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                                                                  EXHIBIT 10.4.1
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                   GUARANTY AND MANDATORY DEPOSIT AGREEMENT

     THIS GUARANTY AND MANDATORY DEPOSIT AGREEMENT is dated (for reference
purposes only) as of May 1, 2000 and is made and entered into in connection with
the provision by Bank of the credit facility referred to in paragraph 1 below,
pursuant to which each Guarantor (as defined below) expects to derive direct
and/or indirect benefit.

     NOW, THEREFORE, the parties agree as follows:

1.   Obligations Guarantied.  For consideration, the adequacy, sufficiency and
receipt of which is hereby acknowledged, the undersigned (collectively,
"Guarantors" and individually each or any "Guarantor") unconditionally, jointly
and severally guarantee and promise to pay to UNION BANK OF CALIFORNIA, N.A.
("Bank") on demand, in lawful United States money, subject to the limitations
set forth in Section 19, below, all principal, interest, reasonable attorneys'
fees, expenses and other sums due or which become due pursuant to any or all of
the following: (a) that certain Reimbursement Agreement of even date herewith
(as from time to time amended the "Reimbursement Agreement") by and between West
Valley MRF, LLC, a California limited liability company, ("Borrower") and Bank,
pursuant to which Bank has issued or will issue its Letter of Credit to support
payment of those certain bonds in the aggregate principal amount not to exceed
$8,500,000 of the Variable Rate Demand Solid Waste Disposal Revenue Bonds (West
Valley MRF, LLC Project), Series 2000 (the "Bonds") being issued by the
California Pollution Control Financing Authority to assist the Borrower in
financing a part of the cost of the development, acquisition and construction of
the Project (as defined in the Reimbursement Agreement); (b) any Borrower
Agreement (as defined in the Reimbursement Agreement), including, without
limitation, any deeds of trust or security agreements securing the Reimbursement
Agreement; and (c) all extensions, renewals and modifications of any of the
foregoing (individually and collectively, the "Obligations"), whether due or not
due, absolute or contingent, liquidated or unliquidated, legal or equitable,
whether Borrower is liable individually or jointly or with others, whether
incurred before, during or after any bankruptcy, reorganization, insolvency,
receivership or similar proceeding ("Insolvency Proceeding"), and whether
recovery thereof is or becomes barred by a statute of limitations or is or
becomes otherwise unenforceable, together with all expenses of, for and
incidental to collection, including reasonable attorneys' fees.  This Guaranty
is in addition to any other guaranties of the Obligations.  The maximum amount
payable by Guarantors to Bank hereunder shall be limited to the maximum amount
specified in Section 19, below.  Capitalized terms used herein without
definition shall have the respective meanings ascribed thereto in the
Reimbursement Agreement.

2.   Reinstatement. All of Bank's rights pursuant to this Guaranty continue with
respect to amounts previously paid to Bank on account of any Obligations which
are thereafter restored or returned by Bank, whether in an Insolvency Proceeding
of Borrower or for any other reason, all as though such amounts had not been
paid to Bank, and each Guarantor's liability under this Guaranty (and all its
terms and provisions) shall be reinstated and revived as provided herein,
notwithstanding any surrender or cancellation of this Guaranty. Bank, in its
sole discretion, may

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determine whether any amount paid to it must be restored or returned; provided,
however, that if Bank elects to contest any claim for return or restoration,
each Guarantor agrees to indemnify and hold Bank harmless from and against all
costs and expenses, including reasonable attorneys' fees, expended or incurred
by Bank in connection with such contest. If any Insolvency Proceeding is
commenced by or against Borrower or any Guarantor, at Bank's election, each
Guarantor's obligations under this Guaranty shall immediately and without notice
or demand become due and payable, whether or not then otherwise due and payable.

3.   Authorization.  Each Guarantor authorizes Bank, without notice and without
affecting such Guarantor's liability under this Guaranty, from time to time,
whether before or after any revocation of this Guaranty, to (a) renew,
compromise, extend, accelerate, release, subordinate, waive, amend and restate,
or otherwise amend or change, the interest rate, time or place for payment or
any other terms of all or any part of the Obligations; (b) accept delinquent or
partial payments on the Obligations; (c) take or not take security or other
credit support for this Guaranty or for all or any part of the Obligations, and
exchange, enforce, waive, release, subordinate, fail to enforce or perfect, sell
or otherwise dispose of any such security or credit support; (d) apply proceeds
of any such security or credit support and direct the order or manner of its
sale or enforcement as Bank, in its sole discretion, may determine; and (e)
release or substitute Borrower or any Guarantor or other person or entity liable
in respect of all or any part of the Obligations.

4.   Waivers.  To the maximum extent permitted by law, each Guarantor waives (a)
all rights to require Bank to proceed against Borrower or proceed against,
enforce or exhaust any security for the Obligations or to marshal assets or to
pursue any other remedy in Bank's power whatsoever; (b) all defenses arising by
reason of:  any disability or other defense of Borrower, the cessation for any
reason of the liability of Borrower, any defense that any other indemnity,
guaranty or security was to be obtained, any claim that Bank has made such
Guarantor's obligations more burdensome or more burdensome than Borrower's
obligations, and the use of any proceeds of the Obligations other than as
intended or understood by Bank or such Guarantor; (c) all presentments, demands
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty, and all other
notices or demands to which such Guarantor might otherwise be entitled; (d) all
conditions precedent to the effectiveness of this Guaranty; (e) all rights to
file a claim in connection with the Obligations in an Insolvency Proceeding
filed by or against Borrower; (f) all rights to require Bank to enforce any of
its remedies and (g) until the Obligations are satisfied or fully paid, with
such payment not subject to return:  (i) all rights of subrogation,
indemnification or reimbursement, (ii) all rights of recourse to any assets or
property of Borrower or to any collateral or credit support for the Obligations,
(iii) all rights to participate in or benefit from any security or credit
support Bank may have or acquire, and (iv) all rights, remedies and defenses
such Guarantor may have or acquire against Borrower; provided however that
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anything in this Guaranty to the contrary notwithstanding, the Guarantors shall
only be required to waive and forebear the enforcement of any rights of
subrogation, indemnification or reimbursement against any person or entity so
long as such person or entity is in default in the payment of any obligation due
and owing to Bank; during the continuance of any such default all such rights of
subrogation, indemnification and reimbursement shall be subordinated as provided
in Section 6 below.  Bank may foreclose, either

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by judicial foreclosure or by exercise of power of sale, any deed of trust which
secures any Obligations, and even though such foreclosure or exercise may
destroy or diminish the rights of the Guarantors, or any of them, against
Borrower, each Guarantor shall remain liable for any part of the Obligations
remaining unpaid after foreclosure. Each Guarantor understands that if Bank
forecloses by trustee's sale on a deed of trust securing any of the Obligations,
Guarantor would then have a defense preventing Bank from thereafter enforcing
Guarantor's liability for the unpaid balance of the secured Obligations. This
defense arises because the trustee's sale would eliminate Guarantor's right of
subrogation, and therefore Guarantor would be unable to obtain reimbursement
from Borrower. Guarantor specifically waives this defense and all rights and
defenses that Guarantor may have because the Obligations are secured by real
property. This means, among other things: (1) Bank may collect from Guarantor
without first foreclosing on any real or personal property collateral pledged by
Borrower; and (2) if Bank forecloses on any real property collateral pledged by
Borrower: (A) the amount of the Obligations may be reduced only by the price for
which the collateral is sold at the foreclosure sale, even if the collateral is
worth more than the sale price; and (B) Bank may collect from Guarantor even if
Bank, by foreclosing on the real property collateral, has destroyed any right
Guarantor may have to collect from Borrower. This is an unconditional and
irrevocable waiver of any rights and defenses Guarantor may have because the
Obligations are secured by real property. These rights and defenses include, but
are not limited to, any rights or defenses based upon Section 580a, 580b, 580d,
or 726 of the California Code of Civil Procedure. Each Guarantor agrees that
such Guarantor shall remain liable (subject to the limits set forth in Section
19, below) for any part of the Obligations remaining unpaid after a trustee's
sale, although such Guarantor would not become subrogated to any part of the
Obligations that such Guarantor has paid and would therefore be unable to obtain
reimbursement for those payments from Borrower. Each Guarantor may therefore
incur a partially or totally unreimbursable liability under the Guaranty. Each
Guarantor waives all benefits under California Civil Code sections 2808, 2809,
2810, 2819, 2839, 2845, 2846, 2848, 2849, 2850, 2855, 2899 and 3433 and
California Code of Civil Procedure sections 580a, 580b, 580d and 726.

5.   Guarantor to Keep Informed. Each Guarantor warrants having established with
Borrower adequate means of obtaining, on an ongoing basis, such information as
such Guarantor may require concerning all matters bearing on the risk of
nonpayment or nonperformance of the Obligations. Each Guarantor assumes sole,
continuing responsibility for obtaining such information from sources other than
from Bank. Bank has no duty to provide any information to any Guarantor until
Bank receives such Guarantor's written request for specific information in
Bank's possession and Borrower has authorized Bank to disclose such information
to such Guarantor.

6.   Subordination.  All liabilities and commitments of Borrower to any
Guarantor, and all liabilities and commitments of any guarantor of any of the
Obligations to any other Guarantor, which presently or in the future may exist
("Guarantor Claims") are hereby subordinated to the Obligations; provided
however that so long as the party against which such Guarantor Claims are
asserted is not in default in the payment of any obligations due and owing to
Bank, payments and distributions from Borrower to any Guarantor or among or
between any of the guarantors

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(including any Guarantor) of any of the Obligations shall be permitted in the
ordinary course of business. Whenever any such default shall have occurred and
be continuing, Guarantor Claims against such party in default will be enforced,
and performance thereon received by any Guarantor only as a trustee for Bank,
and each Guarantor will promptly pay over to Bank upon demand all proceeds
recovered for application to the Obligations without reducing or affecting such
Guarantor's liability under other provisions of this Guaranty.

7.   Representations and Warranties. The Guarantors represent and warrant to the
Bank as follows:

     (a) Corporate Existence and Power.  Each Guarantor (i) is a corporation
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duly organized, validly existing and in good standing under the laws of the
State of Delaware, (ii) is duly qualified or licensed as a foreign corporation
and is in good standing in the State of California and in each other
jurisdiction in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed and (iii) has all requisite
corporate power and authority to own or lease and operate its properties and to
carry on its business as now conducted and as proposed to be conducted.

     (b) Authorization.  The execution, delivery and performance by the
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Guarantors of this Guaranty, and the consummation of the transactions
contemplated hereby and thereby, are within each Guarantor's corporate powers,
have been duly authorized by all necessary corporate action of such Guarantor
and do not contravene such Guarantor's charter documents or bylaws.

     (c) Binding Effect.  This Guaranty has been duly executed and delivered by
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the Guarantors.  This Guaranty is the legal, valid and binding obligation of
each Guarantor, enforceable against such Guarantor in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting creditors' rights
generally.

     (d) Other Information.   To the knowledge of Guarantors, no information,
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exhibit or report furnished by any Guarantor to Bank in connection with the
Reimbursement Agreement or this Guaranty contains any material misstatement of
fact or omits to state a material fact or any fact necessary to make the
statements contained therein, in light of the circumstances in which made, not
misleading.

     (e) Litigation.  Except as previously disclosed in writing to Bank, there
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is no action, suit, investigation, litigation or proceeding affecting the
Guarantors pending or, to the best knowledge of the Guarantors, threatened
before any court, governmental agency or arbitrator (a) that would be reasonably
likely to have a materially adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the
Guarantors or (b) that purports to affect the legality, validity or
enforceability of this Guaranty or the consummation of the transactions
contemplated hereby.

     (f) Financial Statements.  The audited consolidated balance sheet of Kaiser
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Ventures Inc., a Delaware corporation ("KVI") and its Subsidiaries as of
December 31, 1999, and the

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related audited consolidated statements of income, retained earnings and cash
flows of KVI and its Subsidiaries for the fiscal year then ended, fairly present
the consolidated financial condition of KVI and its Subsidiaries as of such date
and the consolidated results of the operations of KVI and its Subsidiaries for
the fiscal year ended on such date, all in accordance with generally accepted
accounting principles applied on a consistent basis. The unaudited consolidated
balance sheet of KVI and its Subsidiaries as of March 30, 2000, and the related
unaudited consolidated statements of operation, retained earnings and cash flows
of KVI and its Subsidiaries for the three-month period then ended, reviewed
(subject to normal year-end audit adjustments) by the chief financial officer or
chief accounting officer of KVI as having been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, fairly
present the consolidated financial condition of KVI and its Subsidiaries as of
such date and the consolidated results of the operations of KVI and its
Subsidiaries for the three-month period ending on such date. Since March 31,
2000 there has been no materially adverse change in the business, condition
(financial or otherwise), operations, performance, properties or prospects of
KVI or any of its Subsidiaries. KVI and its Subsidiaries have no material
contingent liabilities, except as disclosed in such consolidated financial
statements or the notes thereto, that would be reasonably likely to have a
materially adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of KVI or any of its
Subsidiaries.

     (g) Burdensome Agreements.  Except as otherwise disclosed in writing,
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neither KVI nor any of its Subsidiaries is a party to any indenture, loan
agreement, credit agreement, lease or other agreement or instrument, or subject
to any charter or corporate restriction, that would be reasonably likely to have
a materially adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of KVI or any of its
Subsidiaries or on the ability of KVI or any of its Subsidiaries to carry out
its obligations under this Guaranty.

     (h) Taxes.  KVI and its Subsidiaries have filed, or there has been filed on
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their behalf, all tax returns (federal, state, local and foreign) required to be
filed before the date of the making of this representation and warranty, and KVI
and its Subsidiaries have paid all taxes shown thereon to be due, including
interest, additions to taxes and penalties, or have provided adequate reserves
for the payment thereof.

     (i) Title to Properties; Ownership.  KVI and its Subsidiaries have good and
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marketable title to all material properties, real or personal, purported to be
owned thereby.  KVI is the legal and beneficial owner of all of the outstanding
capital stock of Kaiser Recycling Corporation, a Delaware corporation, and such
stock is not subject to any lien or other encumbrance other than the lien of the
stock pledge agreement securing KVI's obligations under the KVI Performance
Guaranty.

     (j) Regulation.  Neither Guarantor is currently subject to financial,
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organizational or rate regulation (i) under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment
Company Act of 1940 or any Governmental Rule limiting its ability to incur Debt
or (ii) by the California Public Utilities Commission.

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8.   Covenants.  The Guarantors covenant and agree that, unless Bank otherwise
consents in writing and so long the Obligations remain unpaid

     (a) Each of the Guarantors will, preserve, renew and keep in full force and
effect its corporate existence (in the jurisdiction thereof) and the material
rights, privileges, franchises and governmental approvals necessary or desirable
for the normal conduct of its business.

     (b) Neither Guarantor will merge or consolidate with or into, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to any Person, unless, in the case of any merger or
consolidation, such Guarantor is the surviving entity; provided however that the
Guarantors shall be permitted, upon notice to the Bank, to transfer any or all
of the assets or capital stock of KRC to Burrtec Waste Industries, Inc. ("BWI")
or any wholly-owned subsidiary of BWI or KVI.

     (c) KVI will deliver the following to the Bank:

         (i)   as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of KVI, a copy of
the quarterly report on Form 10-Q filed by KVI with the SEC with respect to such
fiscal quarter;

         (ii)  as soon as available and in any event within 105 days after the
end of each fiscal year of KVI , a copy of the annual report on Form 10-K filed
by KVI with the SEC with respect to such fiscal year, in each case containing
financial statements audited by Ernst & Young or another "Big Six" accounting
firm, together with a certificate of such accounting firm stating that in the
course of the regular audit of the business of KVI and its Subsidiaries, which
audit was conducted by such accounting firm in accordance with generally
accepted auditing standards, such accounting firm has obtained no knowledge that
an Event of Default has occurred and is continuing or, if in the opinion of such
accounting firm an Event of Default has occurred and is continuing, a statement
as to the nature thereof.

         (iii) promptly upon the filing thereof, a copy of any report on Form 8-
K filed by KVI with the SEC;

         (iv)  as soon as available and in any event within 30 days after the
end of each fiscal year of KVI, a budget, an operating plan, and an operating-
profit and cash-flow projection for KVI for the then current fiscal year, as
prepared by KVI and approved by the Guarantor's board of directors;

         (v)   forthwith upon KVI's becoming aware of the occurrence of any
Event of Default relating to KVI, a certificate of the chief financial officer
or chief accounting officer of KVI setting forth the details thereof and the
action that KVI is taking or proposes to take with respect thereto;

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          (vi)   promptly after the commencement thereof, notice of all material
actions, suits and proceedings before any Governmental Authority or arbitrator,
affecting KVI or any of its Subsidiaries, of the type described in Section 7(e),
above;

          (vii)  promptly after the occurrence thereof, notice of any event or
condition that constitutes or causes a materially adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of KVI or any of its Subsidiaries, if such event or
condition could materially impair either Guarantor's ability to perform its
obligations under this Guaranty; and

          (viii) promptly upon request, such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of either Guarantor as the Bank may from time to time
reasonably request.  All non-public information will be treated confidentially
by the Bank and will not be distributed or otherwise made available by the Bank
to any person or entity, other than the Bank's employees, authorized agents or
representatives who need to review or be informed of such information in
connection with their employment by the Bank.

     (d)  KVI will maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or associations
that have an A.M. Best Co. rating of at least B+:6 or a Solvency International
or equivalent rating as in effect on the Date of Issuance for such insurance
company or association, in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which KVI or such Subsidiary operates provided,
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however, that in the case of any liability insurance (excluding directors and
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officers liability insurance), such insurance shall name the Bank as an
additional insured and shall provide for at least 30 days' prior written notice
to the Bank of any amendment, nonrenewal or cancellation thereof (except that
only 10 days' notice need be provided for cancellation due to the Guarantor's
failure to pay thereunder).

     (e)  KVI will maintain its fiscal year and fiscal quarters so that they
correspond to the calendar year and calendar quarters.

9.   Assignments.  Without notice to the Guarantors, Bank may assign the
Obligations and this Guaranty, in whole or in part, and may disclose to any
prospective or actual purchaser of all or part of the Obligations any and all
information Bank has or acquires concerning either Guarantor, this Guaranty and
any security for this Guaranty provided that each such prospective or actual
purchaser must agree to maintain the confidentiality of all such information.

10.  Counsel Fees and Costs.  The prevailing party shall be entitled to
attorneys' fees (including a reasonable allocation for any appropriately
documented fees of Bank's internal counsel), and all other costs and expenses
which it may incur in connection with the enforcement or preservation of its
rights under, or defense of, this Guaranty or in connection with any other
dispute or proceeding relating to this Guaranty, whether or not incurred in an
Insolvency Proceeding, arbitration, litigation or other proceeding.

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11.  [Intentionally omitted]

12.  Multiple Guarantors/Borrowers.  When there is more than one Borrower named
herein, or when this Guaranty is executed by more than one Guarantor, then the
words "Borrower" and "Guarantor," respectively, shall mean all and any one or
more of them, and their respective successors and assigns, including debtors-in-
possession and bankruptcy trustees, and words used herein in the singular shall
be considered to have been used in the plural where the context and construction
so requires in order to refer to more than one Borrower or Guarantor, as the
case may be.  This Guaranty may be executed in any number of counterparts and by
different parties hereto on separate counterparts.  Each counterpart, when so
executed and delivered, shall be deemed to be an original and all counterparts,
taken together, shall constitute but one and the same Guaranty.

13.  Waiver of Jury Trial.  EACH GUARANTOR AND BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS GUARANTY, ANY OF THE
OBLIGATIONS, OR ANY RELATED AGREEMENTS OR INSTRUMENTS, OR IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DISCUSSIONS, DEALINGS OR ACTIONS OF SUCH
PARTIES OR ANY OF THEM (WHETHER ORAL OR WRITTEN) WITH RESPECT THERETO, OR TO THE
TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.  EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED IN ACCORDANCE WITH THE PROVISIONS OF THE ALTERNATIVE
DISPUTE RESOLUTION AGREEMENT REFERRED TO IN PARAGRAPH 18 BELOW.  EACH GUARANTOR
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER DOCUMENT TO WHICH IT
IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK AGREEING
TO THE CREDIT EXTENSION REFERRED TO HEREIN.

14.  Integration/Severability/Amendments.  This Guaranty is intended by each of
the Guarantors and Bank as the complete, final expression of their agreement
concerning its subject matter.  It supersedes all prior understandings or
agreements with respect thereto and may be changed only by a writing signed by
Bank and the Guarantor intended to be bound by such writing.  No course of
dealing, or parol or extrinsic evidence shall be used to modify or supplement
the express terms of this Guaranty.  If any provision of this Guaranty is found
to be illegal, invalid or unenforceable, such provision shall be enforced to the
maximum extent permitted, but if fully unenforceable, such provision shall be
severable, and this Guaranty shall be construed as if such provision had never
been a part of this Guaranty and the remaining provisions shall continue in full
force and effect.

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15.  Joint and Several.  If more than one Guarantor signs this Guaranty, the
obligations of each Guarantor under this Guaranty are joint and several in
accordance with the terms of this Agreement, and independent of the Obligations
and of the liabilities and commitments of any other person or entity.  A
separate action or actions may be brought and prosecuted against any Guarantor,
whether action is brought against Borrower, any other Guarantor or any other
person or entity liable in respect of all or any part of the Obligations, and
whether Borrower or such others are joined in any such action.

16.  Notice.  Any notice given by any party under this Guaranty shall be
effective only upon its receipt by the other party and only if (a) given in
writing and (b) personally delivered or sent by United States mail, postage
prepaid, and addressed to Bank or Guarantor at their respective addresses for
notices indicated below.  Each Guarantor and Bank may change the place to which
notices, requests, and other communications are to be sent to them by giving
written notice of such change to the other.

17.  California Law.  Subject to paragraph 13 of this Guaranty, this Guaranty
shall be governed by and construed according to the laws of California, and each
Guarantor submits to the nonexclusive jurisdiction of the state or federal
courts in California.

18.  Dispute Resolution.  This Guaranty hereby incorporates any alternative
dispute resolution agreement previously, concurrently or hereafter executed
between any Guarantor and Bank.

19.  Limitation on Guarantor's Liability.  Notwithstanding the provisions of
Section 1 hereof or anything else to the contrary in this Guaranty, Guarantor's
liability under this Guaranty for the Obligations shall not exceed the sum of
the following (collectively, the "Guaranteed Liability Amount"):  (a) the lesser
of (i) FOUR MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($4,250,000.00); or (ii) fifty percent (50%) of all Obligations representing
principal outstanding at the time of demand by Bank under this Guaranty (the
"Principal Amount") without reduction for any payments with respect to the
Obligations received by Bank after such demand from any source other than a
Guarantor hereunder including, without limitation, any payments from Borrower or
any other guarantor of the Obligations or derived from any collateral securing
the Obligations; (b) all interest, fees and like charges owing and allocable to
the Principal Amount as reasonably determined by Bank; and (c) without
allocation in respect of the Principal Amount, all costs, attorneys' fees and
expenses of Bank relating to or arising out of the enforcement of the
Obligations and all indemnity liabilities of Guarantor under this Guaranty;
provided however, that Guarantors' liability for all costs, fees, expenses and
indemnity liabilities specified in the preceding clause (c) shall terminate upon
receipt by Bank from Guarantors of the full Guaranteed Liability Amount.  The
foregoing limitation applies only to Guarantor's liability under this particular
Guaranty.  Unless Bank otherwise agrees in writing, every other guaranty
previously, concurrently or hereafter given to Bank by Guarantor is independent
of this Guaranty and of every other such guaranty.  Without notice to Guarantor,
Bank may apply or reapply any amounts received in respect of the Obligations
from any source other than from Guarantor to that portion of the Obligations not
included with the Guaranteed Liability Amount.

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20.  Events Of Default.    The occurrence of any of the following events shall
be an "Event of Default" hereunder:

     (a) The occurrence of an Event of Default (as defined in Section 8 of the
Reimbursement Agreement); or

     (b) Any representation or warranty made any Guarantor hereunder or in any
statement, certificate or document delivered by such Guarantor in connection
with the this Guaranty shall prove to have been incorrect in any material
respect when made; or

     (c) Either Guarantor shall fail to perform or observe any other material
term, covenant or agreement contained in this Guaranty and any such failure
shall be impossible for such Guarantor to remedy or which shall remain
unremedied for thirty (30) days after written notice thereof shall have been
given to such Guarantor by Bank; provided however any such failure which is not
impossible to cure but which is not reasonably susceptible of cure within a 30-
day period shall not constitute an Event of Default hereunder unless either (A)
the Guarantors shall fail to initiate and diligently pursue all action necessary
to remedy such failure; or (B) such failure is not remedied within sixty (60)
days after written notice to the Guarantors from the Bank; or

     (d) Either Guarantor shall (i) fail to make any payment, equal to or
exceeding $100,000 of any principal of or interest or premium on any Debt (as
defined below) when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt, or (ii) fail to perform or observe any material term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any Debt when required to be performed or
observed, and such failure shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such failure to
perform or observe is to accelerate, or to permit the acceleration of, the
maturity of any Debt, the unpaid principal amount of which then equals or
exceeds $100,000. "Debt" of either Guarantor (which shall not include any
indebtedness hereunder) means (A) indebtedness for borrowed money or for the
deferred purchase price of property or services in respect of which either
Guarantor is liable, contingently or otherwise, as obligor, guarantor or
otherwise, or in respect of which any Guarantor otherwise assures a creditor
against loss and (B) obligations under leases which shall have been or should
be, in accordance with generally accepted accounting principles, recorded as
capital leases in respect of which obligations or such Guarantor is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations any Guarantor assures a creditor against loss.

21.  Mandatory Deposit into Deposit Account.  Upon the occurrence and during the
continuance of an Event of Default hereunder, (but without limiting any other
rights or remedies available to Bank under the Reimbursement Agreement and this
Guaranty or otherwise available under California law, all of which rights and
remedies are hereby expressly reserved) an amount equal to the Guaranteed
Liability Amount shall become immediately due and payable by the Guarantors to
the Bank, without presentment, demand, protest or other requirements of any
kind,

                                      -10-
<PAGE>

all of which are hereby expressly waived by the Guarantors. Upon receipt by Bank
of the amount (or any portion thereof) required to be paid by the Guarantors
under this Paragraph 21, Bank shall deposit the Principal Amount thereof
(together with the accrued interest received by the Bank allocable to such
Principal Amount) into the Deposit Account established pursuant to the
Reimbursement Agreement, to be applied in accordance with the provisions of the
Reimbursement Agreement. Either of the following two events shall constitute a
"Payment Event of Default" hereunder: (1) any intentional misrepresentation of a
material fact by either Guarantor; or (2) failure by the Guarantors to deposit
the Guaranteed Liability Amount into the Deposit Account within ninety (90) days
after the occurrence of an Event of Default. Upon the occurrence of a Payment
Event of Default hereunder, the Bank shall have the right, at its option, to
declare an Event of Default under the Reimbursement Agreement and to exercise
any and all rights and remedies provided thereunder.

22.  Termination.  Subject to reinstatement pursuant to Paragraph 2 above, this
Guaranty and all of the rights of the Bank hereunder shall terminate upon the
earlier of (i) receipt by the Bank of the Guaranteed Liability Amount, or (ii)
the payment in full of all of the Obligations.

     Each Guarantor acknowledges having received a copy of this Guaranty and
having made each waiver contained in this Guaranty with full knowledge of its
consequences.

Dated as of May 1, 2000

                                  GUARANTORS

                                  KAISER VENTURES INC.,
                                  a Delaware corporation

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

                                  KAISER RECYCLING CORPORATION,
                                  a Delaware corporation

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

                                      -11-<PAGE>

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

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

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

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

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

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

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

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

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

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

                                      -1-
<PAGE>

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

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

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

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

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

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

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

                                      -2-
<PAGE>

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

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

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

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

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

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

                                      -3-
<PAGE>

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

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

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

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

                                      -4-
<PAGE>

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

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

                                      -5-
<PAGE>

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

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

                                      -6-
<PAGE>

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

     8.  Environmental Guarantees.

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

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

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

                                      -7-
<PAGE>

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

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

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

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

                                      -8-
<PAGE>

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

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

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

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

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

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

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

                                      -9-
<PAGE>

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

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

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

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

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

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

                                WEST VALLEY MRF, LLC
                                a California limited liability company

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

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

                                By:  Kaiser Recycling Corporation
                                     a Delaware corporation, Member

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

                                      -10-
<PAGE>

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

                                    of the
                                    ======

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

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