,
agents, and employees, and additional insureds; (b) be primary
for all purposes; and (c) contain standard cross-liability
provisions.
(iii) Automobile Bodily Injury and Property Damage Liability
Insurance with a combined single limit of not less than
$3,000,000 for each occurrence. Such insurance shall cover
liability arising out of the use by Contractor and
Subcontractors of owned, non owned and hired automobiles in
the performance of the Work. As used herein, the term
"automobile" means vehicles licensed or required to be
licensed under the Vehicle Code of the state in which the Work
is performed. Such insurance shall acknowledge SCE as an
additional insured and be primary for all purposes.
(iv) Environmental Impairment Expense Insurance with a combined
single limit of not less than $5,000,000 for each occurrence
and overall limits of $10,000,000. Such insurance shall
provide coverage for necessary costs or expense of removing,
cleaningup, transporting, nullifying, and rendering
ineffective, or any of them, any substance which has caused
environmental impairment and such insurance shall contain no
exclusions for non-sudden and/or non-accidental discharge,
release or escape of polluting materials. Such insurance shall
acknowledge SCE as an additional insured and be primary for
all purposes.
Contractor shall report immediately to SCE and confirm in
writing any injury, loss, or damage incurred by Contractor or
Subcontractors in excess of $500.00, or its receipt of notice
of
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
any claim by a third party in excess of $500.00, or any
occurrence that might give rise to such claim.
If Contractor fails to comply with any of the provisions of
this Section 15, Contractor shall, at its own cost, defend,
indemnify, and hold harmless SCE, its officers, agents,
employees, assigns, and successors in interest, from and
against any and all liability, damages, losses, claims,
demands, actions, causes of action, costs, including
attorney's fees and expenses, or any of them, resulting from
the death or injury to any person or damage to any property to
the extent that SCE would have been protected had Contractor
complied with all of the provisions of this Section.
16. INDEMNITY
16.1 Contractor shall, at its own cost, indemnify, defend, reimburse, and
hold harmless SCE, its officers, directors, employees, agents,
assigns, and successors in interest, from and against any and all
liability, damages, losses, claims, suits, demands, actions, causes
of action, costs, expenses, including attorney's fees and expenses,
or any of them resulting from the death or injury to any person or
damage to or destruction of any property caused by Contractor,
Subcontractors, and employees, officers and agents of either
Contractor or Subcontractors, or any of them, and arising out of or
attributable to the performance or nonperformance of Contractor's
obligations under this Agreement and including, without limitation,
failure to comply fully with every federal, state, or local law,
statute, regulation, rule, ordinance, or government directive which
directly or indirectly regulates or affects the handling, storage,
recycling, or disposal of the Hazardous Materials to be managed by
Contractor hereunder. In all cases of death or injury to employees,
officers or agents of either Contractor or Subcontractors, whether
or not caused by Contractor, SCE shall be indemnified by Contractor
for any and all liability except to the extent such death or injury
results -from the negligence of SCE.
16.2 Contractor shall, at its own cost, indemnify, defend, reimburse, and
hold harmless SCE, its officers, directors, employees, and agents,
assigns, and successors in interest, from and against any and all
liability imposed upon, or to he imposed upon SCE, under any law
imposing liability for the environmental clean-up of the Hazardous
Materials at any location (other than SCE's property) where the
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
Hazardous Materials have been placed, stored or disposed of in the
performance or nonperformance of Contractor's obligations under this
Agreement, or any other site to which the Hazardous Materials have
migrated.
16.3 The indemnities set forth in this Section 16 shall not be limited by
the insurance requirements set forth in Section 15.
17. TERM AND TERMINATION
17.1 This Agreement shall commence on March 19, 1999 and shall continue
in effect until December 30, 1999, or until Contractor has picked up
all units called in prior to December 30, 1999, whichever is later.
This Agreement may be extended as agreed to in writing by the
Parties.
17.2 Either Party may terminate the Agreement for cause by providing 60
days advance written notice to the other Party. If the default has
not been cured within the 60 day notice period, the non-defaulting
party may declare this Agreement terminated, effective on the last
day of said notice period ('Termination Date"). Contractor shall be
paid for all work performed prior to the Termination Date.
17.3 SCE shall have the right to terminate this Agreement by providing 30
days advance written notice to Contractor upon CPUC mandate, or upon
depletion of the amount of funding authorized by the CPUC for the
Contract Period. In the event the Agreement is terminated upon CPUC
mandate, SCE shall pay Contractor all amounts owed under the
Agreement as of 30 days after SCE's written notice to Contractor of
the CPUC's mandate (the 'Termination Date"). In such event ' SCE
shall only be obligated to pay contractor for such Refrigerators and
Freezers actually collected by Contractor for recycling as of the
Termination Date, and shall not be obligated to pay contractor for
units not collected but which would otherwise be required to be paid
for as units comprising SCE's Specified Volume.
17.4 In the event of termination pursuant to this Section 17, Contractor
and SCE shall work cooperatively to facilitate the termination of
the 1999 Refrigerator Recycling Program.
17.5 Each Party shall immediately provide at no cost to the other any
testimony, or any communications with the CPUC, or any board,
division, conunittee or member thereof, which could reasonably be
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
anticipated to effect the 1999 Refrigerator Recycling Program or
which addresses it in any manner.
18. WRITTEN NOTICES
18.1 Any written notice, demand or request required or authorized in
connection with this Agreement, shall be deemed properly given if
delivered in person or sent by facsimile, nationally recognized
overnight courier, or first class mail, postage prepaid, to the
address specified below, or to another address specified in writing
by SCE as followS:
SCE: Southern California Edison Company Refrigerator
Recycling Program 2131 Walnut Grove Avenue - lst floor
Rosemead, CA 91770
CONTRACTOR: Appliance Recycling Centers of America, Inc.
Attention: Mr. Jack Cameron
President
7400 Excelsior Boulevard
Minneapolis, MN 55426
18.2 Notices shall be deemed received (a) if personally or
hand-delivered, upon the date of delivery to the address of the
person to receive such notice if delivered before 5:00 p.m., or
otherwise on the Business Day following personal delivery; (b) if
mailed, three Business Days after the date the notice is postmarked;
(c) if by facsimile, upon electronic confirmation of transmission,
followed by telephone notification of transmission by the noticing
Party; or (d) if by overnight courier: on the Business Day following
delivery to the overnight courier within the time limits set by that
courier for next-day delivery.
19. SUBCONTRACTS
19.1 Contractor shall contractually require each Subcontractor of the
first tier providing service in connection with the Work to be bound
by general terms and conditions protecting SCE which are equivalent
to the terms and conditions of this Agreement.
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
19.2 Contractor shall, at all times, be responsible for the work, and
acts and omissions, of Subcontractors and persons directly or
indirectly employed by them for services in connection with the
Work. The Purchase Order and this Agreement shall not constitute a
contractual relationship between any Subcontractor and SCE nor any
obligation for payment to any Subcontractor.
20. CALIFORNIA PUBLIC UTILITIES COMMISSION
This Agreement and the Purchase Order incorporating this Agreement shall
at all times be subject to such changes or modifications by the CPUC as it
may from time to time direct in the exercise of its jurisdiction.
21. NON-WAIVER
None of the provisions of the Agreement shall be considered waived by
either Party unless such waiver is specifically stated in writing.
22. ASSIGNMENT
SCE may be required to assign its rights, duties and obligations under
this Agreement to the CPUC and/or its designee. Contractor hereby consents
to such assignment. Other than SCE's assignment to the Board or the
Board's administrator, neither Party shall delegate or assign this
Agreement or any part or interest thereof, without the prior written
consent of the other Party, and any assignment without such consent shall
be void and of no effect.
23. FORCE MAJEURE
Failure of Contractor to perform any of the provisions of this Agreement
by reason of any of the following shall not constitute an event of default
or breach of this Agreement: strikes, picket lines, boycott efforts,
earthquakes, fires, floods, war (whether or not declared), revolution,
riots, insurrections, acts of God, acts of government (including, without
limitation, any agency or department of the United States of America),
acts of the public enemy, scarcity or rationing of gasoline or other fuel
or vital products, inability to obtain materials or labor, or other causes
which are reasonably beyond the control of the Contractor.
- 23 -
<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
24. GOVERNING LAW
The contract shall be interpreted, governed, and construed under the laws
of the State of California as if executed and to be performed wholly
within the State of California. Any action brought to enforce or interpret
this Agreement shall be filed in Los Angeles County, California.
25. SECTION HEADINGS
Section headings appearing in this Agreement are for convenience only and
shall not be construed as interpretations of text.
26. SURVIVAL
Notwithstanding completion or termination of the Work, of this Agreement,
any amendment to the Agreement, or of any Purchase Order or Change Order,
the Parties shall continue to be bound by the provisions of this Agreement
and any Purchase order incorporating this Agreement, Amendment to this
Agreement and Change Orders, which by their nature shall survive such
completion or termination. Such provisions shall include, but not be
limited to, Contractor's indemnity protecting SCE from any liability for
environmental clean up as provided in Section 16 of this Agreement.
27. NONRELIANCE
Neither Party has relied upon any representation, warranty, projection,
estimate or other communication from the other not specifically so
identified in this Agreement.
28. ATTORNEYS'FEES
In the event of any legal action or other proceeding between the Parties
arising out of this Agreement or the transactions contemplated herein, the
prevailing Party in such legal action or proceeding shall be entitled to
have and recover from the other Party all costs and expenses incurred
therein, including reasonable attorneys'fees.
29. COOPERATION
Each Party agrees to cooperate with the other Party in whatever manner
reasonably required to facilitate the successful completion of the
Agreement.
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<PAGE>
SOUTHERN CALIFORNIA EDISON COMPANY'S 1999 REFRIGERATOR RECYCLING
AND HAZARDOUS MATERIALS DISPOSAL AGREEMENT
30. ENTIRE AGREEMENT
This Agreement contains the entire agreement and understanding between the
Parties and merges and supersedes all prior representations and
discussions pertaining to the Agreement, including Contractor's proposal.
Any changes, exceptions, or different terms and conditions proposed by
Contractor are hereby rejected unless expressly stated in this Agreement.
APPLIANCE RECYCLING SOUTHERN CALIFORNIA
CENTERS OF AMERICA, INC. EDISON COMPANY
By: /s/ Kent S. McCoy By: /s/ Pamela Bass
Its: CFO Its: Senior Vice President
Date: March 25, 1999 Date: March 31, 1999
- 25 -
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