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OPERATION AND MAINTENANCE AGREEMENT
This Operation and Maintenance Agreement (the "Agreement") dated as of
December 29, 1998 by and between KTI Operations, Inc., a Delaware corporation
(the "Operator"), and New Heights Recovery & Power, LLC, formerly known as CGE
Ford Heights, L.L.C., a Delaware limited liability company (the "Owner"),
witnesseth that:
RECITALS
WHEREAS, the Owner owns a waste tire to energy project located on
thirty-eight acres in the Village of Ford Heights, Illinois (the "Existing
Project");
WHEREAS, the facilities that comprise the Existing Project consist of a
tire shredding facility and a combustion facility owned by the Owner
(collectively, the "Existing Facility");
WHEREAS, the Existing Facility is not in operation;
WHEREAS, the Owner is a reorganized entity under a plan of
reorganization ("Plan of Reorganization") under Chapter 11 of the Bankruptcy
Code that was confirmed by an order of the Bankruptcy Court for the District of
Delaware that was entered December 15, 1998 (the "Confirmation Order");
WHEREAS, as of the date hereof Oakhurst Technology, Inc., a Delaware
corporation ("KTIA"), an affiliate of KTI, Inc. ("KTI"), a New Jersey publicly
traded company listed in the NASDAQ National Market system, has entered into an
Investment Agreement (the "Investment Agreement") with the Owner;
WHEREAS, in accordance with the terms of the Investment Agreement, KTIA
is a member of the Owner and, subject to the terms and conditions of the
Investment Agreement, is obligated to make certain capital contributions to the
Owner to implement the business plan (the "Business Plan") of the Owner;
WHEREAS, the Business Plan contemplates that the operations and
facilities of the Owner will be expanded to include, among other things, the
operation of a crumb rubber recycling facility and paper recycling facility and
improvements to the Existing Facility to expand the Owner's waste acceptance,
handling, processing and combustion capabilities (the Existing Facility and
additional facilities contemplated under the Business Plan being the
"Facility");
WHEREAS, KTIA is the operating manager (the "Operating Manager") of the
Owner;
WHEREAS, the Operator has significant experience in the operation of
waste processing and energy producing facilities;
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WHEREAS, the Owner desires to benefit from the experience of the
Operator by retaining the Operator to manage the administration, operations and
maintenance of the Facility, subject to the direction of the Operating Manager
and the Board of Directors of the Owner;
WHEREAS, the Operator is a subsidiary of KTI;
WHEREAS, the Operator is willing to manage the administration,
operations and maintenance of the Facility, including the startup of operations
by the Owner and the construction of improvements to the Existing Facility and
property of the Owner.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
to enter into this Agreement:
ARTICLE I
DEFINITIONS
Affiliate: With respect to any Person, any Person or group of Persons
acting in concert in respect of the Person in question that, directly or
indirectly, controls or is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any person or group of Persons acting in
concert, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
Approved Capital Budget: The Capital Budget as approved by the Owner as
such Capital Budget may be modified in writing in accordance with the terms of
this Agreement.
Approved Operating and Maintenance Budget: For each calendar year,
beginning with the calendar year 1999, the Operating and Maintenance Budget as
approved by the Owner, as such Operating and Maintenance Budget may be modified
in writing in accordance with the terms of this Agreement. Until approval by the
Owner of the Operating and Maintenance Budget applicable to any particular
calendar year, the Approved Operating and Maintenance Budget for the prior year
shall apply.
Business Plan: As such term is defined in the sixth Recital.
Calendar Month: The period from the first day of any month to the last
day of such month inclusive.
Capital Budget: The annual budget to be prepared by the Operator
pursuant to Section 2.02 of this Agreement. Each proposed annual Capital Budget
shall include items of
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capitalized equipment (as treated for accounting purposes) to be replaced or to
be repaired, as well as replacement inventory of spare parts, for the applicable
period.
Confirmation Order: As such term is defined in the fourth Recital.
Effective Date: This Agreement shall be effective as of the effective
date of the Plan of Reorganization.
Equipment: All of the recycling, processing, combustion, mechanical and
electrical equipment, instrumentation and control equipment, and Rolling Stock
used at or in connection with the operation of the Facility, and owned or
controlled by the Owner.
Existing Facility: As such term is defined in the second Recital.
Existing Project: As such term is defined in the first Recital.
Facility: As such term is defined in the seventh Recital, together with
any other ancillary facilities which may hereafter be acquired or constructed by
Owner and used for or in conjunction with the operations contemplated by the
Business Plan, whether or not located on the present Site within the Village of
Ford Heights.
Facility Costs: All costs associated with the day to day operations,
maintenance and administration of the Facility.
Force Majeure: With regard to the performance of any obligation under
this Agreement, except as to payment obligations, events such as an act of God,
act of public enemy, sabotage, wars, blockade, insurrection, riots, explosions,
fires, floods, storm, lightning, earthquake, wind, ice, strikes, lockouts or
other industrial disturbance, drought appropriation and other causes not
reasonably within the control of any party invoking Section 10.10 hereof for its
benefit. The financial inability of either party hereto pay or perform its
obligations under this Agreement shall not be deemed to be events of Force
Majeure.
Good Engineering Practices: Those practices, methods and equipment that
are generally observed at the time of reference in prudent engineering practice
for handling, processing, combustion and disposal operations, similar in size
and function to the Facility, in order to operate waste processing, electricity
generating and other equipment lawfully, with safety, dependability, efficiency
and economy and in compliance with applicable governmental codes, if any,
establishing engineering standards for such waste handling, processing,
combustion and disposal operations.
Hazardous Waste: Waste with inherent properties which make such waste
dangerous to manage by ordinary means, including but not limited to chemicals,
explosives, pathological wastes, radioactive wastes, toxic wastes and other
wastes defined as hazardous at any time during the term of this Agreement by the
State of Illinois or the Resource Conservation and Recovery Act of 1976, as
amended, or other Federal, State or local laws, regulations, orders, or other
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actions promulgated or taken at any time and from time to time, or any material
which, if processed or produced at the Facility, would be deemed hazardous at
any time during the term of this Agreement by the State of Illinois or under the
Resource Conservation and Recovery Act of 1976, as amended, or other federal,
state or local laws, regulations, orders, or other governmental actions
promulgated or taken at any time and from time to time.
Investment Agreement: As such term is defined in the fifth Recital.
Labor: All natural persons employed by Operator who work at the Site
and those performing accounting functions for the Owner, wherever located, to
perform the tasks necessary to supervise, give advise and make recommendations
concerning the administration, operation and maintenance of the Facility in
accordance with Good Engineering Practices and as required by this Agreement.
Labor Costs: For any relevant period the sum of all costs, fees and
expenses incurred by Operator for Labor during such period, including without
limitation all (a) salaries, wages and other compensation payable to or for the
account of employees, (b) bonus and incentive compensation payments made to or
for the account of employees, (c) contributions and payments to employee
savings, retirement and other benefit plans for employees, (d) the cost of
providing medical, dental disability and occupational hazard plans or insurance
for employees and their dependents, (e) the cost of providing life insurance
coverage for employees and their dependents, (f) employee training related to
the administration, operation and maintenance of the Facility, including
tuition, travel, meals and lodging and (g) FICA and other taxes or governmental
charges payable with respect to employees, including unemployment compensation.
Legal Requirements: All laws, statutes, codes, ordinances, orders,
awards, judgments, decrees, injunctions, rules, regulations, authorizations,
consents, approvals, orders, permits, franchises, licenses, directions and
requirements of all governments or governmental units, courts or arbitrators,
which now or at any time hereafter may be applicable to or affect the Facility
or any part thereof or any streets, sidewalks, curbs, or gutters adjoining the
Facility or any part thereof or any use or condition of the Facility or any part
thereof or the acquisition, construction, ownership, use or operation of the
Facility or any part thereof, except those the non-compliance as to which will
not have a material adverse effect on the acquisition, ownership or operation of
the Facility.
Operator Fee: During the first year of this Agreement, the Operator Fee
shall be $33,334 per month, subject to (i) a maximum of $400,000 payable to the
Operator in such year, payable in accordance with Section 3.01 and (ii)
reduction in accordance with Section 3.01. The Operator Fee shall increase each
year that this Agreement is in effect, effective January 1 of each such year,
which increase shall be based on the Consumer Price Index for the Chicago
metropolitan area for the immediately preceding year. In the event of any
decline in the Consumer Price Index, the Operator Fee for the following year
shall be reduced accordingly.
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Operating and Maintenance Budget: For each calendar year, beginning
with the calendar year 1999, the budget to be prepared by the Operator pursuant
to Section 2.02 of this Agreement. The Operating and Maintenance Budget shall
include detailed month by month projections of the Facility's operating costs,
revenues and performance assumptions for the calendar year to which it pertains.
Operating Costs: For any relevant period, the actual costs directly,
properly and reasonably incurred by the Operator for the account of the Owner in
the ordinary course of business for the supervision, administration, operation
and maintenance of the Facility, including, without limitation, Labor Costs,
travel expenses and professional fees, including without limitation, legal,
accounting, audit and engineering fees; provided, however, that no costs
incurred or paid by the Operator to any Affiliate of the Operator shall be
treated as an Operating Cost unless incurred in accordance with Article V.
Operating Manager: KTIA or any successor thereto.
Operator's Invoice: A written document delivered by the Operator to the
Owner stating the amount due for Operating Costs for monthly periods.
Permits: All of the consents, approvals, authorizations, directions,
licenses and permits issued to the Owner or Operator with respect to the
ownership, construction, and operation of the Facility. A list of all Permits as
in effect on the date of this Agreement are listed in Exhibit A hereto.
Person: Any individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
Plan of Reorganization: As such term is defined in the fourth Recital.
Site: The real property and any and all rights or interests in real
property upon which the Facility is located at the time of reference.
Subcontractor: Any person, firm or corporation which performs work for
the Operator or the Owner at the request and direction of the Operator pursuant
to the terms of this Agreement.
ARTICLE II
DESIGNATION OF OPERATOR AND WORK SCOPE
2.01 Designation of Operator:
(a) The Operator agrees to supervise, give advice and make
recommendations concerning the administration, operation and
maintenance of the Facility (including,
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without limitation, maintenance scheduling and planning) in accordance with the
terms and conditions of this Agreement.
(b) Subject to the terms of this Agreement and so long as it
remains in effect, the Owner hereby gives the Operator the nonexclusive
right (which shall not constitute an easement or other restriction on
the Facility) to enter on the premises on which the Facility is located
and to occupy and have free access to use the same for solely the
purpose set forth in this Agreement. The Operator agrees that in its
capacity as the Operator it does not and shall not claim at any time
any interest or estate of any kind or extent whatsoever in the Facility
by virtue of this Agreement or the Operator's occupancy or use of the
Facility hereunder.
(c) The Operator covenants that it will comply with Good
Engineering Practices in performing its services for the Facility. In
the event that the Operator fails to comply with Good Engineering
Practices in performing its services for the Facility for reasons other
than the insufficiency of available operating revenues, and said
failure results in the Owner being assessed fines or penalties by any
governmental entity, said fines and penalties shall be charged back and
set off against the Operator Fee.
(d) The Operator shall act as the primary spokesman for the
Facility in consultation with the Owner.
2.02 General Duties: The Operator shall in consideration for the
Operator Fee, manage, supervise, give advice and make recommendations to the
Owner concerning the administration, operations and maintenance of the Facility
including the construction of improvements and additions in accordance with Good
Engineering Practices and in substantial compliance with all Legal Requirements.
Subject to the foregoing, as well as to the satisfaction by the Owner of its
obligations under Article III hereof and subject to implementation of the
Business Plan in accordance with the Investment Agreement, the Operator shall
supervise, give advice and make recommendations concerning the following tasks:
(a) All administrative work of the Facility including:
(i) The planning, scheduling and conduct of all
business incidental to the ownership, operation and
maintenance of the Facility in preparation for the startup of
operations.
(ii) The administration of all contracts on a day to
day basis.
(iii) The review, approval and payment, in accordance
with the Approved Operating and Maintenance Budget, on behalf
of Owner, to the extent funds are made available by Owner, of
invoices for Facility Costs and record keeping for the Owner.
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(iv) Prompt preparation of invoices for all material
deliveries in accordance with the applicable agreements.
(v) Development and submission of a spare parts
inventory program to the Owner for approval.
(vi) Based on the approved spare parts inventory
program, and in accordance with the Approved Capital Budget or
the Approved Operating and Maintenance Budget, as applicable,
the procurement, in the Owner's name, of an inventory of spare
parts, materials, and supplies (including consumables and
items covered by plant office expenses and rolling stock
expenses), and the review, approval and, on behalf of Owner,
the payment of invoices for the same.
(vii) The performance of all accounting services for
the Owner (except as noted below), including but not limited
to closing the books monthly, quarterly and yearly and
supplying summary account data to the Owner for any monthly,
quarterly, year end or other reports rendered to be rendered
by Owner. The Operator is not obligated to prepare tax
returns, but shall cooperate with the Owner or its agents in
the preparation of the tax returns.
(viii) The preparation of monthly and quarterly
detailed financial and operating reports, with Approved
Operating and Maintenance Budget and Approved Capital Budget
comparisons (budget to actual including an explanation of any
material variances), an updated annual forecast with actual
year-to-date numbers and updated projections for remaining
months, as are reasonably requested by Owner.
(ix) Maintenance of true, complete and accurate cost
ledgers and accounting records in accordance with generally
accepted accounting principles utilized by the Owner regarding
the services provided and expenses paid or incurred by it
pursuant to the Agreement.
(x) The preparation of the Operating and Maintenance
Budget and Capital Budget to be submitted to the Owner for
approval.
(xi) Maintenance of appropriate inventories
consistent with the approved spare parts and inventory plan
and the issue, and recording of issuance, of inventory and
spare parts items.
(b) Performance of operation and maintenance services at the
Facility within budgetary limitations including:
(i) Maintenance of an effective and sufficient
operating work force through appropriate hiring, termination,
training, administration and compensation.
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(ii) Development and maintenance of safety
procedures, a safety manual, an employee job-site conduct
handbook and an effective safety program, including, without
limitation, fire and explosion safety measures.
(iii) Operation and maintenance of the scale-house
and provision of all related operational services.
(iv) Maintenance of the Facility and preparation for
the startup of operations in a reasonably clean, safe and
efficient manner in accordance with Good Engineering Practices
and in substantial compliance with all Legal Requirements.
(v) Maintenance of true, complete and accurate
operating and environmental logs, records and reports
necessary for proper operation and maintenance of the
Facility.
(vi) Maintenance at the administrative offices
located at the Facility of drawings, instruction books, and
operating and maintenance manuals and revision of drawings as
modifications are made.
(vii) Maintenance of tool room equipment and
instruments.
(viii) Development, implementation and regular
updating of a maintenance program that meets Equipment
manufacturer's specifications and recommendations and the
Facility requirements.
(ix) Scheduling and performance of all maintenance
necessary to be in accordance with Good Engineering Practices
and manufacturers' specifications and recommendations and in
substantial compliance with all Legal Requirements.
(x) Scheduling, performance and recording periodic
operational checks and tests of Equipment which are necessary
to be in accordance with the Equipment manufacturers'
specifications and recommendations and in substantial
compliance with all Legal Requirements.
(xi) Evaluation of the nature and impact of any
Equipment failure and if the failure is major or material
review the situation with the Owner and mutually agree on a
reasonable remedy of the matter, provided that in the event of
an emergency or other situation where expediency is required
to protect Equipment, property, safety, health, or the
environment, the Operator may take all necessary action to
deal with such situation for the Owner's account without the
review and agreement of Owner.
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(xii) Cooperation with the Owner in the obtaining and
maintaining of required Permits in the Owner's name and on its
behalf.
(xiii) Preparation of the maintenance budget and
incorporation of the maintenance items contained therein in
the Operating and Maintenance Budget or the Capital Budget, as
appropriate, and preparation for the startup of operations of
the Facility and continuing operations in accordance with the
Approved Operating and Maintenance Budget and Approved Capital
Budget for such items.
(xiv) Provision of necessary and desirable security
services for the Facility.
(xv) Provision of yard maintenance, materials
management, finished products storage and snow or
debris/residuals removal services.
(xvi) Maintenance of adequate inventories or supplies
of consumables.
(xvii) Provision of unrestricted access to the
Facility and cooperation with the Owner in all inspections of
the Facility, which inspections may occur at any time.
(xviii) Operation and maintenance of the Facility in
such a way so as to be in substantial compliance with all
Permit requirements (including, without limitation, the
Environmental Compliance Standards), taking such samples and
performing and reporting such tests as are required by all
Permits, and advising the Owner of any areas of Permit
conflicts or violations or unsatisfactory conditions or test
results, including performing all necessary testing, reporting
and other requirements of Permits.
2.03 The Operator's Authority to Act in an Emergency: Notwithstanding
anything to the contrary contained in this Agreement, the Operator may, without
obtaining the prior written consent of the Owner, take any action which
otherwise requires the prior written consent of the Owner pursuant to the terms
of this Agreement if (i) in the good faith judgment of the Operator, such
decision or action is necessary for the protection of life or health or for the
preservation of the Facility or to avoid the suspension of any service to or of
the Facility and there is insufficient time to notify the Owner; and (ii)
expenses incurred by the Operator in advance of notifying the Owner do not
exceed $25,000; provided, that the Operator shall use all reasonable efforts to
notify the Owner and request its consent prior to making any decision or taking
any action in any event shall notify the Owner and request its consent as
promptly as practicable thereafter. In the event that the consent of the Owner
is denied, the Operator shall use its reasonable efforts to terminate any
contract or agreement entered into on the basis of such emergency, or any work
or services to be performed pursuant thereto. Permitted expenses incurred under
this Section 2.03 are Operating Costs to be paid by the Owner without being
subject to the limitations of Section 3.01.
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ARTICLE III
RESPONSIBILITIES OF THE OWNER
3.01 The Owner shall be responsible for the following:
(a) Within the limits of the Approved Operating and
Maintenance Budget, Owner shall promptly pay the Operator the Operating
Costs for each monthly period during the term of this Agreement,
beginning on the Effective Date of this Agreement, and payable on the
first business day of each weekly period continuing until such time as
this contract is terminated under Article VI or VII hereof. With
respect to Operating Costs not contemplated by and included within the
applicable Approved Operating and Maintenance Budget, the Operator may
expend up to $25,000 in each individual case and $75,000 on a
cumulative basis during any calendar year without prior approval of the
Owner.
(b) The Operator Fees under this Agreement will accrue each
month and be payable only from Net Positive Cash Flow. Payment of
accrued Operator Fees will commence the first month following the first
fiscal quarter of the Owner in which there is Net Positive Cash Flow.
The Owner will pay to the Operator in such first month the amount that
is the lesser of (i) the sum of (A) accrued Operator Fees and (B) loan
repayments owed KTIA (on whose behalf Operator may collect such loan
repayments) or (ii) the amount of Net Positive Cash Flow. Each month
thereafter Net Positive Cash Flow will be applied first to accrued and
unpaid Operator Fees and loan repayments to the KTIA, on a pro rata
basis, and following payment in full of accrued Operator Fees and loan
repayments to the KTIA, then to current Operator Fees and loan
repayments to the KTIA then due. To the extent that Net Positive Cash
Flow is not sufficient to pay current Operator Fees, such Operator Fees
shall accrue and be payable from future Net Positive Cash Flow. Upon
the Operator's receipt of written notice from the Owner that only the
first phase of the Business Plan will be implemented, the annual
Operator Fees will be reduced to $16,667 per month retroactive to the
Effective Date. For purposes of this Section 3.01(b), "Net Positive
Cash Flow" means, for any period of determination, (i) net income plus
depreciation and amortization, less (ii) capital expenditures and the
Working Capital Reserve Requirement; and "Working Capital Reserve
Requirement" means $2,000,000 or such lesser amount as 80% of the Board
of Directors of the Owner may require from time to time.
(c) Approve on a timely basis the Operating and Maintenance
Budget and Capital Budget providing for the costs and expenses
reasonably necessary for Operator to administer and maintain the
Facility and prepare for the startup of the Facility in accordance with
its obligations under this Agreement.
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(d) Provide and maintain the insurance coverage required to be
maintained for the Facility, including:
(i) All Risk Property Damage, including physical
damage, business interruption, extra expense (wind damage,
flood, electrical damage) up to the full value of the Facility
as determined by the Owner.
(ii) Boiler and Machinery, including physical damage
and business interruption up to the full value of the covered
equipment as determined by the Owner.
(iii) Comprehensive General Liability and
environmental legal liability with combined property damage
and injury coverage.
The Operator shall be listed as an Additional Insured on
general liability policies, including excess liability umbrella. The
Owner shall provide the Operator with certificates of insurance showing
policy provisions and showing the Operator as an Additional Insured on
liability policies. The Operator shall have the right to review all
insurance policies and make recommendations regarding the same. Such
policies shall contain a provision that such insurance policies are
primary with respect to any other insurance. Additionally, the policy
provisions shall provide that the Operator be given at least thirty
(30) days prior written notice from the insurance company of policy
cancellation(s). The Owner shall not modify or terminate any insurance
coverages listed in this Section 3.01(c) without prior written notice
to the Operator. Operator shall have no liability for any loss or
damage arising out of any such modification or termination.
The Owner waives its right of recourse against the Operator
and the Operator's Subcontractors and their employees for any loss or
damage payable by the insurance coverage listed in this section.
ARTICLE IV
CERTAIN REPRESENTATIONS AND WARRANTIES
The Operator represents and warrants to the Owner that:
4.01 (a) Corporate Organization: The Operator is duly organized,
validly existing and in good standing under the laws of the State of
Delaware.
(b) Power and Authority: The Operator has the requisite
corporate power and authority to enter into this Agreement and to
perform according to the terms hereof.
(c) Due Authorization: The Operator has taken all actions
required to be taken by it under law, its Certificate of Incorporation
and bylaws or otherwise and has
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obtained all approvals and consents necessary to authorize the
execution, delivery and performance of this Agreement by it and the
consummation of the transactions contemplated hereby except such
approvals and consents the absence of which would not have a material
adverse effect on the Facility, the Operator or upon the Operator's
ability to perform its obligations hereunder.
(d) Validity: This Agreement constitutes the legal, valid and
binding obligation of the Operator, enforceable in accordance with its
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws or principles of equity affecting the rights of creditors
generally.
(e) No Violation: The execution and delivery of this Agreement
does not contravene any provision of, or constitute a default under,
any indenture, mortgage, or other material agreement binding on the
Operator or any valid order of any court, or any regulatory agency or
other body having authority to which the Operator is subject.
(f) Qualification as Foreign Corporation: The Operator is duly
qualified or licensed to do business and is in good standing in the
State of Illinois.
(g) Facility Operations: The supervisory services under this
Agreement shall be performed by competent operators, in a competent
manner in accordance with Good Engineering Practices and in substantial
compliance with all Legal Requirements and in accordance with the scope
of this Agreement or any other detailed work scope agreed upon by the
parties and will be free from defects in workmanship.
Provided that [Owner] has been notified in writing promptly
after the [Operator] becomes aware of a defect, and whether a claim,
however, instituted, is based on contract, indemnity, warranty, tort
(including Operator's own negligence), strict liability or otherwise,
the exclusive remedy for any claim based on failure of, or defect in,
services furnished by Operator hereunder shall be (a) for deficient
services, the retraining or replacement of the Operator's personnel and
the reperformance by the Operator of any defective portion of the
service furnished, and (b) for any damaged part of the equipment
resulting from defective operating, maintenance or repair services
performed under this Agreement, the repair or replacement at the
Owner's option of the damaged part. In any event, however, if damage to
any Facility equipment is caused to any material extent by defective
equipment or inadequate or poor engineering design of the Facility or
equipment therein ("Contributory Cause"), notwithstanding the neglect
or negligence of Operator, such Contributory Cause, shall bar any claim
by Owner against Operator for such damage. Nothing in this paragraph
shall be construed to limit the Owner's right to terminate this
Agreement in accordance with Article VII.
This warranty is exclusive and in lieu of all other
warranties, whether written, oral, implied or statutory. NO IMPLIED
STATUTORY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE SHALL APPLY. The Operator does not warrant under this Agreement
any product, material or
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services of others which the Owner has furnished. Unless expressly
stated in the work scope, the Operator does not warrant under this
Agreement the fitness or suitability of the equipment on which the
services are performed, or any modification thereof, for any specific
application, performance, results or use. Any oral or written
representation, warranty, course of dealing or trade usage note
contained or referenced herein will not be binding on any party.
4.02 The Owner represents and warrants to the Operator as follows:
(a) Organization: It is a Delaware limited liability company
duly organized, validly existing and in good standing under the laws of
the State of Delaware and is duly qualified or licensed to do business
and is in good standing in the State of Illinois.
(b) Power of Authority: Pursuant to and as authorized by the
Plan of Reorganization and the Confirmation Order, Owner has the
requisite power and authority to enter into this Agreement and to
perform according to the terms hereof.
(c) Due Authorization: Pursuant to and as authorized by the
Plan of Reorganization and the Confirmation Order, the Owner has taken
all actions required to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(d) Validity: Pursuant to and as authorized by the Plan of
Reorganization and the Confirmation Order, this Agreement constitutes
the legal, valid and binding obligation of the Owner, enforceable in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws or principles of equity affecting the rights of creditors
generally.
ARTICLE V
LIMITATION ON AFFILIATED TRANSACTIONS BY
OPERATOR AND EMPLOYMENT OF CERTAIN PERSONS
In performing its obligations hereunder, the Operator will not make
any payment to or invest in, or acquire, lease, sell, transfer or provide any
assets or services from or to KTI or any of KTI's subsidiaries or Affiliates or
engage in any other transaction with any of them, except that the Operator shall
be permitted (i) to deal with the Owner in strict accordance with the express
written terms of this Agreement; and (ii) to engage in any other transaction
with KTI and its subsidiaries and Affiliates, which (w) is in the ordinary
course of the Operator's business, (x) is upon terms no less favorable to the
Operator than would be obtained in a comparable arms' length transaction with a
Person not an Affiliate and (y) the Owner has given its prior written consent
after receiving a reasonable description in writing of each of the terms
thereof.
ARTICLE VI
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TERM OF THIS AGREEMENT
6.01 Term. This Agreement will be effective on the Effective Date and
remain in effect for five years following the Effective Date unless earlier
terminated pursuant to Article VII or mutually extended in writing by the
Operator and the Owner. Operator understands and acknowledges that this
Agreement may not be modified, extended or renewed without the affirmative vote
of a majority of the Board of Directors of the Owner.
ARTICLE VII
EVENT OF DEFAULT
7.01 Owner Events of Default. Owner shall be in default under this
Agreement if:
(a) the Owner fails to pay when due any amount payable by
Owner to Operator hereunder, and ten (10) days have elapsed after such
due date;
(b) other than the pending proceedings in the Bankruptcy Court
for the District of Delaware, there is an assignment for the benefit of
the Owner's creditors, or the Owner is adjudged a bankrupt, or a
petition is filed by or against the Owner which is not dismissed within
60 days under the provisions of any state insolvency law or under the
provisions of the Federal bankruptcy laws, or the business or principal
assets of the Owner are placed in the hands of a receiver, assignee, or
trustee;
(c) in the case of the pending proceedings in the Bankruptcy
Court for the District of Delaware, a trustee or an examiner with
expanded powers under the United States Bankruptcy Code is appointed in
the Owner's pending Chapter 11 proceeding or the Owner's Chapter 11
proceeding is converted to a case under Chapter 7 or is dismissed;
(d) the Owner is dissolved and there is no reconstitution of
the Owner within thirty (30) days of such dissolution, or the Owner's
existence is terminated or its business is discontinued;
(e) Owner assigns or transfers this Agreement in violation of
Article 9.01;
(f) the Owner shall fail to comply in any material respect
with its obligation to provide and maintain insurance under Article
3.01(c); or
(g) the Owner shall fail to comply in a material respect with
any of its other covenants, agreements or obligations hereunder, and
such failure shall continue for thirty (30) days after the Owner
receives notice from the Operator with respect to the same.
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7.02 Remedy. If the Owner is in default, the Operator may, at its
option and without further notice, proceed to enforce any or all of the
following remedies by notice to the Owner,
(a) terminate this Agreement as provided in Section 7.03;
provided that if the default arises under Section 7.01(a) above and
Owner disputes the amount due in good faith, Operator may not terminate
this Agreement until the dispute is resolved and payment due is
thereafter withheld wrongfully, or
(b) proceed to arbitration in accordance with Article XI.
7.03 Rights upon Default.
(a) Right of Operator. Upon the occurrence and continuance of
an Event of Default described in Section 7.01, the Operator may, at its
option, terminate this Agreement by delivering written notice of
termination to the Owner, which notice of termination shall be
effective fifteen (15) days after the date it is received by Owner;
provided, however, that if the Owner has cured such default within such
fifteen (15) day period, such notice of termination shall be deemed to
have been canceled and shall be null and void. In the event of such
termination, the Owner shall pay all Operator Fee then due. In such
event, Operator shall take all necessary steps to protect the Facility,
leaving the same in an orderly and safe condition, prior to leaving the
premises.
7.04 Operator Events of Default. Operator shall be in default under
this Agreement if:
(a) there is an assignment for the benefit of the Operator's
creditors, or the Operator is adjudged a bankrupt, or a petition is
filed by or against the Operator which is not dismissed within 60 days
under the provisions of any state insolvency law or under the
provisions of the Federal bankruptcy laws, or the business or principal
assets of the Operator are placed in the hands of a receiver, assignee,
or trustee;
(b) the Operator is dissolved and there is no reconstitution
of the Operator within thirty (30) days of such dissolution, or the
Operator's existence is terminated or its business is discontinued; or
(c) the Operator shall fail to comply in a material respect
with any of its other covenants, agreements or obligations hereunder,
and such failure shall continue for thirty (30) days after the Operator
receives notice from the Owner with respect to the same.
7.05 Remedy. If the Operator is in default, the Owner may, at its
option and without further notice, proceed to enforce any or all of the
following remedies by notice to the Operator,
(a) terminate this Agreement as provided in Section 7.06, or
(b) proceed to arbitration in accordance with Article XI.
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7.06 Rights of Owner upon Operator Default. Upon the occurrence and
continuance of an Event of Default described in Section 7.04, the Owner may, at
its option, terminate this Agreement by delivering written notice of termination
to the Operator, which notice of termination shall be effective fifteen (15)
days after the date it is received by Operator; provided, however, that if the
Operator has cured such default within such fifteen (15) day period, such notice
of termination shall be deemed to have been canceled and shall be null and void.
In the event of any termination, the Owner shall pay all Operator Fees then due.
In such event, Operator, if requested by Owner, shall take all necessary steps
to protect the Facility, leaving the same in an orderly and safe condition,
prior to leaving the premises.
ARTICLE VIII
LIMITATIONS OF LIABILITY
8.01 Limitation of Liability. The Operator's liability to the Owner, on
all claims of any kind (excluding death or bodily injury), whether based on
contract, indemnity, warranty, tort (including as the case may be, a party's own
negligence), strict liability or other, for all losses or damages arising out
of, connected with, or resulting from this Agreement or from the performance or
breach thereof, or from any services covered by or furnished during the term of
this Agreement, shall in no case exceed the fees actually received by the
Operator; provided, that, in the event the Owner remits to the Operator amounts
necessary to pay Operating Costs pursuant to Section 3.01(a) and the Operator
fails to remit to any third party amounts with respect to which the Owner paid
such Operating Costs, the Operator shall be liable to the Owner for any
duplicative payment made by the Owner.
8.02 Waiver of Consequential Damages. In no event, whether based on
contract, indemnity, warranty, tort (including, as the case may be, a party's
own negligence) or otherwise, shall the Operator or its Subcontractors and
suppliers be liable to Owner, or the Owner, its Subcontractors and suppliers be
liable to Operator, for special incidental exemplary, indirect or consequential
damages including, but not limited to, loss of profits or revenue, loss of use
of the equipment or any associated equipment, cost of capital, cost of purchased
power, cost of substitute equipment, facilities or services, downtime costs, or
claims of customers of the Owner or Operator for such damages, and each party
shall indemnify the other, its Subcontractors and suppliers against any such
claims from the other's suppliers or customers. Notwithstanding the foregoing
waiver, no Subcontractor or supplier that has failed to limit its liability for
any of the foregoing types of damages shall have the benefit of the foregoing
waiver. In no event shall the Operator be liable under this Agreement for any
loss or damage whatsoever arising from its failure to discover mechanical or
engineering design problems in the Facility Equipment, and where Equipment
failure results from the combined effects of neglect in maintenance, poor design
or inappropriate equipment application, Operator shall have no liability with
respect to any loss resulting to the Equipment or Facility, or from its failure
to discover latent defects or defects inherent in the design of the Equipment.
If the Operator furnishes the Owner with advice or assistance without separate
compensation therefor, the Operator will not be subject to any liability
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whether in contract, indemnity, warranty, tort (including Operator's own
negligence) or otherwise for such advice or assistance.
ARTICLE IX
ASSIGNMENT
9.01 Assignment by the Owner. The Operator may terminate this Agreement
without penalty upon the giving of 10 days notice if (a) the assignment of this
Agreement is attempted or (b) a contract to sell the Facility is executed
between the Owner and a third party.
9.02 Assignment by the Operator. The Operator shall have the right to
assign this Agreement, provided that the Owner gives its prior written consent
to such assignment (which consent shall not be unreasonably withheld or
delayed). Consent shall not be required in the case of an assignment to an
affiliate of the Operator. Notwithstanding the foregoing, the Operator shall be
permitted to assign its right to receive payments hereunder without obtaining
the consent of the Owner.
ARTICLE X
MISCELLANEOUS
10.01 Independent Contractor. The Operator shall at all times be deemed
an independent contractor and not by reason of this Agreement a joint venture,
agent or principal of the Owner and none of the Operator's officers, directors,
partners, employees, agents or representatives or the officers, directors,
partners, employees, agents or representatives of its subcontractors shall be
considered officers, directors, partners, employees, agents or representatives
of the Owner.
10.02 Regulated Party Status. The Operator shall not be construed to be
a general partner of the Owner for any purpose, and the parties shall deal with
each other at arms length.
10.03 Severability. The invalidity, in whole or in part, of any of the
foregoing sections or paragraphs of this Agreement will not affect the validity
of the remainder of such sections or paragraphs.
10.04 Entire Agreement. This Agreement and all amendments thereto
contain the complete agreement between the Owner and the Operator with respect
to the matters contained herein and supersede all other agreements, whether
written or oral, with respect to the matters contained herein between the Owner
and the Operator.
10.05 Amendment. No modification, amendment, or other change to this
Agreement will be effective unless consented to in writing by each of the
parties hereto. Operator understands and acknowledges that this Agreement may
not be modified or amended without the affirmative vote of a majority of the
Board of Directors of the Owner.
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10.06 Waiver. Failure or forbearance by any party to exercise any of
its rights or remedies under this Agreement shall not constitute a waiver of
such rights or remedies. No party shall be deemed to have waived or forborne any
right or remedy resulting from such failure to perform unless it has made such
waiver specifically in writing.
10.07 Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original and all of which shall be
deemed one and the same Agreement.
10.08 Choice of Law. This Agreement shall be governed by the laws of
the State of Illinois without reference to conflict of laws or the principles
thereof.
10.09 Title Passage. Title to all materials and services provided under
this Agreement shall pass to the Owner upon performance of the work or upon the
Owner becoming obligated to make payment therefor. It is expressly understood
and agreed, however, that the passage of title shall not release the Operator
from its responsibility to fully carry out its obligations under this Agreement.
10.10 Force Majeure. The parties hereto shall be excused from
performance under this Agreement to the extent, but only to the extent, that
performance hereunder is prevented by an act or event of Force Majeure. Operator
shall use its best efforts to take all reasonable steps to overcome or mitigate
the effects of such an act or event of Force Majeure, provided that the costs of
such steps shall in all events be considered Operating Costs for the purposes
hereof. Owner shall take all reasonable steps to overcome or mitigate the
effects of an event of Force Majeure. The Operator may not incur expenses in
excess of $25,000 to overcome or mitigate the effects of such Force Majeure
event without the Owners prior written consent.
ARTICLE XI
DISPUTES
11.01 Disputes. The parties agree that time is of the essence in
resolving any controversy, dispute or claim, and they shall proceed as
expeditiously as possible to resolve such dispute among themselves. Any
controversy, dispute or claim between the Operator and the Owner that they are
unable to resolve shall be taken to arbitration, which shall be the procedure
for resolving disputes under this Agreement.
11.02 Procedure. All arbitration proceedings shall be pursuant to the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). To initiate the arbitration, the initiating party (the "Initiating
Party") shall notify the other party in writing (the "Arbitration Demand"),
which demand shall (i) describe in reasonable detail the nature of the dispute
submitted to arbitration (the "Dispute"), (ii) include a single, comprehensive
proposal for the resolution of Dispute submitted to arbitration, and (iii) name
an arbitrator who (A) has been
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licensed to practice law in the U.S. for at least ten years, (B) is not an
employee or former employee of either party or any of their Affiliates, (C) is
not affiliated with any law firm that ever represented either party, and (D) is
experienced in representing clients in connection with commercial agreements
(the "Basic Qualifications") and the Initiating Party shall file three copies of
the Arbitration Demand and of the arbitration provisions of this Agreement with
the AAA. The AAA shall promptly give notice of the filing of the Arbitration
Demand on the other party and within thirty (30) days thereafter such other
party shall file with the AAA and serve on the Initiating Party, a written
statement (i) responding to the Arbitration Demand (ii) submitting a single,
comprehensive proposal for the resolution of Dispute submitted to arbitration,
and (iii) naming a second arbitrator satisfying the Basic Qualifications.
Promptly, but in any event within fifteen (15) days thereafter, the two
arbitrators will attempt to select a mutually agreeable third neutral
arbitrator. In the event they are unable to do so, the two arbitrators will
promptly request a list from the AAA of potential arbitrators who satisfy the
Basic Qualifications and who have no past or present relationships with the
parties or their counsel, except as otherwise disclosed in writing to and
approved by the parties. Within fifteen (15) days of receipt of the list of
potential arbitrators, the two named arbitrators shall select a third arbitrator
from the list. Should the two named arbitrators be unable to agree on a third
arbitrator, the AAA shall appoint the third arbitrator from the list it
provided. The arbitration will be heard by a panel of the three arbitrators so
chosen (the "Arbitration Panel"), with the third arbitrator so chosen serving as
the chairperson of the Arbitration Panel. Decisions of a majority of the members
of the Arbitration Panel shall be determinative. The arbitration hearing shall
be held in a neutral location not less than sixty (60) days after the other
party has filed an answering statement to the Arbitration Demand filed by the
Initiating Party. Notwithstanding the requirement to submit all controversies,
disputes and claims to mandatory and binding arbitration, pending arbitration
and resolution of the Dispute, a party may seek temporary injunctive relief from
a court of competent jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first set forth above.
OWNER:
NEW HEIGHTS RECOVERY & POWER, LLC
By:/s/ Xxxxx Xxxxxxxxx
------------------------------
Title: Authorized Agent
OPERATOR:
KTI OPERATIONS, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------
Title: Senior Vice President
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EXHIBIT A
PERMITS
