<PAGE>

                                                                  EXHIBIT 10.4.2
                                                                  ==============


                          FIRST AMENDED AND RESTATED
                          ==========================
                      ENVIRONMENTAL COMPLIANCE AGREEMENT
                      ==================================


     This FIRST AMENDED AND RESTATED ENVIRONMENTAL COMPLIANCE AGREEMENT
("Agreement") is dated as of May 1, 2000 and is being entered into between West
Valley MRF, LLC, a California limited liability company ("Obligor"), and Union
Bank of California, N.A. ("Bank").

     The parties hereto enter this Agreement on the basis of the following
facts, understandings and intentions:

     A.  Bank has made financing arrangements with Obligor as evidenced by that
certain Reimbursement Agreement dated as of June 1, 1997, between Bank and
Obligor (as amended from time to time, the "1997 Reimbursement Agreement").
Such extension of credit or other financing arrangements, together with any
amendments, replacements, substitutions, extensions or refundings thereof, are
hereinafter referred to as the "1997 Credit Extension".

     B.  In connection with the 1997 Credit Extension, Obligor has undertaken
certain obligations set forth in that certain Environmental Compliance Agreement
dated as of June 19, 1997 between Obligor and Bank (the "1997 ECA").

     C.  Concurrently herewith, Bank and Obligor are entering into that certain
Reimbursement Agreement dated as of the date hereof (as amended from time to
time, the "2000 Reimbursement Agreement"), pursuant to which Bank has agreed to
issue its irrevocable Letter of Credit (the "Letter of Credit") to provide
credit support for bond financing for the expansion of the facilities financed
with the proceeds of the 1997 Credit Extension. The 2000 Reimbursement
Agreement, the Letter of Credit and the 1997 Credit Extension, together with any
amendments, replacements, substitutions, extensions or refundings thereof, are
hereinafter collectively referred to as the "Credit Extensions". All of the
obligations of Obligor to Bank hereunder, together with any amendments,
substitutions, extensions or modifications thereof, are hereinafter referred to
as the "Environmental Obligations". Capitalized terms used herein without
definition shall have the respective meanings ascribed thereto in the 2000
Reimbursement Agreement.

     D.  The term "Collateral" shall mean any real or personal property to which
Bank has been granted a security interest by Obligor in connection with the
Credit Extensions.

     E.  The term "Property" shall mean that certain real property located in
the County of San Bernardino, State of California, and more particularly
described in Exhibit "A", attached hereto, including any improvements affixed to
             -----------
and becoming a part of said real property.

     F.  Obligor is a limited liability company, the only members of which are
West Valley Recycling & Transfer, Inc., a California corporation, ("WVRT") and
Kaiser Recycling Corporation, a Delaware corporation ("KRC"). WVRT is a wholly-
owned subsidiary of Burrtec Waste Industries, Inc., a California corporation,
("BWI") and KRC is a wholly-owned subsidiary of Kaiser Ventures Inc., a Delaware
corporation ("KVI"). Obligor is developing, building and equipping a materials
recovery facility and transfer station on the Property (the "MRF").

                                      -1-
<PAGE>

     F.  Bank would not issue or maintain the Letter of Credit or continue to
maintain the 1997 Credit Extension if, as a result, Bank might incur any
liability arising with regard to any Environmental Condition (as defined in
Section 1, below) now or hereafter present at, in, on, under, around or that
affects any portion of the Property. Bank requires that Obligor execute this
Agreement amending and restating the 1997 ECA as a further assurance against
such liability and that KRC, KVI, BWI and WVRT guaranty certain aspects of
Obligor's Environmental Obligations to the Bank as provided herein and as
evidenced by the two First Amended and Restated Environmental Guaranty
Agreements (the "Environmental Guarantees") substantially in the forms attached
hereto as Exhibits "B" and "C".
          --------------------

     G.  It is the intention of Bank that, as between Bank and Obligor, Obligor
shall be liable as set out in this Agreement for the Environmental Obligations.
Obligor shall be solely responsible for any and all liability arising with
regard to any Hazardous Substance that is present at any time, whether before or
after the date of this Agreement, whether at, in, on, under, above, around or
that affects any portion of the Property, and Bank shall under no circumstances
have any liability therefor except to the degree that it would be responsible
under federal, state or local environmental laws for conduct by the Bank, its
employees, contractors or agents and their respective subcontractors, that
deposits, releases or exacerbates any Environmental Condition at, in, on, under,
above, around or that affects any portion of the Property. However, Bank will
not be liable for any action or inaction related to a breach or default of this
Agreement by the Obligor, including, but not limited to, Obligor's duty of
compliance regarding Hazardous Substances as set out in Article 5 of this
Agreement, unless Bank's liability arises out of its gross negligence or willful
misconduct. It is intended by the parties that this Agreement be fully
enforceable to the maximum extent permitted by law.

     NOW THEREFORE, in consideration of, and as an inducement for, Bank issuing
the Letter of Credit and maintaining the 1997 Credit Extension and for other
good and valuable consideration, Obligor agrees as follows:

     1.  Definitions. For purposes of this Agreement, the following terms shall
have the following meaning:

         A.  "Burrtec-Related Environmental Obligation" shall mean any
              ----------------------------------------
Environmental Obligation of Obligor hereunder which arises as a result of any
Subsequent Environmental Condition other than (i) the presence of unknown Pre-
Existing Environmental Conditions or (ii) any escape, release, discharge,
deposit, emission or other effect from the migration of a Pre-Existing
Environmental Condition from the Environmental Response Structures, which is
caused by an act of God or other natural cause beyond the reasonable control or
prevention of Obligor.

         B.  "Environmental Condition" shall mean and include the Environmental
              -----------------------
Response Structures, all Pre-Existing Environmental Conditions and Subsequent
Environmental Conditions.

         C.  "Environmental Response Structures" shall include but not be
              ---------------------------------
limited to the MRF building floor and cap system including the sidewalls of the
below grade mechanical equipment pits, the "warning barrier" of yellow caution
tape placed beneath the concrete floor, the clean, compacted fill beneath the
warning barrier and above the affected soil and burial cell, and any portion of
the building wall which is below the grade of the building floor, the associated
drainage structures, the soil cement cap and its drainage structures, including
the drain and culvert (which are yet to be built) leading to the flood control
basin which are part of the cap system and the integrity of the

                                      -2-
<PAGE>

Hazardous Substances burial cells beneath the caps and all monitoring and
maintenance and other requirements associated with the structures as more fully
set out in KVI's Operation and Maintenance Agreement, Operation and Maintenance
Plan for the MRF Building Floor Cap and the Soil Cement Cap areas and in the
Amendment to Operable Unit No. 1, Tar Pits Remedial Action Plan ("Amended RAP").
The Environmental Response Structures are for the purpose of capping and
containing Hazardous Substances on the Property existing as of June 19, 1997.

          D.  "Hazardous Substances" shall mean any substance, material, or
               --------------------
waste (including, without limitation, raw materials, building components,
recycled or recyclable materials, wastes, and the products and by-products of
manufacturing, processing or other activities) which is or becomes designated,
classified or regulated as being "toxic", "hazardous" or similarly designated,
classified or regulated under any federal, state or local law, ordinance, rule
or regulation. The term "Hazardous Substances" shall include, without
limitation, (i) substances defined as "hazardous substances" or "toxic
substances" for purposes of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. or the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; (ii) substances
defined as "hazardous wastes" or "hazardous substances" for purposes of Section
25117 or Section 25316, respectively, of the California Health and Safety Code;
and (iii) petroleum, flammable explosives, urea formaldehyde insulation,
asbestos, polychlorinated biphenyls (PCBs), and radioactive materials.

          E.  "Kaiser-Related Environmental Obligation" shall mean any
               ---------------------------------------
Environmental Obligation of Obligor hereunder which arises as a result of or in
connection with any Pre-Existing Environmental Condition, whether known or
unknown, and/or any of the Environmental Response Structures including, without
limitation, any release, deposit or other effect related to the migration of a
Pre-Existing Environmental Condition from the Environmental Response Structures.

          F.  "Pre-Existing Environmental Condition" shall mean any escape,
               ------------------------------------
release, discharge, emission, deposit, migration or other effect of or from
Hazardous Substances that were present at any time, at, on, in, under, above,
around or that affected any portion of the Property on or prior to June 19,
1997, by any cause whatsoever, whether man-made or resulting from natural causes
or acts of God, including, without limitation, fire, flood, explosion or
earthquake. In addition, a Pre-existing Environmental Condition includes off-
site environmental damages, claims, or litigation involving Obligor, KVI, or KRC
for Hazardous Substances at, on, in, under, above, around or that affected any
portion of the Property on or prior to June 19, 1997, or for the future release
of known or unknown Hazardous Substance(s) at, in, on, above, under, around or
that affect any portion of the Property or that migrate from the Property if
they were present on the Property on or prior to June 19, 1997. A general, but
not all-inclusive, description of known Pre-Existing Environmental Conditions is
reflected in the materials listed on Exhibit "B" attached hereto.
                                     -----------

          G.  "Subsequent Environmental Condition" shall mean any escape,
               ----------------------------------
release, discharge, emission deposit, migration or other effect of or from a
Hazardous Substances at, on, in, under, above, around or that affects any
portion of the Property at any time after June 19, 1997 by any cause whatsoever,
whether man-made or resulting from natural causes or migration acts of God,
including, without limitation, fire, flood, explosion or earthquake.

     2.   Indemnity Regarding Environmental Conditions. Obligor agrees to
indemnify and hold Bank harmless from and against all liabilities, claims,
actions, foreseeable and unforeseeable consequential damages, costs and expenses
(including sums paid in settlement of claims and all

                                      -3-
<PAGE>

reasonable consultant, expert and legal fees and expenses, including reasonable
allocated costs of in-house legal and technical services) or loss directly or
indirectly arising out of or resulting from any and all Environmental Conditions
at, on, in, under, above, around or that affect any portion of the Property,
including those incurred in connection with any investigative, containment,
removal, remedial, cleanup, monitoring, restoration or post-remedial operation
and maintenance work, or any resulting damages or injuries to the person or
property of any third party or to any natural resources, however, the Obligor
shall have no duty to indemnify and defend the Bank, to the degree that Bank
would be legally responsible under federal, state or local environmental laws,
for a release or deposit of Hazardous Substances or exacerbation of any
environmental condition caused by the Bank, its employees, contractors,
subcontractors and/or agents. However, Bank will not be responsible for any
action or inaction related to a breach or default of this Agreement by the
Obligor, including, but not limited to, Obligor's duty of compliance regarding
Hazardous Substances as set out in Article 5 of this Agreement, unless Bank's
liability arises out of its gross negligence or willful misconduct.

     3.  Defense and Indemnity Procedures. After receipt by the Bank of notice
of any claim, complaint or the commencement of any action or proceeding with
respect to which indemnification is being sought under this Agreement by the
Bank, the Bank will notify Obligor, KVI and BWI in writing of such claim,
complaint or of the commencement of such action or proceeding, but failure to
notify the Obligor, KVI and/or BWI will not relieve the Obligor from any
liability or obligation which the Obligor may have pursuant to this Agreement,
unless and only to the extent that such failure results in the forfeiture by
Obligor of material rights and defenses. The Obligor will assume the defense of
such claim, action or proceeding, including the employment of counsel reasonably
satisfactory to the Bank and the prompt payment of the fees and disbursements of
such counsel. In the event, however, the Bank reasonably determines that having
common counsel would present such counsel with a conflict of interest, or if
Obligor fails to assume the defense of the claim, complaint, action or
proceeding or to employ counsel reasonably satisfactory to the Bank, in either
case in a timely manner, then the Bank may employ separate counsel to represent
or defend it in any such claim, action or proceeding and Obligor will promptly
pay the reasonable fees and disbursements of such counsel. It is further agreed
that Obligor will not, without the prior written consent of the Bank, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought unless such settlement, compromise or consent
includes an unconditional release of the Bank hereunder from all liability
arising out of such claim, action, suit or proceeding.

     It is further agreed that Obligor will promptly reimburse the Bank
hereunder for all reasonable third-party expenses (including reasonable
attorneys' and other legal fees and disbursements) as they are incurred by the
Bank in connection with investigating, preparing for or defending, or providing
evidence in, any pending or threatened action, claim, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder and in
enforcing this Agreement.

     4.  Representation and Warranty Regarding Hazardous Substances. Before
signing this Agreement, Obligor researched and inquired, or has had an
opportunity to research and inquire, into the previous uses and ownership of the
Property. Based on that due diligence, as generally described in Exhibit "D"
                                                                 -----------
attached hereto, Obligor represents and warrants that to the best of Obligor's
knowledge, no Hazardous Substance has been released onto or disposed of or
otherwise is present at, in, on, under, above, around or that affect any portion
of the Property, except to the extent disclosed to Bank in writing by KVI and as
identified on the attached Exhibit "D"  (List of Environmental Documents
                           -----------
including Reports, Documents and Litigation Matters made available to Bank).

                                      -4-
<PAGE>

     5.  Compliance Regarding Hazardous Substances. Except for those Hazardous
Substances used or found to be present on the Property in connection with the
ordinary course of the business presently being or anticipated to be conducted
on the Property including those listed on Exhibit "E" attached hereto, and which
                                          -----------
are in compliance with all laws, regulations, ordinances, rules, permits,
licenses, orders or other legally mandated requirements or plans governing or
applicable to Hazardous Substances, Obligor shall not knowingly and shall not
knowingly permit any third party to use, generate, manufacture, store, release,
discharge or dispose of any Hazardous Substance in a reportable quantity as
defined under federal or state laws, at, on, in, under, above, around or in a
manner which affects the Property, or transport in a reportable quantity as
defined under federal or state laws any Hazardous Substance to or from the
Property without the prior written consent of Bank, which consent shall not be
unreasonably withheld, conditioned or delayed so long as such use, generation,
manufacture, storage, release, discharge or transport does not arise from a
proposed change in the character of the use of the Property; and that any such
activity does not affect the Release from liability which Bank has obtained from
the Department of Toxic Substances Control ("Department") pursuant to California
Health and Safety Code Section 253641; (iii) and, Obligor demonstrates to the
satisfaction of Bank that such use, generation, manufacture, storage, release,
discharge or transport will be in full compliance with all laws, regulations,
ordinances, rules, permits, licenses, orders, agreements, and/or plans governing
or applicable to Hazardous Substances on the Property. To the best of its
knowledge, Obligor has complied and shall comply and seek to cause all occupants
and licensees of the Property to comply (including, if necessary, by resort to
and diligent pursuit of all reasonably available legal, equitable and
administrative remedies and proceedings) with all laws, ordinances, rules,
regulations, orders, agreements and/or plans governing or applicable to
Hazardous Substances on the Property, as well as the directives of all
governmental authorities exercising jurisdiction over the Property.
Notwithstanding the foregoing, Obligor may engage in emergency remediation work
that is necessary to immediately protect public health and safety and property
without first obtaining Bank's consent but Obligor shall notify the Bank and
obtain its consent as provided herein as soon as possible.

     6.  Notices Regarding Hazardous Substances. Until full performance of the
Environmental Obligations and repayment of both of the Credit Extensions,
Obligor shall promptly notify Bank if Obligor knows, suspects or believes there
may be any Hazardous Substance of a material nature at, on, in, under, above,
around, or that affects the groundwater or soil vapor on any portion of the
Property, to the extent not previously disclosed by Obligor that is discovered
after the date of this Agreement or was discovered during the period from June
19, 1997 to the date hereof, or that Obligor, or the Property may be subject to
any threatened or pending investigation by any governmental agency under any
law, ordinance, rule or regulation pertaining to any Hazardous Substance, or may
be subject to any claim or litigation by a third party regarding the presence of
a Hazardous Substance in relation to its business and/or the Property. Obligor
shall furnish Bank with copies of any pertinent and material notice, summons,
letter, report or other written communication relating to the presence of
Hazardous Substances at, on, in, under, above, around or that affect any portion
of the Property within five (5) business days after Obligor's receipt thereof.
The parties to this Agreement recognize that Hazardous Substances are present on
the Property and that these Hazardous Substances may be known and unknown and
that the known Hazardous Substances have been identified in the 1988 Consent
Order entered into by KVI and the Department and subsequent studies related to
the Property as described in Exhibit "B" hereto, and that the Department
                             -----------
approved KVI's Amended RAP for the Property, that the Department is to issue a
No Further Action Letter in usual form for the MRF Parcel that will provide
closure as to the identified Hazardous Substances

                                      -5-
<PAGE>

subject to continuing operation and maintenance obligations, and other legal
obligations and that KVI has entered into an Operation and Maintenance Agreement
with the Department and that KVI has developed and submitted an Operation and
Maintenance Plan to the Department to protect the Environmental Response
Structures which are located or to be located on the Property.

     7.  Remediation Work. If any investigation, monitoring, containment,
cleanup, removal, restoration, remedial, or post-remedial operation and
maintenance work of any kind or nature (the "Remediation Work") is or becomes
necessary or required pursuant to any applicable federal, state or local law,
ordinance, rule or regulation or the order or directive of any governmental
authority exercising jurisdiction over the Property, due to the presence or
suspected presence of an Environmental Condition, Obligor shall promptly
commence to perform, or cause to be performed, and thereafter diligently
prosecute to completion, all such Remediation Work provided that such
Remediation Work shall never require a clean-up to standards greater than then
existing industrial standards, unless necessitated by off-site damages, natural
resources, or this Agreement. The Remediation Work will be conducted in
accordance with the documents, if any, identified in Exhibit "D", i.e., the KVI
                                                     -----------
Amended RAP, the Operation and Maintenance Agreement, and the Operation
Maintenance Plan, as modified, and as such documents shall be amended from time
to time, and in material compliance with all applicable laws, ordinances, rules
and regulations, the agreements, orders, and directives of all governmental
authorities exercising jurisdiction over the Property or the Remediation Work.
Obligor shall cause all Remediation Work to be performed in a good and
workmanlike manner by one or more qualified environmental engineers or
contractors. If requested by Bank, Obligor's obligations with regard to the
Remediation Work shall include obtaining a letter or other written statement in
usual form from the governmental authority(ies), exercising or having the right
to exercise jurisdiction over the Property, or the Remediation Work, that no
further action is required, subject, but not limited to, any continuing
monitoring, or operation and maintenance obligations, provided, however, if all
non-lead agencies having a right to exercise jurisdiction defer to a designated
lead agency's decision or if there is a single agency designation, only the
designated lead agency needs to furnish the required letter or written
statement. Obligor shall pay for all Remediation Work, including the costs of
plans and specifications, utilities, permits, fees, taxes and insurance premiums
in connection therewith, and shall keep the Property free from all mechanics' or
other liens arising out of the Remediation Work. Obligor shall keep Bank fully
apprised of all material developments and findings during the course of any
Remediation Work and shall furnish to Bank, promptly upon receipt or
preparation, such information concerning the Remediation Work as Bank may
reasonably request from time to time in order to verify Obligor's compliance
with this section and to protect Bank's security, including, without limitation,
copies, if any, or all reports, studies, analyses, contracts, manifests, orders,
correspondence, videos, or computer generated materials. Upon Bank's request,
Obligor shall also furnish Bank with written confirmation in a form satisfactory
to Bank showing that all contaminated soil and other materials removed, if any,
from the Property and any other property affected by the Remediation Work have
been properly disposed of in accordance with all applicable laws, ordinances,
rules and regulations and the orders and directives of all governmental
authorities exercising jurisdiction over the Remediation Work, the Property, or
the property, which may include the holding of such materials in a legally
permitted manner and for the legally permitted length of time, until deposited
into KVI's proposed Corrective Action Management Unit. Bank shall have the
right, but not the obligation, to participate in any action or proceeding
relating to the presence or suspected presence of any Hazardous Substances at,
in, on, under, above, around or that affects any portion of the Property, or the
necessity for or adequacy of any Remediation Work. Such participation shall be
solely for the purpose of protecting Bank's security, and shall not affect the
release of liability previously issued by the Department to the Bank and shall
not impose any liability

                                      -6-
<PAGE>

on Bank or result in a waiver of any default of Obligor provided, however, the
Bank, shall be responsible only to the degree that it would be legally
responsible under federal, state or local environmental laws, for any gross
negligence or for willful misconduct that results in the deposit or release of
Hazardous Substances or exacerbation of any environmental condition caused by
the Bank, its employees, contractors, subcontractors and/or agents.

     8.  Environmental Guarantees.

         (a) All Kaiser-Related Environmental Obligations shall be guaranteed,
jointly and severally by KVI and KRC in accordance with the First Amended and
Restated Environmental Guaranty Agreement executed by KVI and KRC, substantially
in the form attached here as Exhibit "B".
                             -----------
         (b) All Burrtec-Related Environmental Obligations shall be guaranteed,
jointly and severally, by BWI and WVRT in accordance with the First Amended and
Restated Environmental Guaranty Agreement executed by BWI and WVRT,
substantially in the form attached here as Exhibit "C".
                                           -----------

     9.  Site Visits, Observations and Testing. At its expense until the
occurrence of an Event of Default, Bank and its agents and representatives shall
have the right at any reasonable time upon reasonable notice to enter and visit
the Property for the purposes of observing the Property, taking and removing
soil or groundwater samples, and conducting tests on any part of the Property.
Obligor, at its expense, shall have the right to observe the Bank, comment on
testing and sampling protocols and to obtain splits of any samples taken by the
Bank. Bank is under no duty, however, to visit or observe the Property or to
conduct tests, and any such acts by Bank shall be solely for the purposes of
verifying Obligor's compliance with this Agreement and protecting Bank's
security. No site visit, observation or testing by Bank shall result in a waiver
of any default of Obligor, impose any liability on Bank, or affect the
Department's release of liability previously issued to the Bank except to the
extent the Bank, its employees, contractors and/or agents are found to be
legally responsible under federal, state or local environmental laws or for
increased remediation costs to the Obligor as a result of gross negligence or
willful misconduct that results in a deposit, release or exacerbation of
Hazardous Substances onto or from the Property. In no event shall any site
visit, observation or testing by Bank be a representation that Hazardous
Substances are or are not present at, on, in, under, above, around, or that
affect any portion of the Property, or that there has been or shall be
compliance with any law, regulation, ordinance order, or agreement pertaining to
Hazardous Substances or any other applicable law or regulation. Neither Obligor
nor any other party is entitled to rely on any site visit, observation or
testing by Bank. Bank owes no duty of care to protect Obligor or any other party
against or to inform Obligor or any other party of, any Hazardous Substances or
any other adverse condition affecting the Property. However, Bank shall promptly
provide Obligor, at Obligor's cost, a copy of all reports, studies, drafts,
analysis and correspondence related to any site visit, sample or test taken by
or on behalf of the Bank. In each instance, Bank shall give reasonable notice
before entering the Property or any place which the Bank is permitted to enter
under this Section. Bank shall make reasonable efforts to avoid interfering with
the use of the Property in exercising any rights provided in this Section.

     10.  Subrogation.  Upon the occurrence of an Event of Default, Bank shall
have full benefit of any and all rights which Obligor now or hereafter may have
against third parties with regard to Hazardous Substances, whether such rights
arise by contract, by operation of law, or in equity, and shall have the right,
but not the obligation, to enforce such rights for the sole benefit of Bank
directly against any such third party.  If the consent of any such third party
is necessary to fully effectuate the

                                      -7-
<PAGE>

foregoing subrogation and assignment of Obligor's rights, Obligor shall promptly
obtain and provide such consent.

     11.  Event of Default. A breach by Obligor of any material covenant,
warranty or other provision of this Agreement shall constitute, at the election
of Bank in its reasonable discretion, an event of default (an "Event of
Default") under this Agreement after the required notice has been given herein
and Obligor, or any guarantor of this Agreement has not commenced performance of
their respective obligations and diligently proceeded with such performance as
required herein. Prior to declaring an Event of Default under this Agreement,
Bank shall give Obligor, KVI and BWI thirty (30) days prior written notice
detailing the reasons why the Bank may declare an Event of Default under this
Agreement. However, if the Environmental Condition is such that it involves a
material and imminent danger to human health or safety the Bank shall be
required to give only such notice as may be reasonable in emergency
circumstances. The Bank shall not declare an Event of Default if Obligor (i)
complies or commences compliance with its obligations under this Agreement on or
before the lapse of said thirty (30) day period or such shorter period of time
as may be reasonable in the event of an emergency situation; and (ii) thereafter
diligently prosecutes such performance until the breach has been cured. The Bank
acknowledges and recognizes that Remediation Work often takes longer to plan,
undertake and complete than thirty (30) days and that an Event of Default shall
not occur under this Agreement so long as Obligor commences appropriate action
within the 30-day period specified above and diligently proceeds with the
appropriate Remediation Work with reasonable promptness.

     12.  Environmental Obligation Not Secured By Real Property. The liability
of Obligor under this Agreement is secured pursuant to the Security Agreement
but is not and shall not be secured by (i) the Deeds of Trust which secure
Obligor's obligations with respect to the Credit Extensions; or (ii) any other
lien encumbering all or any portion of the Property or any other real property.
The liability of Obligor under this Agreement shall not be limited to or
measured by the amount, if any, outstanding under the Credit Extensions or by
reference to the value of any of the Property or Collateral. No action for the
enforcement of or recovery of damages under this Agreement shall constitute an
"action" within the meaning of Section 726 of the California Code of Civil
Procedure, and no judgment against Obligor in any action hereunder shall
constitute a money judgment or deficiency judgment within the meaning of
Sections 580a, 580b, 580d or 726 of the California Code of Civil Procedure. The
rights of Bank under this Agreement shall be cumulative and in addition to any
other rights and remedies of Bank under any other document or instrument or at
law or in equity.

     13.  Waiver of Suretyship and Guarantor Defenses. To the extent Obligor is
a surety or a guarantor hereunder for any obligation of the Borrower and the
owner of the Property, or either of them ("Principal"), Obligor expressly waives
and relinquishes any and all rights and remedies Obligor may have or be able to
assert by reason of laws relating to the rights and remedies of sureties or
guarantors. The obligations of Obligor under this Agreement are independent of
the obligations of Principal and a separate action may be brought and prosecuted
against Obligor whether or not an action is brought against Principal or
Principal is joined in any such action. Obligor authorizes Bank, without notice
to or demand of or consent from, Obligor and without affecting Obligor's
liability under this Agreement, from time to time to amend, modify, change,
alter, waive, release, extend, renew, surrender or enforce any obligation of
Principal; take, hold, enforce, waive, impair, compromise or release security
for the performance of any obligation of Principal; apply any such security and
direct the order or manner of sale thereof as Bank in its sole and complete
discretion may determine; release or substitute, in whole or in part, any person
or entity liable for any obligation of Principal; and settle

                                      -8-
<PAGE>

or compromise any obligation of Principal. Obligor shall be and remain bound
under this Agreement notwithstanding any such action by Bank. Obligor waives all
rights under California Civil Code Section 2845 and waives any right to require
Bank to proceed against Principal, proceed against or exhaust any security now
or hereafter held by Bank, or pursue any other remedy in Bank's power
whatsoever. Bank may, at its election, exercise any right or remedy Bank may
have against Principal or any security now or hereafter held by Bank without
affecting or impairing in any way the liability of Obligor under this Agreement.
Obligor waives any defense arising out of the absence, impairment or loss of any
right of reimbursement or subrogation or any other right of remedy of Obligor
against Principal or any such security, regardless of the cause of any such
absence, impairment or loss. Obligor waives any defense arising by reason of any
disability or other defense of Principal or by reason of the cessation from any
cause whatsoever of the liability of Principal. Obligor waives any setoff,
defense or counterclaim, which Principal may have or claim to have against Bank.
Until all obligations of Principal to Bank have been performed in full, Obligor
shall have no right of subrogation and waives any right to enforce any remedy
Bank now has or may hereafter have against Principal. Obligor waives all rights
under California Civil Code Section 2849 and any other benefit of or right to
participate in any security now or hereafter held by Bank. At the option of
Bank, Obligor may be joined in any action or proceeding commenced by Bank
against Principal in connection with or based on any obligation of Principal and
Bank may recover against Obligor in such action or proceeding without any
requirement that Bank first assert, prosecute or exhaust any right, remedy or
claim against Principal.

     14.  Survival. This Agreement and the obligations and liabilities of
Obligor hereunder shall survive and remain in full force and effect following
the performance, repayment or discharge of the Environmental Obligations and the
Credit Extensions, including, without limitation, by a full or partial
reconveyance of all or any portion of the Property or by amounts paid or credit
bid at a foreclosure sale or by discharge in connection with a deed in lieu of
foreclosure. Obligor waives the right to assert any statute of limitations as a
bar to the enforcement of this Agreement.

     15.  Severability. If any of Obligor's obligations hereunder shall be held
to be unenforceable, the remainder of this Agreement and its application to all
obligations other than those with respect to which it is held unenforceable
shall not be affected thereby and shall remain in full force and effect.

     16.  Attorneys' Fees. If Bank is required to enforce Obligor's obligations
hereunder, Obligor shall pay to Bank all costs incurred, whether or not suit is
filed, including, but not limited to, reasonable attorneys' fees (including
reasonably allocated costs of in-house legal services) and court costs.

     17.  Governing Law.  The terms of this Agreement shall be governed by and
construed according to the laws of the State of California.

     18.  Joint and Several Obligations. If more than one person or entity has
executed this Agreement as Obligor, their liability shall be joint and several,
except as otherwise provided for in this Agreement.

     19.  Successors and Assigns. All of the provisions hereof shall inure to
the benefit of Bank successors and assigns and be binding upon Obligor and
Obligor's successors and assigns; provided,

                                      -9-
<PAGE>

however, that no assignment of this Agreement by Obligor shall release Obligor
from Obligor's obligations hereunder.

     20.  No Third-Party Beneficiary. The terms of this Agreement are for the
sole and exclusive protection and benefit of Bank. No party shall be a third-
party beneficiary hereunder and no provision hereof shall operate or inure to
the use or benefit of any third party.

     21.  Confidentiality. The Bank agrees that, as to third parties, except for
documents that are already available to the public, it will maintain the
confidentiality of all data, reports, correspondence, tests, and other
information pertaining to Environmental Conditions and Remediation Work except
as otherwise required by law or except as necessary to enforce the terms of this
Agreement.

     22.  Counterparts. This Agreement may be executed in duplicate originals or
in any number of counterparts, and the signature pages of each counterpart may
be removed and attached to one agreement which shall be deemed an original, and
shall constitute one instrument.

     23.  Entire Agreement. Other than the 1997 Reimbursement Agreement, the
2000 Reimbursement Agreement and the Borrower Agreements referenced therein and
the Environmental Guarantees, there are no oral or side agreements between Bank
and Obligor affecting this Agreement, and this Agreement contains the entire
agreement of the parties with regard to the subject matter contained herein. No
amendment, modification, termination or cancellation of this Agreement shall be
effective unless in writing and signed by both Bank, and Obligor, BWI and KVI.

     IN WITNESS WHEREOF, Obligor has executed this Agreement as of the date
first above written with the intent to be legally bound thereby.


                                WEST VALLEY MRF, LLC
                                a California limited liability company


                                By:  West Valley Recycling & Transfer, Inc.,
                                     a California corporation, Member


                                     By:  /s/ Eric D. Herbert
                                          ---------------------------------
                                          Name:   Eric D. Herbert
                                          Title:  Vice President


                                By:  Kaiser Recycling Corporation
                                     a Delaware corporation, Member

                                     By:  /s/ James F. Verhey
                                          --------------------------------
                                          Name:   James F. Verhey
                                          Title:  Vice President

                                      -10-
<PAGE>

                  Exhibits Available Upon the Written Request
                  ===========================================

                                    of the
                                    ======

                      Securities and Exchange Commission
                      ==================================