Document:

Exhibit
10.7

 

EMPLOYMENT
AGREEMENT

 

This Employment Agreement
(this “Agreement”) is made by and
between Clayton Williams Energy, Inc., a Delaware corporation (the “Company”), and T. Mark Tisdale (“Employee”) effective as of March 1,
2010 (the “Effective Date”).

 

WHEREAS, the Company desires
to employ Employee and Employee desires to be employed by the Company and to
commit himself to serve the Company on the terms herein provided;

 

NOW, THERFORE, in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.             Employment. The Company
shall employ Employee, and Employee accepts employment with the Company, upon
the terms and conditions set forth in this Agreement for the period beginning
on the Effective Date and ending on the third anniversary of such date (the “Initial Term”); provided, however, that (a) on
such third anniversary date (and on the fourth and fifth anniversary dates of
the Effective Date thereafter), the term of this Agreement will automatically
(without any action by either party) be extended for one additional year (each,
a “Renewal Period”), unless, at least
90 days prior to either the third, fourth, or fifth anniversary date of
the Effective Date, as applicable, the Company or Employee has given written
notice to the other party (a “Non-Renewal Notice”)
that the Company or Employee does not wish to extend the term of the Agreement
(a “Non-Renewal”), and (b) the
Initial Term or any Renewal Period, as applicable, may be terminated prior to
the expiration thereof in accordance with Section 4.  Either party may elect not to renew this
Agreement; provided, that, if no Non-Renewal Notice is given, and if
this Agreement is not terminated earlier in accordance with Section 4,
the Agreement will expire by its terms on the sixth anniversary of the
Effective Date, unless extended by mutual agreement of the parties hereto.  The term “Employment
Term” means the period from the Effective Date until the
expiration of the Initial Term and any applicable Renewal Period pursuant to
this Section 1 or in accordance with Section 4 of this
Agreement.

 

2.             Position and
Duties.

 

(a)           During the Employment Term, Employee
shall hold the title of Vice President and General Counsel.  The Company and Employee agree that the
Employee shall have duties and responsibilities consistent with the position
set forth above in a company the size and of the nature of the Company, and
such other duties and authority that are assigned to Employee from time to time
by the Company’s Board of Directors (the “Board”), or
such other officer of the Company as shall be designated by the Board.  Employee shall report to the Board, or to
such other officer of the Company as shall be designated by the Board.

 

(b)           Employee agrees to devote his best
efforts and his full business time and attention to the business and affairs of
the Company.  Employee shall perform his
duties and responsibilities to the best of his abilities in a diligent and
professional manner, and agrees to comply with all of the policies of the
Company, including such policies with respect to legal 

 

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compliance, conflicts of
interest, confidentiality and business ethics as are from time to time in
effect.  During the Employment Term,
Employee shall not engage in any business activity which, in the reasonable
judgment of the Board, conflicts or interferes with the duties and
responsibilities of Employee hereunder, whether or not such activity is pursued
for gain, profit or other pecuniary advantage, without the prior written
approval of the Company or engage in or be employed by any other business; provided,
however, that the foregoing provisions of this Section 2
shall not limit or prohibit Employee from engaging in community, charitable and
social activities, personal investment activities and the endeavors set forth
on Exhibit A attached hereto, in each case not interfering with the
Employee’s performance and obligations hereunder.  For the avoidance of doubt, this Section 2
shall not limit or prohibit Employee from providing services to or for the
benefit of the Williams Entities pursuant to the Second Amended and Restated
Service Agreement dated as of March 1, 2005 by and among the Company and
the Williams Entities (as defined therein), as amended from time to time.

 

(c)           Employee acknowledges and agrees that
Employee owes a duty of loyalty, fidelity and allegiance to act at all times in
the best interests of the Company and to do no act that would injure the
business, interests, or reputation of the Company or any of its
Affiliates.  In keeping with these
duties, Employee shall make full disclosure to the Company of all significant
business opportunities pertaining to the Company’s business and shall not
appropriate for Employee’s own benefit business opportunities concerning the
subject matter of the fiduciary relationship. 
Except as set forth in Section 5(d)(ii), for purposes of
this Agreement, the term “Affiliate”
shall mean an individual or entity that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a specified individual or entity.

 

3.             Compensation.

 

(a)           Base Salary.  During the Employment Term, Employee’s base
salary shall be $214,575 per annum, which salary may be increased (but not
decreased) by the Board (or a designated committee thereof) in its discretion
(the “Base Salary”), which Base
Salary shall be payable in regular installments in accordance with the Company’s
general payroll practices and subject to withholding and other payroll taxes.

 

(b)           Annual Bonus.  Employee shall be eligible to receive one or
more bonuses each year during the Employment Term to be determined by the Board
(or a designated committee thereof), in its sole discretion based on
performance or other criteria to be adopted by the Board (or a designated
committee thereof).  Any bonus amount
earned with respect to a calendar year shall be paid in a cash lump sum no
later than March 15 of the following calendar year.

 

(c)           Employee Benefits.  Employee will be entitled during the
Employment Term to receive such welfare benefits and other fringe benefits
(including vacation, medical, dental, life insurance, 401(k) and other
employee benefits and perquisites, such as club membership dues) as the Company
may offer from time to time to similarly situated executive level employees,
subject to applicable eligibility requirements. 
The Company shall not, however, by reason of this Section 3(c),
be obligated to institute, maintain, or refrain from 

 

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changing, amending, or
discontinuing any such benefit plan or program, so long as any such changes are
similarly applicable to similarly situated employees of the Company.

 

(d)           Business Expenses.  The Company shall reimburse Employee for all
reasonable expenses incurred by him in the course of performing his duties
under this Agreement to the extent consistent with the Company’s written
policies in effect from time to time with respect to travel, entertainment and
other business expenses, subject to the Company’s requirements with respect to
reporting and documentation of such expenses. 
Notwithstanding any provision in this Agreement to the contrary, the
amount of expenses for which Employee is eligible to receive reimbursement
during any calendar year shall not affect the amount of expenses for which
Employee is eligible to receive reimbursement during any other calendar year
within the Employment Term. 
Reimbursement of expenses under this Section 3(d) shall
be made no later than the last day of the calendar year following the calendar
year in which the expense was incurred. 
Employee is not permitted to receive a payment or other benefit in lieu
of reimbursement under this Section 3(d).

 

(e)           Long Term Incentive Compensation.  Employee may, as determined by the Board (or
a designated committee thereof) in its sole discretion, periodically receive
grants of, or payments under, equity or non-equity related awards pursuant to
the Company’s long-term incentive plan(s), including the APO Incentive Plan,
the APO Reward Plans, the SWR Reward Plan, the APO Working Interest Trusts, the
APO Working Interest Grant, or any similar or successor plan(s) (collectively,
“Incentive Plans”), subject to the
terms and conditions thereof.  Any grants
previously awarded to Executive pursuant to the Company’s Incentive Plans that
are outstanding on the Effective Date hereof shall, except as otherwise
provided in this Agreement, continue to be governed by the terms and conditions
of the Incentive Plans.

 

(f)            Automobile Allowance.  During the Employment Term, Employee will be
entitled to receive a car allowance in accordance with the Company’s automobile
allowance policy in effect from time to time.

 

4.             Termination of
Employment.  Unless
otherwise agreed to in writing by the Company and Employee, Employee’s
employment hereunder may be terminated under the following circumstances:

 

(a)           Death.  Employee’s employment hereunder shall
terminate upon his death.

 

(b)           Disability.  Employee’s employment hereunder shall
terminate upon a determination that he has incurred a Disability.  For purposes of this Agreement, “Disability” means, at any time the
Company sponsors a long-term disability plan for the Company’s employees, “disability”
as defined in such long-term disability plan for the purpose of determining a
participant’s eligibility for benefits, provided, that if the long-term
disability plan contains multiple definitions of disability, “Disability” shall
refer to that definition of disability which, if Employee qualified for such
disability benefits, would provide coverage for the longest period of
time.  The determination of whether
Employee has a Disability shall be made in good faith by the person or persons
required to make disability determinations under the long-term disability
plan.  If Employee is not covered under
the Company’s long-term disability plan or if the Company does not sponsor a long-term
disability plan at such time, then the term 

 

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“Disability” hereunder shall
mean a “permanent and total disability” as defined in section 22(e)(3) of
the Internal Revenue Code of 1986, as amended (the “Code”),
and, in this case, the existence of any such Disability shall be certified by a
physician acceptable to both the Company and Employee.  In the event the parties are not able to
agree on the choice of a physician, each party shall select a physician who, in
turn, shall select a third physician to render such certification.

 

(c)           Termination by the Company.  The Company may terminate Employee’s
employment with or without Cause.  For
purposes of this Agreement, the term “Cause”
means Employee (i) has been convicted of a misdemeanor that involves
intentionally dishonest behavior or that the Company determines in good faith
will have a material adverse effect on the reputation of the Company or any
felony, (ii) has engaged in conduct which is materially injurious
(monetarily or otherwise) to the Company or any of its Affiliates (including
misuse of the Company’s or an Affiliate’s funds or other property), (iii) has
engaged in gross negligence or willful misconduct in the performance of his
duties for the Company, (iv) has willfully refused without proper legal
reason to perform his duties for the Company, (v) has breached any
material provision of this Agreement or any other agreement between the Company
and Employee, or (vi) has breached any material corporate policy
maintained and established by the Company that is of general applicability to
executives of the Company; provided, however, as to
clauses (iv), (v) and (vi) contained in this Section 4(c),
if such acts or omissions could be cured by Employee (as reasonably determined
by the Board), the Company must give Employee written notice of the acts or
omissions constituting Cause and, in such case, no termination shall be for
Cause unless and until Employee fails to cure such acts or omissions within 10 days
following receipt of such written notice.

 

(d)           Termination by Employee.  Employee may, upon giving the Company no less
than 30 days advance written notice, terminate Employee’s employment without
Good Reason or for Good Reason.  For
purposes of this Agreement, the term “Good Reason”
shall mean, without the express written consent of Employee, the occurrence of
one of the following: (i) any action or inaction that constitutes a
material breach by the Company of this Agreement, (ii) a material  reduction in Employee’s Base Salary, including any series
of salary reductions (whether or not related) that are not agreed to by
Employee in writing and that, individually or in the aggregate, result in a
material reduction when compared to Employee’s Base Salary in effect on the
Effective Date or as adjusted after the Effective Date in accordance with Section 3(a) hereof
or with Employee’s prior written consent, (iii) a material diminution in
Employee’s authority, duties or responsibilities or the assignment of duties to
Employee that are not materially commensurate with Employee’s position with the
Company, or (iv) a change in the geographic location at which Employee
must normally perform services to a location outside of Midland County,
Texas.  For the avoidance of doubt, any
reduction in Employee’s Base Salary, regardless of amount, could be material
if, in light of all other facts and circumstances, a reasonable person in the
position of Employee would consider it important.  In the case of Employee’s allegation of Good
Reason, (A) Employee shall provide notice to the Company of the event
alleged to constitute Good Reason within 60 days of the occurrence of such
event, and (B) the Company shall have the opportunity to remedy the
alleged Good Reason event within 30 days from receipt of notice of such
allegation.

 

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5.             Compensation
Upon Termination.

 

(a)           For Cause or Without Good Reason.  In the event Employee’s employment is
terminated by the Company for Cause or by the Employee without Good Reason,
Employee shall be entitled to receive (i) Employee’s full Base Salary
through the Date of Termination at the rate then in effect, (ii) reimbursement
of any expenses to the extent such amounts have accrued through the Date of
Termination, and (iii) such employee benefits, if any, as to which
Employee may be entitled pursuant to the terms governing such benefits (such
amounts set forth in (i), (ii) and (iii) shall be collectively
referred to herein as the “Accrued Rights”).

 

(b)           Death or Disability.  In the event Employee’s employment terminates
by reason of his death or Disability, Employee (or his estate) shall be
entitled to receive the Accrued Rights and all outstanding equity and
non-equity based awards (including any awards or interests under the Incentive
Plans) held by Employee immediately prior to the Date of Termination shall
become fully vested as of such date; provided, that, notwithstanding the
foregoing, any awards or interests held by Employee as of the Date of
Termination under any Incentive Plan shall continue to be governed by the terms
and conditions of such plans relating to the forfeiture of awards that are
fully vested.  In addition, Employee
shall be entitled to receive the following, provided Employee (or his
estate) delivers to the Company, within 45 days following the Date of
Termination, a properly executed release in accordance with Section 8
of this Agreement:

 

(i)            a lump sum payment equal to 18
months’ worth of Employee’s Base Salary in effect on the Date of Termination
(determined without regard to any reduction in Base Salary imposed by the
Company in violation of Section 3(a) hereof), payable as soon
as practicable but no later than the earlier of (A) March 15
following the calendar year in which termination occurs or (B) 90 days
following the Date of Termination; and

 

(ii)           Employee (in the case of a
termination due to Disability), his spouse and eligible dependents (to the
extent covered immediately prior to such termination) shall continue to be
eligible to participate in all of the Company’s group health plans on the same
terms and conditions as active employees of the Company for a period of one (1) year
following the Date of Termination.  If
benefits are continued pursuant to this Section 5(b)(ii) during
a period when, in the absence of the benefits provided in this Section 5(b)(ii),
Employee or his dependants would not be entitled to continuation coverage under
Section 4980B of the Code, Employee and his dependants shall receive
reimbursement for all medical expenses no later than the end of the calendar
year immediately following the calendar year in which the applicable expenses
were incurred.  The health care
continuation coverage period under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“COBRA”),
Code Section 4980B, or any replacement or successor provision of United
States tax law, shall run concurrently with the period during which continued
benefits are being provided pursuant to this Section 5(b)(ii).

 

(c)           Without Cause, For Good Reason or
Non-Renewal.  In the event Employee’s
employment is terminated by the Company without Cause, by Employee for Good
Reason or due to a Non-Renewal that results from a Non-Renewal Notice given by
the Company, Employee shall be entitled to receive payment of the following:

 

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(i)            the Accrued Rights;

 

(ii)           all outstanding equity and non-equity
based awards (including any awards or interests under the Incentive Plans) held
by Employee immediately prior to the Date of Termination shall become fully
vested as of such date; provided, that, notwithstanding the foregoing,
any awards or interests held by Employee as of the Date of Termination under
any Incentive Plan shall continue to be governed by the terms and conditions of
such plans relating to the forfeiture of awards that are fully vested;

 

(iii)          provided Employee delivers to the
Company, within 45 days following the Date of Termination, a properly
executed release in accordance with Section 8 of this Agreement, a
lump sum payment equal to the sum of (A) 18 months’ worth of Employee’s
annualized Base Salary in effect on the Date of Termination (determined without
regard to any reduction in Base Salary imposed by the Company in violation of Section 3(a) hereof),
(B) 18 months’ worth of the average of the bonus amount(s) actually
paid to Employee for the three (3) calendar years ending prior to the Date
of Termination (not including any amounts paid to Employee pursuant to any of
the Company’s Incentive Plans), (C) the car allowance Employee would have
received pursuant to Section 3(f) of this Agreement had his
employment continued for an additional 18 months, and (D) the
matching contributions that would have been made on behalf of Employee pursuant
to the Company’s 401(k) plan if Employee had continued participation
in such 401(k) plan for an additional 18 months, payable as soon as
practicable but no later than the earlier of (I) March 15 following
the calendar year in which termination occurs or (II) 90 days following
the Date of Termination; and

 

(iv)          provided Employee delivers to the
Company, within 45 days following the Date of Termination, a properly
executed release in accordance with Section 8 of this Agreement,
Employee, his spouse and eligible dependents (to the extent covered immediately
prior to such termination) shall continue to be eligible to participate in all
of the Company’s group health plans on the same terms and conditions as active
employees of the Company for a period of 18 months following the Date of
Termination.  If benefits continue
pursuant to this Section 5(c)(iv) during a period when, in the
absence of the benefits provided in this Section 5(c)(iv), Employee
or his dependants would not be entitled to continuation coverage under Section 4980B
of the Code, Employee and his dependants shall receive reimbursement for all
medical expenses no later than the end of the calendar year immediately
following the calendar year in which the applicable expenses were incurred. The
health care continuation coverage period under COBRA, Code Section 4980B,
or any replacement or successor provision of United States tax law, shall run
concurrently with the period during which continued benefits are being provided
pursuant to this Section 5(c)(iv).

 

(d)           Change in Control.

 

(i)            Notwithstanding any provision
contained herein, if Employee’s employment is terminated by the Company without
Cause (other than by reason of death or Disability),  if
Employee resigns for Good Reason or in the event of a Non-Renewal that results
from a Non-Renewal Notice given by the Company, in each case, within 24 months
following a Change in Control (as defined below), Employee shall be entitled to
receive:

 

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A.            the Accrued Rights;

 

B.            all outstanding equity and
non-equity based awards (including any awards or interests under the Incentive
Plans) held by Employee immediately prior to the Date of Termination shall
become fully vested as of such date; provided, that, notwithstanding the
foregoing, any awards or interests held by Employee as of the Date of
Termination under any Incentive Plan shall continue to be governed by the terms
and conditions of such plans relating to the forfeiture of awards that are
fully vested;

 

C.            provided Employee delivers to the
Company, within 45 days following the Date of Termination, a properly executed
release in accordance with Section 8 of this Agreement, a lump sum
payment equal to the sum of (I) two (2) times Employee’s annualized Base
Salary in effect on the Date of Termination (determined without regard to any
reduction in Base Salary imposed by the Company in violation of Section 3(a) hereof),
(II) two (2) times the average of the bonus amount(s) actually
paid to Employee for the three (3) calendar years ending prior to the Date
of Termination (not including any amounts paid to Employee pursuant to any of
the Company’s Incentive Plans), (III) the car allowance Employee would
have received pursuant to Section 3(f) of this Agreement had
his employment continued for an additional two (2) years, and (IV) the
matching contributions that would have been made on behalf of Employee pursuant
to the Company’s 401(k) plan if Employee had continued participation
in such 401(k) plan for an additional two (2) years, payable as
soon as practicable but no later than the earlier of (a) March 15
following the calendar year in which termination occurs or (b) 90 days
following the Date of Termination; and

 

D.            provided Employee delivers to the
Company, within 45 days following the Date of Termination, a properly executed
release in accordance with Section 8 of this Agreement, Employee,
his spouse and eligible dependents (to the extent covered immediately prior to
such termination) shall continue to be eligible to participate in all of the
Company’s group health plans on the same terms and conditions as active
employees of the Company for a period of 18 months following the Date of
Termination.  If benefits continue
pursuant to this Section 5(d)(i)D during a period when, in the
absence of the benefits provided in this Section 5(d)(i)D, Employee
or his dependants would not be entitled to continuation coverage under Section 4980B
of the Code, Employee and his dependants shall receive reimbursement for all
medical expenses no later than the end of the calendar year immediately
following the calendar year in which the applicable expenses were incurred. The
health care continuation coverage period under COBRA, Code Section 4980B,
or any replacement or successor provision of United States tax law, shall run
concurrently with the period during which continued benefits are being provided
pursuant to this Section 5(d)(i)D.

 

(ii)           For purposes of
this Agreement, the term “Change in Control”
shall mean:

 

A.            (I) Any “person” or “group” of
related persons (as such terms are used in sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)), other than Clayton Williams, Jr. or any Affiliate
or Related Person thereof (each, a “Permitted Holder”),
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that such person or group shall be 

 

7

 

deemed to have “beneficial
ownership” of all shares that such person or group has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, or more than 35% of the total voting power of
the outstanding capital stock (excluding any debt securities convertible into
equity) normally entitled to vote in the election of directors (“Voting Stock”) of the Company (or
its successor by merger, consolidation or purchase of all or substantially all
of its assets) (for purposes of this clause, such person or group shall be
deemed to beneficially own any Voting Stock held by a parent entity, if such
person or group “beneficially owns” (as defined above), directly or indirectly,
more than 35% of the voting power of the Voting Stock of such parent entity); and
(II) the Permitted Holders “beneficially own” (as defined above), directly
or indirectly, in the aggregate less than 25% of the total voting power of the
Voting Stock of the Company (or its successor by merger, consolidation or
purchase of all or substantially all of its assets) or its parent entity and do
not have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors of the Company
(or such successor) or its parent entity; or

 

B.            The first day on which a majority of
the members of the Board of Directors of the Company are not, as of any date of
determination, either (I) a member of the Board of Directors of the
Company on July 20, 2005, or (II) individuals who were nominated for
election or elected to the Company’s Board of Directors with the approval of
the majority of the directors described in clause (I) (or approved for
nomination or election by the majority of directors described in clause (I) or
(II) hereof) who were members of the Company’s Board of Directors at the
time of such nomination or election; or

 

C.            The sale, lease, transfer,
conveyance or other disposition (other than by way of merger or consolidation),
in one or a series of related transactions, of all or substantially all of the
assets of the Company and its Related Subsidiaries taken as a whole to any “person”
(as such term is used in sections 13(d) and 14(d) of the
Exchange Act) other than a Permitted Holder; or

 

D.            The adoption by the stockholders of
the Company of a plan or proposal for the liquidation or dissolution of the
Company; or

 

E.             The resignation or other removal
for any reason of Clayton W. Williams, Jr. from his current position at
the Company, including by reason of the death or Disability of Clayton W.
Williams, Jr.

 

The terms “Affiliate,” “Related
Person” and “Restricted Subsidiary”
as used in the definition of Change in Control shall have the meanings given to
such terms in that certain Indenture, dated July 20, 2005, among the
Company, the Subsidiary Guarantors and Wells Fargo Bank, National Association,
as Trustee, as amended from time to time. 
The term “Disability,” as used in the
definition of Change in Control shall have the meaning given to such term in
that certain Employment Agreement, dated the date hereof, between the Company
and Clayton W. Williams, Jr. as amended from time to time.

 

(e)           No Other Amounts.  Except as otherwise required by law (e.g.,
pursuant to COBRA) or as specifically provided herein, all of Employee’s rights
to Base Salary, severance, fringe benefits and bonuses hereunder (if any) shall
cease upon the termination of the 

 

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Employment Term.  Upon termination of the Employment Term, the
sole contractual remedy of Employee and his successors, assigns, heirs,
representatives and estate shall be to receive the amounts described in Sections 5(a),
5(b), 5(c), and 5(d), as applicable.

 

(f)            Notice of Termination.  Any termination of Employee’s employment
occurring in accordance with the terms of this Section 5 (other
than by reason of Employee’s death or by reason of a Non-Renewal) shall be
communicated to the other party by written notice that (i) indicates the
specific termination provisions of this Agreement relied upon, (ii) sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for the termination, and (iii) specifies the Date of Termination (a “Notice of Termination”), and that is
delivered to the other party in accordance with Section 9(f) of
this Agreement.  The failure of a party
to set forth in the Notice of Termination any fact or circumstance that
contributes to a showing of the basis for termination shall not waive any right
of such party hereunder or later preclude such party from asserting such fact
or circumstance in enforcing its rights hereunder.

 

(g)           Date of Termination.  For purposes of this Agreement, “Date of Termination” means the date
of receipt of the Notice of Termination or any later date specified therein, as
the case may be; provided, however, that if Employee’s employment
is terminated by reason of his death, the Date of Termination shall be the date
of death of Employee and in the event of a Non-Renewal, the Date of Termination
shall be the last day of the Initial Term or applicable Renewal Period.

 

(h)           Deemed Resignations.  Unless otherwise agreed to in writing by the
Company and Employee prior to termination of Employee’s employment, any
termination of Employee’s employment shall constitute an automatic resignation
of Employee as an officer of the Company and each Affiliate of the Company, and
an automatic resignation of the Employee from the Board.  Employee agrees to promptly execute and
deliver to the Company all consents and agreements necessary to effectuate the
termination of Employee’s status as an officer and/or Employee’s resignation
from the Board.

 

6.             Protection of
Information.

 

(a)           Disclosure to and Property of the
Company.  All information, trade
secrets, designs, ideas, concepts, improvements, product developments,
discoveries and inventions, whether patentable or not, that are conceived,
made, developed or acquired by Employee, individually or in conjunction with
others, during the term of his employment (whether during business hours or
otherwise and whether on the Company’s premises or otherwise) that relate to
the Company’s or any of its Affiliates’ business, products or services and all
writings or materials of any type embodying any such matters (collectively, “Confidential Information”) shall be
disclosed to the Company, and are and shall be the sole and exclusive property
of the Company or its Affiliates. 
Confidential Information does not, however, include any information that
is available to the public other than as a result of any unauthorized act of
Employee.

 

(b)           No Unauthorized Use or Disclosure.  Employee agrees that Employee will preserve
and protect the confidentiality of all Confidential Information and work
product of the Company and its Affiliates, and will not, at any time during or
after the termination of 

 

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Employee’s employment with
the Company, make any unauthorized disclosure of, and shall not remove from the
Company premises, and will use reasonable efforts to prevent the removal from the
Company premises of, Confidential Information or work product of the Company or
its Affiliates, or make any use thereof, in each case, except in the carrying
out of Employee’s responsibilities hereunder. 
Notwithstanding the foregoing, Employee shall have no obligation
hereunder to keep confidential any Confidential Information if and to the
extent (i) such information becomes generally known to the public or
within the relevant trade or industry other than due to Employee’s violation of
this Section 6(b), or (ii) disclosure thereof is specifically
required by law; provided, however, that in the event disclosure
is required by applicable law and Employee is making such disclosure, Employee
shall provide the Company with prompt notice of such requirement, and shall use
commercially reasonable efforts to give such notice prior to making any
disclosure so that the Company may seek an appropriate protective order.

 

(c)           Remedies.  Employee acknowledges that money damages
would not be a sufficient remedy for any breach of this Section 6
by Employee, and the Company or its Affiliates shall be entitled to enforce the
provisions of this Section 6 by terminating payments then owing to
Employee under this Agreement and/or by specific performance and injunctive
relief as remedies for such breach or any threatened breach.  Such remedies shall not be deemed the
exclusive remedies for a breach of this Section 6, but shall be in
addition to all remedies available at law or in equity to the Company,
including the recovery of damages from Employee and remedies available to the
Company pursuant to other agreements with Employee.

 

(d)           No Prohibition.  Nothing in this Section 6 shall
be construed as prohibiting Employee, following the expiration of the 12 month
period immediately following Employee’s termination of employment with the
Company, from being employed by any Competing Business (as defined below) or
engaging in any Prohibited Activity (as defined below); provided, that
during such employment or engagement Employee complies with his obligations
under this Section 6.

 

7.             Non-Competition
and Non-Solicitation.

 

(a)           Definitions.  As used in this Agreement, the following
terms shall have the following meanings:

 

(i)            “Competing
Business” means any business, individual, partnership, firm,
corporation or other entity engaged in the exploration for and development and
production of oil and natural gas.

 

(ii)           “Prohibited Activity”
means any service or activity on behalf of a Competing Business that involves
the planning, management, supervision, or providing of services that are
similar in nature or purpose to those services Employee provided to the Company
within the last 12 months of Employee’s employment with the Company or any
other activities that would involve the use or disclosure of Confidential
Information.

 

(iii)          “Restricted Area”
means those geographic regions indentified as areas of current exploration and
areas of development activity in the Company’s most recent Form 10-K and Form 10-Q,
as applicable, filed with the U.S. Securities and Exchange

 

10

 

Commission.  The parties stipulate that the forgoing is a
reasonable area restriction because the area identified is the market area with
respect to which Employee will help the Company provide its products and services,
help analyze, and/or receive access to Confidential Information.

 

(b)           Protective Covenants and
Restrictions.  Employee agrees that
the following protective covenants are reasonable and necessary for the
protection of the Company’s legitimate business interests, do not create any
undue hardship on Employee, and are not contrary to the public interest:

 

(i)            Non-compete.  Employee expressly covenants and agrees that,
during the Employment Term and for 12 months following termination of
Employee’s employment with the Company for any reason, he will not engage,
directly or indirectly, in and he will not and will cause his Affiliates not
to, directly or indirectly, own, manage, operate, join, control or participate
in or be connected with, or loan money to or sell or lease equipment to, any
Competing Business in the Restricted Area, other than pursuant to (A) any
oil and gas properties (I) owned by Employee as of the Effective Date
hereof or (II) acquired by Employee after the Effective Date pursuant to
inheritance, bequest or  the laws of
descent or distribution, or (B) any awards or other interests held by
Employee, as of the Effective Date hereof or acquired thereafter, under any
Incentive Plan.  In the event of Employee’s
termination of employment by the Company for Cause or by the Employee without
Good Reason, this Section 7(b)(i) shall cease to apply as of
Employee’s Date of Termination, unless the Company continues to pay Employee
his Base Salary in effect as of the Date of Termination for 12 months following
termination of Employee’s employment.

 

(ii)           Non-solicitation.  Employee further expressly covenants and
agrees that during the Employment Term and for 24 months following termination
of Employee’s employment with the Company for any reason, he will not and he
will cause his Affiliates not to (A) cause, solicit, induce or encourage
any individual who, on the Date of Termination, is an employee of the Company
or its Affiliates to leave such employment or hire, employ or otherwise engage
any such individual (other than employees of the Company or its Affiliates who
respond to general advertisements for employment in newspapers or other
periodicals of general circulation), or (B) cause, induce or encourage any
actual or material prospective client, customer, supplier, landlord, lessor, or
licensor of the Company or its Affiliates to terminate or modify any such
actual or prospective relationship that exists on the Date of Termination.

 

(c)           Permitted Ownership.  Notwithstanding any of the foregoing or
anything else to the contrary in this Agreement, (i) Employee may own, for
investment purposes only, up to 5% of the outstanding stock or other equity
securities of any publicly held corporation or other entity whose stock or
equity securities are either listed on a national securities exchange or on the
NASDAQ National Market System, if Employee is not otherwise affiliated with
such corporation or entity and (ii) Employee is permitted to engage in the
endeavors set forth on Exhibit A attached hereto.

 

(d)           Reasonableness.  Employee and the Company agree and
acknowledge that the limitations as to time, geographical area and scope of
activity to be restrained as set forth in this Section 7 are the
result of arm’s-length bargaining, are fair and reasonable, and do not 

 

11

 

impose any greater restraint
than is necessary to protect the legitimate business interests of the Company
in light of (i) the nature and wide geographic scope of the Company’s
operations; (ii) Employee’s level of control over and contact with the
Company’s business in the Restricted Area; (iii) the fact that the Company’s
business is conducted throughout the Restricted Area; and (iv) the amount
of compensation that Employee is receiving in connection with the performance
of his duties hereunder.

 

(e)           Relief and Enforcement.  Employee hereby represents to the Company
that he has read and understands, and agrees to be bound by, the terms of this Section 7.  It is the desire and intent of the parties
hereto that the provisions of this Section 7 be enforced to the
fullest extent permitted under applicable law, whether now or hereafter in
effect.  However, to the extent that any
part of this Section 7 may be found invalid, illegal or
unenforceable for any reason, it is intended that such part shall be
enforceable to the extent that a court of competent jurisdiction shall
determine that such part, if more limited in scope, would have been
enforceable, and such part shall be deemed to have been so written and the
remaining parts shall as written be effective and enforceable in all
events.  Employee and the Company further
agree and acknowledge that, in the event of a breach or threatened breach of
any of the provisions of this Section 7, the Company shall be
entitled to immediate injunctive relief, as any such breach would cause the
Company irreparable injury for which it would have no adequate remedy at
law.  Nothing herein shall be construed
so as to prohibit the Company from pursuing any other remedies available to it
hereunder, at law or in equity, for any such breach or threatened breach.

 

(f)            Consulting and Litigation
Assistance.  Employee agrees that,
during the period following Employee’s Date of Termination during which
Employee remains subject to the non-compete provisions of Section 7(b)(i) above,
upon request from the Company, Employee will assist the Company in a consulting
capacity and/or cooperate with the Company and its Affiliates in the defense of
any claims or actions that may be made by or against the Company or any of its
Affiliates that affect Employee’s prior areas of responsibility, except if
Employee’s reasonable interests are materially adverse to the Company or its
Affiliates in such claim or action. 
Notwithstanding anything to the contrary in the foregoing sentence, in
the event the Company requests Employee’s assistance and/or cooperation
pursuant to this Section 7(f), Employee shall not be required to
devote more than five (5) hours per month to assisting the Company
pursuant to this Section 7(f); provided, that if, at the
request of the Company, the Employee agrees to devote in excess of five (5) hours
per month to assisting the Company pursuant to this Section 7(f),
then the Company will compensate Employee for each additional hour of
assistance in excess of five (5) hours at an hourly rate of $250 per
hour.

 

8.             Release of Claims.  Notwithstanding any other provision in this
Agreement to the contrary, in consideration for receiving the severance
benefits described in Sections 5(b), 5(c)(iii), 5(c)(iv),
5(d)(i)C and/or 5(d)(i)D, as applicable, Employee hereby agrees
to execute (and not revoke) a general release of claims against the Company and
its Affiliates (excluding claims for indemnification, claims for coverage under
officer and director policies, and claims as a stockholder of the
Company).  If Employee fails to properly
execute and deliver such release (or revokes the release), Employee agrees that
Employee shall not be entitled to receive the severance benefits described in Sections 5(b),
5(c)(iii), 5(c)(iv), 5(d)(i)C and/or 5(d)(i)D, as
applicable.  For purposes of this
Agreement, a release shall be considered to have been executed 

 

12

 

by Employee if it is signed
by Employee’s legal representative, in the case of Employee’s Disability, or on
behalf of Employee’s estate in the case of Employee’s death.

 

9.             General
Provisions.

 

(a)           Amendments and Waiver.  The terms and provisions of this Agreement
may not be modified or amended, nor may any of the provisions hereof be waived,
temporarily or permanently, except pursuant to a written instrument executed by
the party to be bound by such modification or amendment.  The failure of any party to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its
terms.

 

(b)           Withholding.  The Company shall be entitled to withhold
from any compensation, benefits, or amounts payable under this Agreement all
federal, state, local or other taxes as may be required pursuant to any law or
governmental regulation or ruling.

 

(c)           Severability.  It is the desire and intent of the parties
hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. 
Accordingly, if any particular provision of this Agreement shall be
adjudicated by a court of competent jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.  Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable
in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn,
without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.

 

(d)           Entire Agreement.  This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, and contains
all the covenants, promises, representations, warranties and agreements between
the parties with respect to employment of Employee by the Company.  Without limiting the scope of the preceding
sentence, all understandings and agreements preceding the date of execution of
this Agreement and relating to the subject matter hereof are hereby null and
void and of no further force and effect.

 

(e)           Successors and Assigns.  Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
parties hereto and their respective successors, permitted assigns, heirs and
personal representatives and estates, as the case may be.  Anything contained herein to the contrary
notwithstanding, unless otherwise expressly provided in this Agreement, neither
this Agreement nor any right or obligation hereunder of any party may be
assigned or delegated without the prior written consent of the other party
hereto; provided, however, that the Company may assign this
Agreement to any of its Affiliates. 
Except as expressly provided herein, this Agreement shall not confer any
rights or remedies upon any person or legal entity other than the parties hereto
and their respective successors and permitted assigns.

 

13

 

(f)            Notices.  For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing and shall be
deemed to have been duly given (i) when received, if delivered personally
or by courier, (ii) on the date receipt is acknowledged, if delivered by
certified mail, postage prepaid, return receipt requested, or (iii) one
day after transmission, if sent by facsimile transmission with confirmation of
transmission, as follows:

 

	
  If to Employee, at:

  	
  6 Desta Drive, Suite 6500

  
	
   

  	
  Midland, TX 79705

  
	
   

  	
   

  
	
  If to the Company, at

  	
  c/o Paul Latham

  
	
   

  	
  6 Desta Drive, Suite 6500

  
	
   

  	
  Midland, TX 79705

  

 

or to such other address as
either party may furnish to the other in writing in accordance herewith, except
that notices or changes of address shall be effective only upon receipt.

 

(g)           Construction.  Where specific language is used to clarify by
example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates. 
The language used in this Agreement shall be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of
strict construction shall be applied against any party.   The word “including”
means “including, without limitation.”

 

(h)           Governing Law.  The provisions of this agreement shall be
governed by and construed in accordance with the laws of the State of Texas,
without giving effect to any choice of law or conflicting provision or rule.

 

(i)            Mutual Contribution.  The parties to this Agreement have mutually
contributed to its drafting. 
Consequently, no provision of this Agreement shall be construed against
any party on the grounds that such party drafted the provision or caused it to
be drafted.

 

[Signature Page Follows]

 

14

 

IN WITNESS WHEREOF, the
parties hereto have executed this Employment Agreement as of the Effective
Date.

 

 

	
   

  	
  CLAYTON WILLIAMS ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ L. Paul Latham

  
	
   

  	
  Name:

  	
  Paul Latham

  
	
   

  	
  Title:

  	
  Executive Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EMPLOYEE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ T. Mark Tisdale

  
	
   

  	
  T. Mark Tisdale

  

 

SIGNATURE
PAGE TO EMPLOYMENT AGREEMENT

 

 

EXHIBIT A

 

PERMITTED
ENDEAVORS

 

Oil & Gas.  Ownership and management of any oil and gas
interests (of whatever kind and whether owned directly, through partnership
interest or otherwise) that are owned or controlled as of the  Effective Date; inherited in the future;
received under any Company Incentive Plan or received under any incentive plan
from a Williams Entity or any entity owned or controlled by Clayton W. Williams, Jr.

 

Real Estate.  Ownership
and management of any real estate interest (of whatever kind, and whether owned
directly, through partnership interest or otherwise).Exhibit 10.38

 

CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY ASTERISKS [*], HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

APPLIANCE SALES AND RECYCLING AGREEMENT

 

This
Appliance Sales and Recycling Agreement (the “Agreement”) is made and entered
into as of October 21, 2009, (the “Effective Date”) by and between the
General Electric Company, a New York corporation, acting through its GE
Consumer & Industrial business component located at Appliance Park,
Louisville, Kentucky 40225 (“GE”), and Appliance Recycling Centers of America, Inc.,
a Minnesota corporation, located at 7400 Excelsior Blvd., Minneapolis,
Minnesota 55426 (“ARCA”).  GE and ARCA
are sometimes each referred to as a “Party” or jointly as the “Parties.”

 

WHEREAS,
GE is engaged in the design, manufacture, sale, distribution and home delivery
of major home appliances including, without limitation, refrigerators, freezers,
air conditioners, dehumidifiers, home laundry, dishwashers, trash compactors,
garbage disposals, cooking products, water heaters, water softeners, water
dispensers, water filters and related accessories (“Appliances”);

 

WHEREAS,
GE in the course of its distribution and home delivery of Appliances, receives
substantial quantities of used and/or damaged recyclable Appliances of GE and
non-GE brands (hereinafter “Recyclable Appliances” is used interchangeably to
refer to used and/or damaged recyclable Appliances of GE and non-GE brands,
either resulting from GE’s distribution and home delivery, referral under Article 3
herein or otherwise);

 

WHEREAS,
ARCA is engaged in large scale processing and recycling of Recyclable
Appliances and is the authorized North American distributor of advanced
recycling equipment and systems for UNTHA Recycling Technology GmbH (“UNTHA”);
and

 

WHEREAS,
GE and its Affiliates as hereinafter defined, wish to sell Recyclable
Appliances to ARCA for collection, processing and recycling of such Recyclable
Appliances and Other Recyclable Items (as defined in Schedule 1.1(e)) at a
regional processing center established to collect, process and recycle
Recyclable Appliances and Other Recyclable Items from a specific region of the
United States (“RPC”) established and operated by ARCA, its “Affiliates” (as
hereinafter defined), and/or subcontractors who are involved in providing the “Services”
(as hereinafter defined), hereinafter such Affiliates and/or subcontractors of
ARCA being referred to collectively as “Service Provider(s).”  An “Affiliate” of ARCA or GE shall mean any
entity directly or indirectly controlling or controlled by, or under direct or
indirect common control of ARCA or GE, or in which ARCA or GE owns at least a
50% equity interest, whether now existing, or subsequently created or acquired
during the Term of this Agreement (including, without limitation, joint
ventures or other entities in which either ARCA or GE is a shareholder or
holder of other form of equity ownership);

 

1

 

NOW,
THEREFORE, in consideration of the premises and the mutual covenants of GE and
ARCA, and other good and valuable consideration, the Parties agree as follows:

 

Article I
Regional Processing Centers

 

1.1     Philadelphia
RPC.

 

(a).                   ARCA, through its joint
venture Affiliate ARCA Advanced Processing, LLC (“AAP”) is establishing its
first RPC located at 4301 N. Delaware Ave., Philadelphia, Pennsylvania (“Philadelphia
RPC”) with an initial projected capacity of [*] Recyclable Appliances per
year, with the ability to increase the capacity to approximately [*] Recyclable
Appliances per year.  The equipment for
the Philadelphia RPC initially shall include, but is not limited to: (1) systems
for receiving, sorting and conveying Recyclable Appliances and Other Recyclable
Items; (2) equipment for proper removal and handling of hazardous
components and universal waste from Recyclable Appliances, refrigerants, used
oils and any other components that are not legally authorized or appropriate to
put in a shredder; and (3) a state-of-the-art shredding system for
Recyclable Appliances capable of handling Appliances and Other Recyclable Items
that do and do not contain foam insulation.

 

(b).                  Within 90 days of execution
of this Agreement, provided that ARCA and its Service Providers have obtained
all required permits and other documentation necessary to provide the “Services”
(as defined below) in compliance with applicable law, including Environmental
Laws, as defined herein, ARCA and its Service Provider(s) will begin
providing “Services” to GE at the Philadelphia RPC.  Such “Services” shall include: (i) delivering
and picking-up of empty trailers and trailers loaded with Recyclable Appliances
and Other Recyclable Items to and from “SDS Locations” (as hereinafter
defined); (ii) transporting such trailers to and from SDS Locations; (iii) receiving,
sorting processing, recycling and shredding Recyclable Appliances or “Other
Recyclable Items,” including those described in Schedule 1.1(e); (iv) the “Treatment,
Storage or Disposal”(as defined below), of Waste Material (as defined in Article 8)
at an Approved Treatment, Storage and Disposal Facility (“TSDF”) as defined
below (“Services”).  ARCA shall provide
written notice to GE of the date that the Philadelphia RPC will begin to
provide the Services.  GE will cooperate
with ARCA in selling Recyclable

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

2

 

Appliances and Other Recyclable Items to ARCA during
the ramp-up of the Philadelphia RPC. 
When ARCA notifies GE that the Philadelphia RPC has the capacity to
provide the Services for the full volume of Recyclable Appliances and Other
Recyclable Items generated by GE’s distribution and home delivery activities in
GE’s Northeastern United States delivery area, as defined by GE’s Scheduled
Delivery Service (“SDS”) locations and other distribution locations shown on
Schedule 1.1 (b) as may be supplemented by GE from time-to-time (“NE
Delivery Area”), GE will sell to ARCA all of its Recyclable Appliances and
Other Recyclable Items generated by GE’s distribution and home delivery
activities in the NE Delivery Area during the remaining Term of this Agreement.

 

“Approved TSDF” shall mean, as reasonably approved by GE in advance,
the name, address, location and facility identification number of the
fully-licensed facility used by ARCA and Service Providers for Treatment,
and/or Storage, and/or Disposal of Waste Material generated by ARCA and Service
Providers in performing the Services, and shall include without limitation, all
locations to which any materials derived from Recyclable Appliances or Other
Recyclable Items are sent for Treatment, Storage, Disposal, including recycling
or reclamation.

 

“Treatment,”
“Storage” or “Disposal” shall have the meanings set forth in 40 C.F.R. Part 260.10
and applicable state law and shall include without limitation treatment, storage,
disposal, recycling or reclamation of any materials derived from Recyclable
Appliances or Other Recyclable Items, including materials regulated under the
Toxic Substances Control Act, 15 U.S.C. 2601 et seq.

 

(c).                   Within fifteen (15) months
of execution of this Agreement, ARCA shall have installed at the Philadelphia
RPC a fully operational UNTHA Recycling Technology recovery system for
refrigerators and freezers, which is a slow-speed UNTHA shredder, and a
state-of-the-art recovery system for blowing agent gas entrained within rigid
polyurethane foam insulation (“URT System”). 
The processing equipment and procedures for the Philadelphia RPC, before
and after installation of the URT System, and for any additional RPCs which
have and do not have the URT System, are attached as Schedule 1.1 (c).  If the URT System at the Philadelphia RPC is
not fully operational within fifteen (15) months of execution of this
Agreement, GE may terminate this Agreement upon thirty (30) days written notice
to ARCA, unless such period is extended by written agreement of the Parties.

 

(d).                  Until expiration of a period
ending six (6) months after installation and operation of the URT System
at the Philadelphia RPC (“Proof of Performance Period”), ARCA shall not provide
Services to any third party without GE’s prior written consent (no written
response by GE within ten [10] business days of written notification by ARCA
will be

 

3

 

deemed consent, following which ARCA shall provide
GE written confirmation of ARCA’s decision to proceed), except for ARCA’s and
the Service Providers’ (and their respective Affiliates’) performance of
Services for existing suppliers of Recyclable Appliances or Other Recyclable
Items to ARCA or the Service Providers at the Philadelphia RPC (with ARCA
providing a list of such existing suppliers and volumes per supplier at the
time of execution of this Agreement), as well as Recyclable Appliances or Other
Recyclable Items from public utility companies which do not unreasonably impair
GE’s priority access.

 

(e).                   GE-supplied Recyclable
Appliances and Other Recyclable Items shall have Services priority at the
Philadelphia RPC over Recyclable Appliances and Other Recyclable Items supplied
by any third party (including third party suppliers referred by GE) to the
Philadelphia RPC during the Term.

 

(f).                     Schedule 1.1 (f) sets
out the “Operations Overview” for the  Philadelphia
RPC. ARCA shall give GE at least thirty (30) days prior written notice of: (i) any
activity that will materially increase or decrease the volume or alter the
types of Recyclable Appliances and Other Recyclable Items being handled at the
Philadelphia RPC; (ii) any change in the list of Approved TSDFs to be used by
the Philadelphia RPC; and (iii) any activity that will result in any
material change in the operations of the Philadelphia RPC and/or of its intent
to enter into any agreement that will materially impact the operations of the
Philadelphia RPC.

 

1.2     Additional
RPCs

 

(g).                  Should ARCA plan to
establish other RPC locations in the United States in addition to the
Philadelphia RPC (“Additional RPC(s)”),  either
directly or through a Service Provider, whether or not such Additional RPC is
planned to include the URT System or similar system for the collection of
refrigerator and freezer foam insulation and blowing agent, ARCA shall provide
GE written notice of the proposed location of any Additional RPC.  ARCA may not provide such notice prior to the
expiration of the Proof of Performance Period. 
Following such notice, ARCA and GE shall, for a period of sixty (60)
days, exclusively negotiate an agreement for such Additional RPC, and any
modified terms for such Additional RPC. 
If the Parties have not agreed to the terms for such Additional RPC following
the expiration of such sixty (60) day period, unless such period is extended by
written agreement of the Parties, ARCA may proceed to negotiate and enter
agreements with other parties for the establishment of the Additional RPC,
subject to Section 1.2 (d) below

 

4

 

and
GE shall be free to enter into an agreement with another person or entity for a
RPC in the regional market area of the Additional RPC.

 

(a).                   Should GE plan to establish
an Additional RPC, whether or not such Additional RPC is planned to include the
URT System or similar system for the collection of refrigerator and freezer
foam insulation and blowing agent, GE shall provide written notice of the
proposed location of any Additional RPC and GE and ARCA shall, for a period of
sixty (60) days, exclusively negotiate an agreement for such Additional RPC,
and any modified terms for such Additional RPC. 
If the Parties have not agreed to the terms for such Additional RPC
following the expiration of such sixty (60) day period, unless such period is
extended by written agreement of the Parties, GE may proceed to negotiate and
enter into agreements with other parties for the establishment of the
Additional RPC and ARCA shall be free to establish and enter into an agreement
with another person or entity for a RPC in the regional market area of the
Additional RPC.

 

(b).                  Nothing in this Agreement
shall be construed as creating any obligation on the part of either Party to
expand the scope of this Agreement or enter into a new agreement for any
additional RPC(s).  Further, except as
provided by this Agreement as to the Philadelphia RPC or any modification
thereof, and except as to any additional facilities for which GE accepts the
Additional RPC(s) pursuant to paragraph 1.2(a) above, nothing in this
Agreement shall be construed as creating any obligation on GE’s part to sell
its Recyclable Appliances or Other Recyclable Items to, or obtain Services for
Recyclable Appliances or Other Recyclable Items through, ARCA or any Service
Providers.

 

(c).                   During the Term, ARCA shall
not, either directly or indirectly, enter into any agreement of any type with
any person, corporation or other form of entity in any way directly engaged in
the manufacture of any type of Appliances relating to a processing center, RPC
or otherwise, for the collection, transportation, processing, and recycling of
Recyclable Appliances and Other Recyclable Items or the Treatment, Storage or
Disposal of Waste Material related to the performance of those activities
within the United States.  ARCA shall not
be prohibited from performing such Services for Appliance retailers or
distributors provided such operations do not interfere with GE’s Services
priority at the Philadelphia RPC as set forth in Section 1.1 (e).  Further, should ARCA provide Services for any
Appliance retailer or distributor from whom ARCA was not receiving Recyclable
Appliances at the time of execution of this Agreement, ARCA shall be required
to pay GE a Referral Fee as provided in Article 3 of this Agreement in
connection with such Services, even though GE did not

 

5

 

refer such Appliance retailer or distributor to
ARCA.  Beginning January 1, 2012,
ARCA shall not be subject to the first sentence of this Section 1.2(d) should
the unit volume of Recyclable Appliances sold by GE to ARCA during the
preceding calendar year fall below [*] units.

 

Article 2
Sale of Recyclable Appliances and Other Recyclable Items

 

2.1     The
sale and transfer of Recyclable Appliances and Other Recyclable Items from GE
in the NE Delivery Area to ARCA for the Services at the Philadelphia RPC shall
be subject to the following terms and conditions:

 

(a).                   All sales are made F.O.B.
point of shipment from GE’s SDS and other distribution locations in the NE
Delivery Area, with title and responsibility for risk of loss, damage and the
cost of shipment passing to ARCA at the point of shipment.

 

(b).                  Recyclable Appliances and
Other Recyclable Items purchased by ARCA shall be loaded by GE or its third
party agents onto trailers provided by ARCA or its third party agents at SDSs
and transported to the Philadelphia RPC by ARCA or its qualified third party
transportation provider.  The type and
number of Recyclable Appliances and Other Recyclable Items will be documented
on a product delivery receipt (“PDR”) or comparable form (see Schedule 2.1 (b))
and loaded on trailers or trucks at GE’s SDSs and other distribution locations
in the NE Delivery Area.  A PDR shall
confirm transfer of title and an assessment of any existing damage to the
trailer or trucks and shall be signed by the driver, the representative of the
SDS or other GE distribution location, and the representative of the RPC.  GE will not be responsible for any degradation
or damage to trailers or trucks that may be incurred as a result of the
collection and transportation activities, except when caused directly by GE or
its third party agents.

 

(c).                   In the event that collection
and transportation by GE or its third party agents to the Philadelphia RPC can
provide efficiencies, including cost efficiencies, for certain routes or
satisfy GE’s customer requirements, GE and ARCA will work together to utilize
GE or GE’s third party agents.  ARCA and
GE will memorialize the cost and other terms and conditions of any delivery of
empty trailers and pick-up and transportation of loaded trailers of Recyclable
Appliances and Other Recyclable Items by GE or its third party agents to the
Philadelphia RPC in a separate agreement.

 

(d).                  At the Philadelphia RPC, the
inbound trailers or trucks will be weighed using a scale certified by the
Pennsylvania Department of

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

6

 

Agriculture,
Division of Weights and Measures.  The
Recyclable Appliances and Other Recyclable Items will be verified against the
PDR or comparable form to ensure that no loss of Recyclable Appliances or Other
Recyclable Items has occurred en route.

 

(e).                   [*]

 

(f).                     Beginning with the first
partial or full week of the Philadelphia RPC’s receipt of shipments of
Recyclable Appliances and Other Recyclable

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

7

 

Items,
payment shall be made monthly on the basis of ARCA’s fiscal calendar (which
shall be provided by ARCA to GE), with full payment for each ARCA fiscal month
being received by GE via electronic funds transfer by the fourth (4th) Friday following the
expiration of each such month, with GE receiving a report in the form of
Schedule 2.1 (f) at least fourteen (14) days prior to the due date of each
monthly payment.  Such report shall be
subject to audit by GE in accordance with Article 4.

 

(g).                  The price for Recyclable
Appliances and Other Recyclable Items does not include any present or future
sales, use, excise, value-added or similar taxes.  Where applicable, such taxes shall be paid by
ARCA and, where required, invoiced by GE and paid by ARCA within thirty (30)
days of the date of the invoice.

 

(h).                  ARCA hereby grants to GE a
purchase money security interest in the Recyclable Appliances and Other
Recyclable Items supplied by GE to the Philadelphia RPC, only in the amount of
ARCA’s then outstanding unpaid obligation due to GE for such Recyclable
Appliances and Other Recyclable Items and the Referral Fee under Article 3
which shall be satisfied by payment in full to GE.  In order to perfect GE’s security interest,
GE may file a financing statement with the appropriate authorities that ARCA
will sign upon request or, for such purpose, GE is hereby appointed by ARCA an
agent of ARCA to sign financing statements on ARCA’s behalf.

 

(i).                     NO EXPRESS, ORAL, STATUTORY OR IMPLIED WARRANTY, INCLUDING THE IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, SHALL
APPLY.  GE’S LIABILITY ON ANY CLAIM FOR
LOSS OR DAMAGE ARISING OUT OF THIS CONTRACT OR FROM THE PERFORMANCE OR BREACH
THEREOF OR CONNECTED WITH, THE SUPPLYING OF ANY GOODS HEREUNDER, OR THEIR SALE,
OPERATION OR USE, WHETHER BASED ON CONTRACT, WARRANTY, TORT (INCLUDING
NEGLIGENCE), STRICT LIABILITY, OR OTHER GROUNDS, SHALL NOT EXCEED THE PRICE
ALLOWABLE FOR SUCH GOODS OR PART THEREOF INVOLVED IN THE CLAIM.  GE SHALL NOT IN ANY EVENT BE LIABLE, WHETHER
AS A RESULT OF BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE),
STRICT LIABILITY OR OTHER GROUNDS, FOR SPECIAL, PENAL, CONSEQUENTIAL OR
INCIDENTAL DAMAGES INCLUDING, BUT NOT LIMITED TO LOSS OF PROFITS OR REVENUE,
LOSS OF USE OF THE RECYCLABLE APPLIANCES OR OTHER RECYCLABLE ITEMS, COST OF
CAPITAL, COST OF

 

8

 

SUBSTITUTE PRODUCTS, FACILITIES OR SERVICES, OR CLAIMS
OF CUSTOMERS OF ARCA FOR SUCH DAMAGES.

 

(j).                      ARCA agrees
that it will, and will ensure that its Service Providers and any sub-tier
Service Providers will, only recycle and will not sell for re-use or resale any
Recyclable Appliances or Other Recyclable Items sold to ARCA by GE or by a
third party supplier referred by GE.

 

Article 3
Referral Fee

 

3.1     ARCA
shall pay GE a referral fee (“Referral Fee”) for any third party supplier of
Recyclable Appliances or Other Recyclable Items (including, without limitation,
the items listed in Schedule 1.1 (e)) that GE refers to ARCA for the
Philadelphia RPC or for any Recyclable Appliances or Other Recyclable Items
received by ARCA from any Appliance retailer or distributor from whom ARCA
(excluding its Affiliates) was not receiving Recyclable Appliances or Other
Recyclable Items at the time of execution of this Agreement, even though GE did
not refer such Appliance retailer or distributor to ARCA (“Referral Business”).  ARCA shall not be required to accept
products, materials or substances materially different from Recyclable
Appliances or Other Recyclable Items listed in Schedule 1.1(e) unless both
GE and ARCA have agreed in writing (no written response by one Party within ten
[10] business days of written notification by the other Party will be deemed
consent, following which the Party seeking consent shall provide to the other
Party written confirmation of its decision to proceed) to include such
products, materials or substances for processing by ARCA.  The Referral Fee shall not be paid for any
supplier, who is not an appliance retailer or 
appliance distributor, of Recyclable Appliances or Other Recyclable
Items that is already a supplier to ARCA or its Affiliates at the time of
referral.  ARCA’s purchase of, and
providing of Services for, third party Recyclable Appliances and Other
Recyclable Items referred by GE shall have Services priority over Recyclable
Appliances and Other Recyclable Items purchased by ARCA or its Affiliates from
other third parties but not over Recyclable Appliances and Other Recyclable
Items purchased from GE.

 

3.2     [*]

 

3.3     ARCA’s
payment of the Referral Fee to GE shall be made on the same basis and
procedures as provided in Section 2.1 (f).

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

9

 

Article 4
ARCA Books and Records/Site Access

 

4.1     ARCA
shall maintain, at its offices or at the Philadelphia RPC, complete and
accurate books and records, supporting data and other sufficient detail
relating to the performance under, or transactions directly related to, the
purchase of Recyclable Appliances and Other Recyclable Items by ARCA from GE or
the Referral Business, or which allow for an adequate evaluation of the pricing
and fees data related thereto, and/or which relate to ARCA’s or its Service
Providers’ provision of Services hereunder or compliance with any provisions of
this Agreement in accordance with, and for such period as required by,
generally accepted accounting principles, and applicable law (collectively “Books
and Records”).  During the Term of this
Agreement and for seven (7) years thereafter, or for such longer period as
may be reasonably required by GE pursuant to written notice to ARCA, ARCA and
its Service Providers agree to maintain such books and records for: (i) financial
or tax purposes required by any government agency, or required by any law, rule or
regulation, or (ii) in connection with any ongoing or threatened
litigation, suit or proceeding.

 

4.2     GE,
its employees, agents and representatives, shall have the right, but not the
responsibility, at any time during normal business hours, and with no less than
seventy-two (72) hours notice, to inspect and audit the Books and Records.
Adjustments in favor of GE arising from any such audit of ARCA or its Service
Providers shall be recognized as an adjustment of any future payment due GE or,
if no future payment is due GE, ARCA shall promptly pay the amount of any such
adjustment to GE. ARCA shall cooperate fully with GE or its employees, agents,
and representatives, in connection with audit functions or any inspections.

 

4.3     Subject
to the confidentiality and nondisclosure provisions of Article 7 of this
Agreement, GE, its employees, agents and representatives shall have the right,
but not the responsibility, to access the site(s) where the Services are
performed in order to assess the work quality, the condition and housekeeping
of the Philadelphia RPC, the environment, health and safety management systems
of the Philadelphia RPC and conformance with ARCA’s representations, warranties
and covenants under this Agreement.

 

4.4     GE’s
exercise of its rights, or failure to exercise its rights, under any part of
this Article 4 shall in no way: relieve ARCA or its Service Providers of
their respective obligations under this Agreement or any applicable laws or
regulations, including without limitation, Environmental Laws (as hereinafter
defined), or in equity; imply any approval by GE of ARCA’s or its Service
Providers’ environment, health and safety management systems; or to make GE
responsible for any act or omission of ARCA or its Service Providers with
respect to compliance or noncompliance with any applicable laws or regulations,
including without limitation, Environmental Laws.

 

10

 

Article 5
Covenants, Representations and Warranties

 

5.1       During
the Term, ARCA covenants, represents
and warrants that: (i) it has the legal right to provide the Services in
the jurisdictions where the Services are provided; (ii) its Services hereunder will be performed by
qualified individuals in a professional and workmanlike manner conforming to
the highest generally applicable industry standards and practices, including
without limitation those set forth in Schedules 1.1(c) and 1.1(f) hereof
(or such modifications to such standards and practices as may be reasonably
agreed with GE in writing); and (iii) it will perform its duties
and obligations under this Agreement in compliance with all applicable laws, regulations, codes and standards of government
agencies or authorities having jurisdiction in connection with its
obligations under this Agreement including, without limitation, Environmental
Laws (as hereinafter defined).

 

5.2       During the Term, ARCA further covenants,
represents and warrants for itself and its Affiliates, including AAP, that:

 

(a).                   it and its Service Providers
will, in the performance of this Agreement or anywhere at the Philadelphia RPC
facility: (i) use no forced, indentured or prison labor, or labor which
violates any applicable minimum working age, working condition, wage or
overtime laws; (ii) comply with the tax, immigration, and employment laws
of all jurisdictions in which its employees perform work under this Agreement;
and (iii) comply with all applicable privacy or data protection laws
relating to this Agreement;

 

(b).                  it is and its Service
Providers are business organization(s) duly incorporated or otherwise
organized, validly existing and in good standing under the Laws of the
jurisdiction in which it was incorporated, and is in good standing in each
other jurisdiction where the failure to be in good standing would have a
material adverse effect on its business or its ability to perform its
obligations under this Agreement;

 

(c).                   except as disclosed by ARCA
or its Service Providers, neither its nor its Service Providers’ owners,
directors or senior managers have been charged with or convicted of a felony,
are the subject of any lawsuit or proceeding involving charges of misconduct or
violations of law (excluding small claims and minor traffic violations),
including Environmental Laws and no judgment, order or decree (excluding small
claims and minor traffic violations) has been issued against ARCA, its
Affiliates or Service Providers, their respective owners, directors and senior
managers with any claim that ARCA, its Affiliates or Service Providers or their
respective owners, directors or senior

 

11

 

management
has violated any criminal or other laws, including any Environmental Laws;

 

(d).                  it shall remain primarily
responsible and liable to GE and its Affiliates for performance of or failure
to perform the Services, regardless of whether GE and/or its Affiliates has
given approval or consent to a specific Service Provider including without
limitation, a TSDF;

 

(e).                   it and its Service Providers
will transport Waste Material to and store, treat, and/or dispose of Waste
Material only at Approved TSDFs and in accordance with all Environmental Laws;

 

(f).                     it and its Service Providers’
Services shall be performed using personnel, equipment, and material qualified
and/or suitable to perform the Services requested, including, without
limitation, the proper installation, operation and maintenance of the URT
System;

 

(g).                  services performed by or
delivered through ARCA or a Service Provider shall be in accordance with the
highest generally accepted standards of the industry at the time of performance
and shall conform to the provisions of this Agreement;

 

(h).                  all Services
shall be materially free from defects and shall meet any specifications
provided or approved by GE and its Affiliates; any equipment utilized in
connection with performance hereunder shall be safe and in proper working order
and conform to all applicable regulatory requirements.  If any of the Services performed are found at
any time to be defective in material or workmanship, or otherwise not in
conformity with the requirements of this Agreement, GE and its Affiliates, in addition
to such other rights, remedies and choices as it may have by contract or by
law, at its option and sole discretion may: (i) upon notice to ARCA, take
such necessary and reasonable actions as may be required to cure all defects
and/or bring the Services and materials into conformity with all the
requirements of this Agreement, in which event all costs and expenses thereby
incurred by GE and its Affiliates shall be to ARCA’s account; and (ii) require
ARCA to re-perform, at its own expense, any defective portion of the Services
performed;

 

(i).                      it will assure
that its officers, directors, employees, agents, Affiliates and Service
Providers at every tier shall comply with all of the requirements of federal,
state, and local laws, rules, regulations and ordinances applicable to the
Services to be performed hereunder, including Environmental Laws and laws
related to the take-back or management of Recyclable Appliances and Other
Recyclable Items; ARCA shall be solely responsible for obtaining, maintaining
and complying with, or assuring that its Service Providers obtain, maintain

 

12

 

and
comply with, all licenses, permits, approvals or other documents which are or
shall be required for performance hereunder, and shall be responsible for the
satisfaction of all legal and regulatory requirements of any governmental
entity having jurisdiction over the purchase of Recyclable Appliances or Other
Recyclable Items or the performance of Services hereunder;

 

(j).                      it shall notify
GE immediately if (i) ARCA, its Affiliates, or, to ARCA’s knowledge, any
Service Provider, including an Approved TSDF is served with notice of violation
of any laws, rules, regulations, ordinances, licenses, approvals or permits,
including Environmental Laws related to the purchase of Recyclable Appliances
or Other Recyclable Items, the Services provided hereunder or the Waste
Materials; (ii) proceedings are commenced against ARCA or it Affiliates
or, to ARCA’s knowledge, any Service Provider or Approved TSDF that could lead
to suspension, fines, or revocation of permits, approvals or licenses which
relate to the Services; (iii) permits, approvals or licenses held by ARCA,
its Affiliates or, to ARCA’s knowledge, any Service Provider or Approved TSDF,
relating to Services are revoked; (iv) ARCA or its Affiliates determine or
otherwise become aware that any equipment or facility related to Services is
not in compliance with applicable laws, rules, regulations, ordinances,
licenses, permits or approvals, including Environmental Laws; and/or, (v) any
release of Waste Material occurs to any environmental media at the RPC or
during the transport of Waste Materials, including any such release that is
required to be reported to any governmental agency.  For purposes of this paragraph, ARCA shall be
deemed to have knowledge when it actually knows a fact or when, by means of
reasonable due inquiry, it would have become aware of a fact.  In addition, GE and its Affiliates have the
right, but not the responsibility, to request an annual summary of any notices
of violation issued by the United States Environmental Protection Agency, or
any local, state or federal governmental body with jurisdiction over the
Services, against ARCA, its Affiliates or Service Providers.  Upon receiving any notice under this
paragraph 5.2(j), GE and its Affiliates have the right to suspend the sale of
any Recyclable Appliances and Other Recyclable Items and the performance of
additional Services by ARCA, its Affiliates or Service Providers until the
matter giving rise to such notice has been resolved or corrected to GE’s
reasonable satisfaction;

 

(k).                   any transporter used for
shipment of any Waste Material: (i) shall be  in compliance with, and shall continue to
comply with, all federal and state laws and regulations applicable to it,
including those regulations promulgated under 49 CFR Part 385; (ii) shall
not have received an “Unsatisfactory” safety rating from Federal Motor Carrier
Safety 

 

13

 

Administration within the last 24 months and shall
have taken all necessary steps to correct all issues that resulted in any
previous “Unsatisfactory” safety rating; and (iii) shall not have been
found liable or responsible, during the previous five years, for violation of a
single acute regulation or two or more critical regulations pursuant to 49 CFR Part 385,
Appendix B. VII, or any analogous state law or regulation  for motor carrier safety.  Also, any transporter used for shipment of
any Waste Material containing PCB wastes in any quantity, waste oil, or
hazardous wastes, must be licensed under Environmental Laws to handle and
transport such materials and must be approved by GE.  Only transporters that have been specifically
approved by GE to transport PCB-wastes may be used to transport any
waste-containing PCBs;

 

(l).                      it and its
Service Providers shall take all necessary or appropriate precautions for the
health and safety of their employees in the performance of the Services and at
all locations involved in the performance of the Services.  In addition, GE and its Affiliates have the
right, but not the responsibility, to request an annual summary (including
safety statistics) of the health and safety performance of ARCA, its Service
Providers, its transporters, and all TSDFs in connection with their purchase of
Recyclable Appliances and Other Recyclable Items and the performance of
Services under this Agreement;

 

(m).                it and its Service Providers
shall maintain an environmental, health and safety management system including
the elements set forth in Schedule 5.2 (m);

 

(n).                  until the expiration of the
Proof of Performance Period and only as reasonably approved by GE
otherwise, it and its Service Providers will not make
any public statements or claims, including without limitation issuing
advertising media, press releases, or discussions with other
potential customers, regarding the Services it is providing for GE in the
Philadelphia RPC;

 

(o).                  it will handle the
Recyclable Appliances and Other Recyclable Items in accordance with this Agreement
which shall include the destruction, through incineration, conversion or
disassociation (or other available technology acceptable to ARCA and in
compliance with all applicable laws) of any recovered CFC refrigerants or CFC
blowing agent in the foam from Recyclable Appliances that GE provides for the
Services; for the avoidance of doubt, neither ARCA nor its Service Providers
will under any circumstances, sell Recyclable Appliances, Other Recyclable
Items or any recovered CFC refrigerants or foam blowing agent from Recyclable
Appliances that GE sells to ARCA;

 

14

 

(p).                  it will track the price of
carbon credits on the Chicago Climate Exchange (CCX) monthly to determine
whether the selling price of carbon credits that may be obtained for disposing
of refrigerant or foam blowing agents, exceeds the value of selling them on the
open market to third parties.  ARCA will
provide a report to GE every sixty (60) days showing the value of carbon
credits versus open market sale value. 
If the value of the carbon credits, after considering the disposal
costs, exceeds the sale value of the refrigerants or foam blowing agents on the
open market, ARCA and GE will, in good faith, negotiate an amendment to this
Agreement under which ARCA would share with GE the revenues from the carbon
credits obtained by ARCA’s disposal of the refrigerants or foam blowing
agents.  If other financial incentives
are offered in the future for the disposal of refrigerants or foam blowing
agents, including without limitation, a “bounty,” ARCA will, at GE’s request,
negotiate an amendment to this Agreement to provide GE with a share of any such
financial incentive;

 

(q).                  it and its Service Providers
will ensure that all of its personnel providing Services are in compliance with
all visas, passports, and work permits being used by them and ARCA will use
commercially reasonable efforts to obtain, or have obtained, all such permits,
licenses, visas, passports and work permits in a timely manner to avoid any
unnecessary delay;

 

(r).                     it is in compliance with Section 404
of the Sarbanes Oxley Act of 2002 and that it will supply to GE, in a manner
reasonably specified by GE, documents attesting that it has in place controls
that are effective and have been tested by a third party, such as an outside
auditor, that monitor and ensure compliance with Section 404 of the
Sarbanes-Oxley Act of 2002, and, at GE’s reasonable request, but no more than
once per calendar year, ARCA will furnish to the Company SAS 70 (type I and II)
reports and evidence of compliance with ISO 17799;

 

(s).                   it has all of the necessary
corporate or organizational power and authority to own, lease and operate its
assets and to carry on its business as presently conducted and as it will be conducted
pursuant to this Agreement and the consummation of the transactions
contemplated thereby have each been authorized by all necessary corporate
action and do not violate any judgment, order, or decree;

 

(t).                     it and its Service Providers
shall comply with provisions or contractual clauses required by the Office of
Federal Contract Compliance Programs as set forth in 41 Code of Federal
Regulations (CFR) Chapter 60, as well as any Executive Orders as now or
hereafter issued, amended or codified, where applicable to ARCA,

 

15

 

including
but not limited to the Equal Opportunity Clause; the Affirmative Action Clause
regarding Disabled Veterans and Veterans of the Vietnam Era; the Affirmative
Action Clause regarding Handicapped Workers; and the requirements for
non-segregated facilities set forth in Chapter 60-1.8 of the 41 CFR, as well as
comply with such similar laws in jurisdictions outside the United States;

 

(u).                  in carrying out its
responsibilities under the Agreement, it and its Service Providers shall not
pay, offer or promise to pay, or authorize the payment directly or indirectly
of any monies or anything of value to any government official or employee or
any political party or candidate for political office, for the purpose of
inducing or rewarding any favorable action in any commercial transaction or in
any governmental matter, and it has and will maintain and enforce its own
company policy requiring adherence to ethical business practices, including a prohibition
on bribery of government officials;

 

(v).                  no owner, partner, officer
or director of ARCA or of any Affiliate of ARCA is or will become an official
or employee of any government or of an agency or instrumentality of any
government during the Term of this Agreement without the prior written approval
of GE;

 

(w).                no part of the Services
and/or the equipment used by ARCA and its Service Providers shall violate,
infringe on or misappropriate any copyright, trademark, patent, trade secret or
personal, proprietary or intellectual property rights of any third party; and,
further, ARCA and/or its Service Providers are either the owner or are
authorized to use any equipment that ARCA and its Service Providers may use in
providing of the Services;

 

(x).                    it and its Service Providers
have and will maintain security measures consistent with international
standards where applicable to ARCA and its Service Providers for the protection
of its operations and facilities against exploitation by criminal or terrorist individuals
and organizations;

 

(y).                  it and its Service Providers
will allow their workers to
freely choose whether or not to organize or join associations for the purpose
of collective bargaining as provided by local law;

 

(z).                    as of the Effective Date, as
applicable, there is no pending or anticipated claim, suit, or proceeding that
involves ARCA or its Service Providers that might adversely affect ARCA’s and
its Service Providers’ ability to perform their obligations under this
Agreement;

 

16

 

(aa).             neither ARCA nor any of its
Service Providers, nor any employee, agent or representative of either, has
used or shall use any GE Confidential Information, as defined herein, to obtain
financial gain for ARCA, any of its Service Providers, any of their employees,
agents or representatives, or any other entity other than in performance of the
Services in accordance with this Agreement;

 

(bb).           it has all intellectual
property rights and licenses to perform the Services free and clear of claims
of infringement; and;

 

(cc).             it has established an
effective program to ensure its Service Providers and any suppliers it utilizes
to provide any Services under this Agreement will be in conformance with this
Agreement.

 

5.3     In
the event GE determines at any time that any of ARCA’s representations,
warranties or covenants are untrue, GE shall have the right, in addition to
other remedies available to it at law or in equity, to terminate this Agreement
as provided in Section 6.2, with ARCA remaining obligated to pay GE any
amounts due to GE up to the effective date of termination.  During any cure period under Section 6.2,
GE and its Affiliates have the right to suspend the sale of any Recyclable
Appliances and Other Recyclable Items and the performance of additional
Services by ARCA, its Affiliates or Services Providers until the matter giving
rise to such notice and right to cure has been resolved or corrected to GE’s
reasonable satisfaction.

 

Article 6
Term and Termination

 

6.1     This Agreement shall commence on the Effective
Date and shall remain in effect for a period of six (6) years from the
first date of collection of Recyclable Appliances from GE’s NE Delivery Area
(the “Initial Term”), with an option to renew for up to three (3) additional
one (1) year terms (the “Renewal Terms”), each at GE’s sole option
exercisable within one hundred twenty (120) days prior to the expiration of the
Initial Term or subsequent Renewal Term (the Initial Term and any Renewal Term(s) are
collectively referred to as the “Term”).

 

6.2     Either
Party may terminate this Agreement if the other Party is in material breach of
this Agreement and has not cured the breach within sixty (60) days after
receiving written notice from the other Party specifying the breach.  Consent to extend the cure period shall not
be unreasonably withheld, so long as the breaching Party has commenced a cure
during the sixty (60) day notice period and expeditiously pursues cure of the
breach in good faith.

 

6.3     In the event ARCA’s ownership interest in AAP
decreases, ARCA sells or otherwise transfers a material portion of the assets
of its recycling business or another party acquires a controlling interest in
ARCA that, in GE’s sole discretion, is unacceptable to GE, then GE may: (a) upon
ninety (90) days prior written 

 

17

 

notice to ARCA, terminate this Agreement; or (b) terminate
the Agreement immediately upon written notice to ARCA if the representations in
Section5.2(c) hereof are not true at the time that the acquiring party
obtains a material portion of the assets of ARCA’s recycling business or a
controlling interest in ARCA.

 

6.4     If ARCA becomes insolvent, a receiver for ARCA is
appointed or applied for, a petition is filed by or for ARCA under any federal
or state bankruptcy law or ARCA makes an assignment for the benefit of
creditors, GE may terminate this Agreement upon one (1) day prior written
notice to ARCA.

 

6.5     Termination
of this Agreement shall not limit either Party from pursuing any other remedies
available to it, including injunctive relief, nor shall termination relieve
ARCA of its obligation to pay all amounts due to GE that have accrued prior to
such termination.  Either Party’s
obligations under Section 2.1(h), Article 4, Section 6.6,
Articles 7, 8 and 12 and Sections 13.1, 13.3, 13.5, 13.6, 13.7, 13.8 and 13.9
of this Agreement shall survive termination cancellation or expiration of this
Agreement.

 

6.6     Upon
termination or expiration of this Agreement each party shall promptly, upon
written request, return to the other all Confidential Information, papers,
materials and other properties of the other held by each for the purposes of
and in connection with this Agreement. 
In addition, each Party, at its own cost and expense, will assist the
other in orderly termination or expiration of this Agreement and the transfer
of all aspects hereof, tangible and intangible, as may be reasonably necessary
for the timely, orderly, non-disrupted business continuation of each Party.

 

Article 7
Confidentiality and Proprietary Information

 

7.1     As
used in this Agreement, “Confidential Information” shall mean, with respect to
either Party, their respective Affiliates and Service Providers all information
and data, including GE Personal Data (as hereinafter defined), whether
technical or non-technical, in any medium, furnished or made available directly
or indirectly by one Party (the “Disclosing Party”) to the other (the “Receiving
Party”) in connection with this Agreement, and that includes without
limitation: (i) information that is marked confidential, restricted,
proprietary, or with a similar designation; (ii) computer software and
programs (including object code and source code), database technologies and
systems (and related information technology); (iii) all information
concerning the operations, affairs, methods, transactions and businesses of the
Disclosing Party (including without limitation, ideas, marketing plans,
business plans or strategies, business volumes or usage, data and other
information that are trade secrets or are competitively sensitive), the
financial information or affairs of the Disclosing Party, pricing information
and the relations of the Disclosing Party with its employees; (iv) either
Party’s nonpublic personal information relating to its customers; and (v) the
terms and conditions of this Agreement except where such disclosure is required

 

18

 

by
law.  Each Party’s Confidential
Information shall remain the property of that Party except as expressly
provided otherwise by the other provisions of this Agreement.

 

7.2     Confidential
Information shall not include information that the Receiving Party can
demonstrate: (i) is or becomes publicly available through no wrongful act
or omission of the Receiving Party; (ii) is obtained by the Receiving
Party from a third party without a breach of Receiving Party’s or third party’s
confidentiality obligations; (iii) was in the possession of the Receiving
Party at the time of disclosure without any confidentiality obligations; or (iv) was
independently developed by the Receiving Party without reference to
Confidential Information.

 

7.3     The
Receiving Party shall protect the Disclosing Party’s Confidential Information
against unauthorized use or disclosure using at least those measures that it
takes to protect its own Confidential Information of a similar nature, but no
less than reasonable care, and shall not use or disclose the Disclosing Party’s
Confidential Information for any purpose except in connection with its
performance of this Agreement; in connection with obtaining any financing or
raising of capital where any recipients of such information are required to
execute appropriate nondisclosure agreements as a condition to receiving such
information; or as set forth in Section7.7 hereof.  Notwithstanding the foregoing, the Receiving
Party may disclose the Disclosing Party’s Confidential Information to any
Affiliate; provided, however, each person to whom such Confidential Information
is disclosed is subject to confidentiality obligations comparable in scope to
those herein.

 

7.4     Upon
request of the Disclosing Party or upon termination of this Agreement, all
materials containing Confidential Information will be destroyed or returned to
the Disclosing Party and the Receiving Party will retain no copies or
reproductions of the Confidential Information unless required by law, except
that the Receiving Party may retain one record copy for archival purposes,
subject to the reasonable instructions of the Disclosing Party with respect to
such copy.

 

7.5     In
the event of any unauthorized use or disclosure or loss of any Confidential
Information of the Disclosing Party, the Receiving Party shall promptly, at its
own expense: (i) notify the Disclosing Party in writing; (ii) take
such actions as may be necessary or reasonably requested by the Disclosing
Party to minimize the violation or the damage resulting therefrom; and (iii) cooperate
in all reasonable respects with the Disclosing Party to minimize the violation
and any damage resulting therefrom.

 

7.6     The
Receiving Party acknowledges that any actual or threatened violation of this Article may
cause irreparable, non-monetary injury to the Disclosing Party, the extent of
which may be difficult to ascertain, and therefore agrees that the

 

19

 

Disclosing
Party shall be entitled to seek injunctive relief in addition to all other
remedies available at law and/or in equity.

 

7.7     Should
the Receiving Party be compelled by court decree, subpoena or other
requirements of law, rule, regulation, ordinance, permit, or approval to
disclose any of the Confidential Information, it shall promptly notify the
Disclosing Party in writing, and use reasonable good faith efforts to: (a) disclose
only the specific Confidential Information legally required to be disclosed;
and (b) assist the Disclosing Party (if and to the extent requested by the
Disclosing Party) in obtaining a protective order or other appropriate
assurances that the confidential nature of the Confidential Information shall
be protected and preserved.

 

7.8     The
foregoing obligations shall supersede the confidentiality obligations in the
Mutual Confidentiality and Non-Disclosure Agreement between the Parties dated April 24,
2009 and shall be continuing and binding until the date on which the Disclosing
Party’s Confidential Information is no longer confidential; protection for
trade secrets under this Article 7 shall extend for as long as the
relevant information qualifies as a trade secret under applicable law.

 

Article 8 Indemnification

 

8.1                  To
the fullest extent permitted by law, ARCA agrees to indemnify, defend and hold
harmless GE and its Affiliates, directors, officers, employees,
agents, successors and assigns and all other persons and entities acting on
behalf of or under the control of the other Party from and against any and all
claims, demands, suits, causes of action, debts or liabilities, losses,
judgment, damages, costs (including all reasonable attorney’s fees), expenses,
fines and penalties (“Loss(es)”) arising out of, or concerning or connected
with, (1) ARCA’s performance, or failure to perform, any of the Services,
transactions or activities contemplated under this Agreement; (2) ARCA’s
breach of any of the representations, warranties, or covenants contained in
this Agreement; (3) any infringement or alleged infringement of the
Services upon any patent, copyright, trade secret, or other proprietary right
of any third party; (4) Environmental Impact Claims (as defined
hereinafter) at or affecting the Philadelphia RPC, any property affected by
transport of the Recyclable Appliances or Other Recyclable Items, or any
Approved TSDF (but as to the TSDF, only to the extent related to Waste
Materials under this Agreement); (5) violations of Environmental Laws,
permits, or approvals in connection with the Philadelphia RPC or any Services
performed under this Agreement; or (4) the Waste Material, as hereinafter
defined , including, but not limited to, the possession, transportation,
Storage, Treatment and/or Disposal of Waste Material, arising out of or
relating to the performance of the Services and any resulting release or threat
of release of Waste Material, contamination of or adverse effects on the
environment arising out of or relating to the Waste Materials. This indemnity
is absolute and unconditional and

 

20

 

includes,
but is not limited to, any claims or actions whether in negligence, strict
liability, breach of warranty or otherwise, but does not extend to Losses to
the extent directly caused by the gross negligence or willful misconduct of GE
or its Affiliates.

 

8.2     Definitions

 

(a) In connection with the foregoing, the
phrase “Losses” shall be understood in its most comprehensive sense, which
includes any and all claims, losses, damages, fines, penalties, costs or other
detriments, and, without limiting the foregoing, specifically includes all
statutory or common law claims brought against GE, ARCA or their respective
Affiliates, including claims brought pursuant to Sections 106, 107 or 113 of
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. 9601 et seq.), as amended, including future amendments thereto,
Sections 7002 and 7003 of the Resource Conservation and Recovery Act, (42
U.S.C. Section 6901 et seq.) as amended, including any future amendments
thereto, the Toxic Substances Control Act, 15 U.S.C. 2601 et seq. as amended,
including any future amendments thereto, or similar state and local
Environmental Laws including claims for damage to the environment or property
or claims for bodily injury. Notwithstanding anything to the contrary stated hereinabove,
“Losses” shall expressly include, without limitation, any and all costs
incurred due to any investigation of the Philadelphia RPC or other sites or any
cleanup, removal or restoration mandated by or pursuant to any Environmental
Laws.

 

(b) “Environmental
Impact Claims” are Losses which arise out of, are related to, or are based on
the actual or threatened dispersal, discharge, escape, or release of chemicals,
liquids, gases, Waste Material (as defined hereinafter) or any other material,
contaminant or pollutant in or into the atmosphere, or on, onto, upon, in or
into the surface or subsurface (i) soils, (ii) water or water course,
(iii) objects, or (iv) any tangible or intangible matter, whether
sudden or not.

 

“Environmental
Laws” shall mean any federal, state or local laws, statutes, regulations,
rules, codes or ordinances or any judicial or administrative decree, judgment,
orders permit or decision, and any amendments thereto, including future
amendments, relating to the public health and safety or the protection of the
environment, including without limitation the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., as amended
(CERCLA), the Resource Conservation and Recovery Act, as amended 42 U.S.C. 6901
et seq., the Clean Water Act, 33 U.S.C. 1251 et seq., the Clean Air Act, 42
U.S.C. 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq.,
and the Safe Drinking Water Act, 42 U.S.C. 300f through 300j.

 

(d) “Waste Material”  shall
mean wastes that meet the descriptions set forth below generated in providing
the Services whether generated and/or stored at an RPC or other sites: any
solids, liquids, sludges, semisolids, or contained gases which

 

21

 

fall
within the definition of “solid wastes” as set forth in 40 C.F.R. section 261.2
(and any applicable state law or regulation that is more stringent than federal
law or regulation), or as defined under Environmental Laws.  The term “Waste Material” includes any and
all materials or substances which are defined as “hazardous waste,” “extremely
hazardous waste” or as “hazardous substances” pursuant to Environmental Laws,
and also includes asbestos, polychlorinated biphenyls (“PCBs”) and petroleum
products and any materials sent for Treatment, Storage, Disposal, recycling or
reclamation.  Where there exists a
conflict in the definitions employed by two or more governmental agencies that
have overlapping jurisdiction over wastes generated by ARCA, and its Service
Providers, “Waste Material” shall be construed to have the broadest of the
meanings employed by such agencies.

 

8.3     In
connection with the forgoing indemnities, ARCA and its Affiliates specifically
waive and relinquish all statutory or common law claims against GE and its
Affiliates, including its present and future officers, directors, shareholders,
subsidiaries, divisions, employees and agents, that ARCA and its Affiliates may
otherwise have in connection with transfer to ARCA and its Affiliates of title
and responsibility for the Recyclable Appliances, Other Recyclable Items,
Referral Business or Waste Material, including any claims arising under
Environmental Laws, claims for property damage or bodily injuries, including
death.

 

8.4     The
foregoing indemnities are conditioned on: (a) GE notifying ARCA in writing
within ninety (90) days of becoming aware of any covered Loss, provided,
however, that the failure of GE to give ARCA such written notice will not
relieve ARCA of its obligations hereunder except to the extent such failure materially prejudices (or results in material
prejudice to) ARCA’s
defense of such claim; and (b) GE providing ARCA with the
assistance, information, and authority reasonably necessary to defend such
claim.  Reasonable out-of-pocket expenses
incurred by GE in providing such assistance will be reimbursed by ARCA.  ARCA will keep GE promptly and fully informed
regarding all material developments with respect to such Loss.  In no event shall ARCA by its action or inaction, or by default, concede or admit
liability, or enter into any judgment or settlement regarding any indemnified Loss without
GE’s prior written consent, which
such consent shall not be unreasonably withheld or delayed.  If GE has to file suit against ARCA to enforce this indemnity, ARCA shall reimburse GE for all legal fees and expenses GE
incurs in connection with such enforcement. 
GE reserves the right, at its own expense, to participate in the defense
of any matter subject to indemnification by the ARCA.

 

Article 9
Insurance

 

9.1     Without
limiting the indemnification provisions of this Agreement, ARCA shall obtain,
during the Initial Term and any Renewal Terms, and maintain in force the
following insurance coverage at its own cost and expense:

 

22

 

(a).      Worker’s Compensation with
applicable minimum statutory limits per occurrence, Disability and Unemployment
Insurance, and all other insurance as required by law and as customarily
maintained in ARCA’s industry for all ARCA employees performing the Services
hereunder, including Employer’s Liability Insurance with limits of no less than
$500,000 per occurrence, or any amount required by applicable law, whichever is
greater.

 

(b).      Commercial General
Liability, on an occurrence basis, including but not limited to
premises-operations, product completed-operations, broad form property damage,
contractual liability, independent contractors and personal liability, with a
minimum combined single limit of $3,000,000 per occurrence.  This policy shall be endorsed to name GE and
its Affiliates as additional insureds.

 

(c).      Full “All Risk” and “Extended
Coverage” Replacement Cost Coverage Property Insurance on any and all equipment
belonging to GE that may be within ARCA’s possession or control.

 

(d).      Umbrella Liability on an
occurrence basis with a minimum limit of at least $4,000,000 per occurrence, in
excess of the applicable insurance under policies indicated in Sections 9 (a), (b) and
(c).  This policy shall be endorsed to
name GE and its Affiliates as additional insureds.

 

(e).      Comprehensive Errors and
Omissions Liability covering the liability for financial loss due to error,
omission, negligence of employees and machine malfunction in an amount of at
least $5,000,000 per occurrence.  This
policy shall be endorsed to name GE and its Affiliates as additional insureds.

 

(f).       Comprehensive Crime Policy
on an occurrence basis, with limits of at least $5,000,000 per occurrence.

 

(g).      Pollution Legal Liability
Insurance for the Philadelphia RPC, with a minimum of coverage limit of
$5,000,000 per incident and $10,000,000 aggregate.  The policy shall cover all activities at the
Philadelphia RPC or individual policies with the same coverage limits shall be
obtained for each legal entity operating at the Philadelphia RPC.  The policy(ies) shall be endorsed to name GE
and its Affiliates as additional named insureds.  Similar policies shall be purchased for any
Additional RPCs established under Section 1.2 hereof.

 

9.2           ARCA shall cause its
insurers to issue, before the Effective Date of this Agreement, certificates of
insurance evidencing that the required coverages and policy endorsements are
maintained in force, and that not less than thirty (30)

 

23

 

days
written notice shall be given to GE prior to any modification, cancellation or
non-renewal of the policies.

 

9.3           The foregoing insurance
coverage shall be primary and non-contributing with respect to any other
insurance or self-insurance that may be maintained by GE.  Each insurance policy carried by ARCA shall
grant waiver of subrogation on all policies indicated in this Article.  Upon request by GE, the insurers selected by
ARCA shall have an A.M. Best rating of A- or better or, if such ratings
are no longer available, with a comparable rating from a recognized insurance
rating agency.  ARCA shall ensure that
its Service Providers maintain insurance coverage as specified in this Article 9.

 

Article 10
Compliance with GE Policies

 

10.1         ARCA
and its Service Providers will supply and review with all ARCA and Service
Provider personnel who provide Services under this Agreement a copy of GE’s
Integrity Guide for Suppliers (Schedule 10.1),
and will cause all such ARCA and Service Provider personnel to comply with such
policies to the extent that such policies are applicable to the activities
conducted by ARCA and its Service Provider personnel in performing the
Services.

 

Article 11 Relationship Between the Parties

 

11.1         Independent Contractor. 
ARCA is an independent contractor.  Nothing in this Agreement shall be construed
to create a partnership, joint venture, or agency relationship between the
Parties.  Nothing in this Agreement shall
be interpreted or construed as creating or establishing the relationship of
employer and employee between GE and either ARCA or any ARCA personnel or
Service Provider of ARCA.  Each Party
will be solely responsible for payment of all compensation owed to its
employees, as well as federal and state income tax withholding, social security
taxes, and unemployment insurance applicable to such personnel as employees of
the applicable Party, and each Party shall bear sole responsibility for any
health or disability insurance, retirement benefits, or other welfare or
pension benefits (if any) to which such Party’s employees may be entitled.  Neither Party nor their respective personnel
shall have any right or authority to assume or create any obligation of any
kind expressed or implied in the name of or on behalf of the other Party.

 

11.2         Notices.  All notices, including notices of
address change, required to be sent hereunder shall be sent by facsimile (with
the original to promptly follow by applicable national mail service or
overnight courier), by overnight courier, or transmitted electronically.  Notices will be deemed given on the date
delivered to the recipient if sent by fax or overnight courier (it being agreed
that the sender shall retain proof of transmission or delivery, as the case may
be), or when accessible electronically if sent electronically.  Notices shall be sent to the Parties as
follows (or as otherwise directed by a Party):

 

24

 

GE:

 

[*]

GM,
Distribution and Services

Appliance
Park, Bldg. 4 Room 126C

Louisville,
KY 40225

Fax:  [*]

Email:  [*]

 

[*]

Manager,
Local Delivery Service

Appliance
Park, Bldg. 4 Room 116

Louisville,
KY 40225

Fax:  [*]

Email:  [*]

 

[*]

Vice
President and General Counsel

Appliance
Park, Bldg 2 Room 226

Louisville,
KY 40225

Fax:  [*]

Email:  [*]

 

ARCA:                   [*]

Appliance
Recycling Centers of America, Inc.

7400
Excelsior Boulevard

Minneapolis,
MN 55426

Fax:  [*]

Email:  [*]

 

11.3         Warrant Agreement.  The parties intend to contemporaneously enter
into a Warrant Agreement with the execution of this Agreement.  The Parties agree that this Agreement shall
have no force and effect unless a Warrant Agreement in the form attached hereto
as Schedule 11.3 is executed by both Parties.

 

Article 12 Alternative Dispute Resolution

 

12.1.        In the event of any dispute between the
Parties hereto arising from or relating to this Agreement, then, upon the
written request of either Party, each of the Parties will appoint a designated
representative to resolve such dispute. 
The designated representatives will be executives with sufficient
authority to engage in good faith negotiations and bind the Party she/he
represents.  If the designated
representatives are unable to resolve the dispute within a reasonable

 

[*]
signifies that confidential information has been omitted and filed separately
with the Securities and Exchange Commission.

 

25

 

period (but in
no event more than thirty (30) days from the date of receipt of written
request), then the dispute will be escalated to representatives of each party at
least one (1) level higher in their respective organizations than those
involved in the previous round of negotiations (“Escalated Representatives”).  Except if a court determines preliminary
injunctive relief is warranted upon application of one of the Parties to this
Agreement, no formal proceedings relating to such dispute may be commenced
until the Escalated Representatives conclude in good faith that amicable
resolution through continued negotiation of the matter in issue does not appear
likely.  If the Escalated Representatives
are unable to resolve the dispute within a reasonable period, (but in no event
more than thirty (30) days from the date negotiations commenced between the
Escalated Representatives), the Parties shall submit the dispute for non-binding
mediation by a single mediator in accordance with the rules of the CPR
Institute for Dispute Resolution (www.cpradr.org) (“CPR”), utilizing rules and
procedures in place at the time of the dispute. 
Such mediator shall be competent in any technical, legal or other issue(s) involved
in the dispute. In the event the Parties are unable to resolve the dispute
within thirty (30) days of commencement of the mediation, or if one party fails
to participate in the mediation as agreed herein, either party may refer the
dispute to arbitration by a sole arbitrator (for claims estimated at $5 million
or less) or 3 arbitrators (for claims estimated at over $5 million) in
accordance with the CPR Rules for Non-Administered Arbitration of Business
Disputes then currently in effect. 
Unless otherwise agreed by the Parties, the mediator shall be
disqualified from serving as arbitrator in the case. The place of arbitration
shall be New York, New York, and the language of the arbitration shall be
English. The Federal Arbitration Act shall govern the arbitration and any court
having jurisdiction thereof may enter judgment upon the award rendered by the
arbitrator(s).  The Parties will
participate in the arbitration in good faith, and, unless awarded to the
contrary by the mediator or arbitrator, will share equally in the
administrative costs of the mediation and arbitration.  The arbitrator shall not be empowered to
award damages in excess of compensatory damages, and each party irrevocably
waives all rights to recover such non-compensatory damages with respect to any
dispute resolved by arbitration hereunder. 
The Parties irrevocably waive all objections to venue, jurisdiction of
the court, and right to trial by jury in any judicial action, proceeding or
claim ancillary to an arbitration arising out of this Agreement.

 

Article 13 General Provisions

 

13.1         Severability.  If
any provision of this Agreement is illegal or unenforceable, its invalidity
shall not affect the other provisions of this Agreement that can be given effect
without the invalid provision.  If any
provision of this Agreement does not comply with any law, ordinance or
regulation, such provision, to the extent possible, shall be interpreted in
such a manner so as to comply with such law, ordinance or regulation, or, if
such interpretation is not possible, it shall be deemed to satisfy the minimum
requirements thereof.

 

26

 

13.2         Assignability/Subcontractors.

 

(a).          Unless otherwise approved or agreed in writing
by GE, ARCA shall not assign, delegate or subcontract any of its rights or
responsibilities under this Agreement to any Affiliate or to any third party or
entity. This Agreement may not be assigned by ARCA, or involuntarily assigned
or assigned by operation of law, without the express written consent of GE,
which consent shall be in GE’s sole discretion. 
There shall be no restriction on GE’s ability to assign this Agreement,
provided that GE shall not be released upon making any such assignment.

 

(b).          If GE consents to the use of any
subcontractors by ARCA to perform the Services, such Service Providers shall be
engaged to do so under written contracts with ARCA under terms and
conditions no
less restrictive than those set forth herein, including but
not limited to Articles 5 and 10.  ARCA shall also ensure that each Service
Provider has obtained and maintains all licenses required in connection with
the Services for which such Service Provider is responsible. ARCA shall include
in its subcontracts provisions equivalent to those in this Agreement to the
extent such terms and conditions are relevant to the Services to be provided by
the Service Provider (including, without limitation, a restriction on the
Service Provider’s right to further subcontract its obligations without GE’s
prior written consent), and shall identify GE as a direct and intended third
party beneficiary thereof.  Upon GE’s
request from time-to-time, an officer of ARCA shall certify in writing that
each Service Provider is in full compliance with this Section.

 

(c).          Notwithstanding the foregoing, it is understood
and agreed that ARCA may without notice to GE subcontract certain ministerial
and non-core responsibilities, including by way of example and not limitation,
mailing and copying.

 

(d).          ARCA shall remain responsible, as primary
obligor, for all obligations performed by Service Providers to the same extent
as if such obligations were directly performed by ARCA, including any acts or
omissions by the Service Providers.  In
no event shall ARCA be relieved of its obligations under this Agreement as a
result of its use of any Service Providers. 
ARCA shall supervise the activities and performance of each Service
Provider and shall be jointly and severally liable with each such Service
Provider for any act or failure to act by such Service Provider.  If GE determines that the performance or
conduct of any Service Provider is unsatisfactory, GE may notify ARCA of its
determination in writing, indicating the reasons therefor, in which event ARCA
promptly shall take all

 

27

 

necessary
actions to remedy the performance or conduct of such Service Provider or, if
such remediation is not possible, replace such Service Provider.

 

(e).          Any attempt by ARCA to so assign or delegate any
of the foregoing (except as permitted, above) without consent as provided for
herein shall be void.

 

13.3         Governing Law.  This Agreement shall be construed and enforced in
accordance with, and governed by, the substantive laws of the State of New
York, United States of America, without regard to the conflict of laws
principles thereof, and all actions arising out of or relating to this
Agreement must be brought in the State of New York.  The Parties agree that they will not object to the choice of New York
law or arbitration in New York in any proceeding to adjudicate a dispute under
this Agreement or to enforce an arbitral award related to this Agreement.

 

13.4         Publicity/Advertising.  As a material obligation of this Agreement and
except as otherwise required by law, GE and its Affiliates or agents, and ARCA,
its Affiliates, Service Providers or its agents shall not release information
with respect to the existence or terms of this Agreement or an amendment or any
other document thereto and shall not without the consent of the other Party use
the name, logo, trademarks, photographs, or any reference either direct or
indirect of either Party in advertising, marketing, public relations or similar
publications (such as, but not limited to, marketing brochures, press releases,
case studies or references).  Neither
Party is under any obligation, express or implied, to provide any such consent;
and, in the event that any such consent should be granted for a particular
communication, neither Party shall not be under any further obligation to
provide consent in any future request.

 

13.5         Electronic Communications. 
Any document properly transmitted and received by the other Party by
computer access shall be considered a writing delivered in connection with this
Agreement.  Electronic documents shall be
deemed received by a Party when accessible by the recipient on the recipient’s
computer system.

 

13.6         Waiver. 
The
waiver by either Party of any default or breach of this Agreement shall not
constitute a waiver of any other or subsequent default or breach.  The Parties’ failure at any time to enforce
any of the provisions of this Agreement or any right or remedy available
hereunder or at law or equity, or to exercise any option herein provided will in
no way be construed to be a waiver of such provisions, rights, remedies or
options or any other term, condition or covenant of this Agreement, or in any
way to affect the validity of this Agreement. 
The exercise by GE or ARCA of any rights, remedies or options provided
hereunder or at law or equity shall not preclude or prejudice the exercising
hereunder of the same or any other rights, remedies or options.

 

28

 

13.7         Force Majeure. 
Neither party shall be in default or otherwise
liable for any delay in, or failure of, its performance under this Agreement
where such delay or failure arises by reason of any act of God, or any
government or any governmental body, war, insurrection, the elements, strikes
or labor disputes, or other similar cause beyond the control of such
Party.  Either Party may terminate, at
its option, the whole or any part of this Agreement if such a situation
continues for sixty (60) days.

 

13.8         Counterparts/Headings.  This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one counterpart has been signed by each Party and
delivered to the other Party hereto.  The
Article and Section headings in this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.

 

13.9         Entire
Agreement.  Time is of the essence as to each and
every provision of this Agreement requiring performance within a specified
time.  This Agreement shall constitute
the complete and final expression of agreement between the Parties and
supersedes all previous or contemporaneous agreements or representations,
written or oral, with respect to the subject matter described herein.  No course of prior dealings between Parties,
no course of performance and no usage of trade shall be relevant to determine
the meaning of this Agreement even though the accepting or acquiescing party
has knowledge of the performance and opportunity for objection.  This Agreement may not be modified,
supplemented or amended except in writing signed by a duly authorized
representative of each Party.  Any
attempted modification, addition of new terms, or submission of inconsistent
terms thereto in any document submitted by a Party, whether or not materially
different, are objected to and shall have no force or effect upon the other
Party unless specifically accepted by such other Party in writing.  Any section that by its nature should survive
expiration or termination of this Agreement, shall remain in effect after the
expiration or termination of this Agreement, including but not limited to, Section 2.1
(h), Article 4, Section 6.6, Articles 7, 8 and 12 and Sections 13.1,
13.3, 13.5, 13.6, 13.7, 13.8 and 13.9.

 

[Signatures begin on next page.]

 

29

 

IN WITNESS
WHEREOF, the authorized representatives of the Parties hereto have executed
this Agreement as of the date first written above or as otherwise specified
herein.

 

 

Executed
by General Electric Company:

 

	
  Authorized

  
	
  Signature:

  	
   

  	
   

  

 

Name:  [*]

 

Title:    
General Manager, Distribution and Services

 

Date:     October 21,
2009

 

 

Executed by Appliance Recycling Centers of America, Inc.:

 

	
  Authorized

  
	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

Date:  October 21,
2009

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

30

 

Schedule 1.1 (b)- Scheduled Delivery Service
Locations for the Northeast Delivery area

 

[*]

 

[*] signifies that confidential information has been omitted
and filed separately with the Securities and Exchange Commission.

 

 

Schedule 1.1 (c) — Processing Equipment and
Procedures

 

[*]

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

 

Schedule 1.1 (e) — Other Recyclable Items

 

Scrap and Haul-Away items that are recyclable (other than
Recyclable Appliances) including, but not limited to:

 

·                  Household
mechanicals such as furnaces, pressurized devices and air compressors, lawn
mowers and tractors, patio furniture, exercise equipment and tool boxes;

 

·                  Accessories
for Appliances and mechanicals such as Appliance backsplashes, cords and spare
parts; and

 

·                  Miscellaneous
metal items, such as tool boxes, shopping carts, lumber carts and racks, that
may from time to time be added to loads – as long as the load does not contain
any industrial waste or other substance that is regulated under EHS Laws and
regulations.

 

 

Schedule 1.1 (f) — Operations Overview

 

[*]

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

 

Schedule 2.1 (b) — Product Delivery Receipt
(example)

 

To be agreed to by the parties.

 

 

Schedule 2.1 (e) — Philadelphia AMM (26 weeks)

 

[*]

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

 

Schedule 2.1 (f) — Detailed Payment Report
(example)

 

[*]

 

[*]
signifies that confidential information has been omitted and filed separately
with the Securities and Exchange Commission.

 

 

Schedule
5.2 (m) — Environmental Health and Safety Management System Requirements

 

Environmental, Health and Safety (EH&S) Policy

 

ARCA and its Affiliates will
establish an EHS Policy, which includes the following:

 

·      Comply with applicable EHS laws and regulations.

 

·      Take appropriate measures to prevent workplace
injuries and illnesses, and provide employees with a safe and healthy working
environment.

 

·      Consider evolving industry practices, regulatory
requirements and societal standards of care.

 

·      Assess EHS impacts before starting a new activity or
project or entering a new site.

 

·      Consider EHS impacts in its operations and services.

 

·      Eliminate unreasonable risks from its facilities,
products, services and activities.

 

·      To the extent reasonably practicable, reduce the use
and release of toxic and hazardous materials, prevent pollution, and conserve,
recover and recycle materials.

 

·      Continue to
improve its EHS systems and performance as an integral part of its operational
strategy.

 

 

Schedule 5.2 (m) —
Environmental Health and Safety Management System Requirements

 

EMS: Environmental

 

·      To achieve the EHS Policy’s goals, ARCA and its
Affiliates will implement an Environmental Management System (EMS).

 

·      The EMS should include at least the following
elements:

 

·      Air

·      Chemical Control

·      General Environmental

·      Regulated Waste and
Dangerous Goods Shipping

·      Waste

·      Water

 

 

Schedule
5.2 (m) — Environmental Health and Safety Management System Requirements

 

EMS: Health and Safety

 

·      To achieve the goal of protecting its employees,
ARCA and its Affiliates will implement a Health and Safety (H&S) management
system. The H&S management system will include at least the below elements.

 

·      Industrial Hygiene

·      Chemical Management

·      Ergonomics

·      Motor Vehicle Safety

·      Medical Services

·      Program Evaluation

·      Lock Out, Tag Out

·      Site H&S Plan

·      H&S
Expectations and Performance Approval

·      Hazard Analysis and Regulatory Compliance

·      Employee Involvement

·      H&S Specialist

·      Accident Reporting, Investigation and Follow-Up

·      H&S Training

·      Health, Safety and Housekeeping Inspections

·      Personal Protective Equipment

·      Contractor H&S

·      Emergency Preparedness and Fire Prevention

·      Job Safety Analysis

·      High Risk Operations

·      H&S Review of New or Modified Equipment

 

 

Schedule
5.2 (m) — Environmental Health and Safety Management System Requirements

 

EMS: Procedures

 

·      ARCA’s and its Affiliates’ management shall include
an EHS leader.

 

·      To achieve its goals of the EHS Policy, the ARCA and
its Affiliates will conduct periodic EHS training to relevant personnel.  The EHS leader will evaluate the operations,
determine which personnel require training and provide such training on at
least the following topics, as appropriate:

 

·      Personal Protective Equipment

·      Toxic Substances

·      General Safety Training

·      Ergonomics

·      Lock Out/Tag Out

·      Confined Spaces

·      Hazardous Materials Management

·      Hazard Communication

 

·      ARCA and its Affiliates shall operate as to its suppliers under a
supplier relationship policy or implementation strategy and do business only
with suppliers that comply with the policy and applicable laws in the areas of
employment, environment, health and safety.

 

 

Schedule 10.1 — GE Integrity Guide
for Suppliers

 

[*]

 

[*] signifies that confidential
information has been omitted and filed separately with the Securities and
Exchange Commission.

 

 

Schedule 11.3 — Warrant

 

Form of Warrant attached.

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