Document:

APPLIANCE RECYCLING CENTERS OF AMERICA FORM 10-Q

                                                                    EXHIBIT 10.2

                   SUMMER 2000-01 ENERGY EFFICIENCY INITIATIVE
                     REFRIGERATOR/FREEZER RECYCLING PROGRAM
                                    AGREEMENT

                                     Between

                  APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

                                       And

                       SOUTHERN CALIFORNIA EDISON COMPANY

                                TABLE OF CONTENTS

         1        DEFINITIONS                                                1
         2        GENERAL TERMS                                              3
         3        CONTRACT DOCUMENTS                                         3
         4        SCOPE OF WORK                                              4
         5        CUSTOMER AND APPLIANCE ELGIBILITY                          9
         6        OWNERSHIP AND CONFIDENTIALITY                              10
         7        COMMERCIAL TERMS                                           12
         8        BILLING                                                    13
         9        RESPONSIBILITIES OF ADMINISTRATOR AND ARCA                 14
         10       RIGHT TO AUDIT                                             14
         11       CHANGES                                                    14
         12       PERMITS, CODES AND STATUTES                                15
         13       WARRANTY                                                   15
         14       TITLE                                                      17
         15       INSURANCE                                                  17
         16       INDEMNITY                                                  19
         17       TERM AND TERMINATION                                       20
         18       WRITTEN NOTICES                                            21
         19       SUBCONTRACTS                                               21
         20       CALIFORNIA PUBLIC UTILITIES COMMISSION                     22
         21       NON-WAIVER                                                 22
         22       ASSIGNMENT                                                 22

                                TABLE OF CONTENTS

         23       FORCE MAJEURE                                              22
         24       GOVERNING LAW                                              23
         25       SECTION HEADINGS                                           23
         26       SURVIVAL                                                   23
         27       NONRELIANCE                                                23
         28       ATTORNEYS' FEES                                            23
         29       COOPERATION                                                23
         30       ENTIRE AGREEMENT                                           23

THIS AGREEMENT ("Agreement") is made and entered into as of the 11th day of
September, 2000, by and between, APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a
Minnesota corporation ("ARCA"), and SOUTHERN CALIFORNIA EDISON COMPANY, a
California corporation ("Administrator"). Administrator and ARCA are also each
individually referred to herein as "Party" and collectively as "Parties."

                                    RECITALS

         WHEREAS, the California Public Utilities Commission ("CPUC"), by ruling
of the Assigned Commissioners and Administrative Law Judge on the Summer 2000
Energy Efficiency Initiative, D. 00-07-017, dated August 21, 2000, and in
subsequent rulings (collectively referred to as the "Ruling"), approved with
modifications ARCA's proposal, dated July 21, 2000 ("Proposal"), and directed
that Administrator enter into a contract with ARCA for Refrigerator/Freezer
Early Retirement and Recycling Program services ("Program") to Jurisdictional
electric service customers in the specified counties in the service territories
of Pacific Gas & Electric ("PG&E") and San Diego Gas & Electric ("SDG&E").

                                    AGREEMENT

         NOW THEREFORE, in consideration of the foregoing Recital, the mutual
covenants contained herein, the payments and agreement to be made and performed
by Administrator as set forth herein, the Parties agree as follows:

1.       DEFINITIONS

         1.1      Basic Recycling Charge: Per-unit charge described in Section
                  7.2.l.

         1.2      Refrigerants: Chlorofluorocarbon and hydrochlorofluorocarbon
                  and hydrofluorocarbon refrigerants contained in the cooling
                  systems of refrigerators and freezers.

                  1.2.1    CFCs: Chlorofluorocarbons.
                  1.2.2    CFC-11: Chlorofluorocarbons contained in refrigerator
                           and freezer insulting foam.

         1.3      Change Order: Document issued by Administrator to Contractor,
                  executed by ARCA and Administrator, to change a Purchase
                  Order.

         1.4      Contact Period: September 11, 2000 to December 31, 2001, or as
                  extended by mutual agreement of the Parties.

         1.5      CPUC: the California Public Utilities Commission.

         1.6      Documentation: Specifications, procedures, instructions,
                  reports, test results, analyses, calculations, manuals, and
                  other data specified in the Purchase Order, Change Order, this
                  Agreement, and any amendment to this Agreement, as required by
                  any legal entity having jurisdiction over the Work.

         1.7      Eligible Appliances: Freezers or Refrigerators (as such terms
                  are defined below) that meet the Program appliance eligibility
                  criteria set forth in Section 5.3.

                  1.7.1    Refrigerator: A Primary or a Secondary Refrigerator.
                  1.7.2    Primary Refrigerator: Refrigerator currently in use
                           by Customer as the main refrigeration appliance.
                  1.7.3    Secondary Refrigerator: Surplus or spare refrigerator
                           utilized by Customer concurrently with Primary
                           Refrigerator.
                  1.7.4    Freezer: A free-standing freezer utilized by a
                           Customer concurrently with a Primary Refrigerator.

         1.8      Eligible Customers: Customers who take distribution service
                  from PG&E or SDG&E in accordance with the respective utility's
                  applicable CPUC-approved rules of service, and who reside
                  within the Territories.

         1.9      Hazardous Materials: Any substance or material which has been
                  designated as hazardous or toxic by the U.S. Environmental
                  Protection Agency, the California Department of Toxic
                  Substances Control and/or any other governmental agency now or
                  hereinafter authorized to regulate materials in the
                  environment, including, but not limited to "Materials which
                  require special handling" as defined in California Public
                  Resources Code Section 42167, which is contained in or is
                  derived from the Eligible Appliance.

         1.10     Mercury: Mercury found in switches and temperature control
                  devices in refrigerators and freezers.

         1.11     PCBS: Polychlorinated Biphenyls.

         1.12     Pilot Program: A sub-program within the overall Program
                  designed to demonstrate the feasibility of certain program
                  elements prior to full implementation of a program including
                  such program elements.

         1.13     Program Participants: Eligible Customers who turn in Eligible
                  Appliances.

         1.14     Purchase Order: Document issued by the Administrator to ARCA
                  and executed by the Parties, which contains the terms and
                  conditions for the Work described herein.

         1.15     Recycling Center: The site at which ARCA will process
                  refrigerators and freezers, remove CFCs, Refrigerants, PCBS,
                  Mercury and Used Oils, and recycle or legally dispose of
                  Hazardous Materials.

         1.16     Refrigerator/Freezer Early Retirement and Recycling Program:
                  That program ordered by the CPUC in its Ruling which requires
                  Administrator to contract with ARCA for implementation of a
                  refrigerator/freezer early retirement and recycling program in
                  the Territories of PG&E and SDG&E (also referred to herein as
                  the "Program").

         1.17     Ruling: as defined in the Recital to this Agreement and any
                  subsequent rulings.

         1.18     Subcontractor: Either an entity contracting directly with ARCA
                  to furnish services or materials as part of or directly
                  related to, the Work; or an entity contracting with
                  Subcontractor of any tier to furnish services or materials as
                  a part of, or directly related to, the Work.

         1.19     Territories: The regions defined by the zip codes set forth in
                  Attachment C located in the following counties in the service
                  territories of SDG&E and PG&E: San Diego and portions of
                  Orange County, San Francisco, San Mateo, and Santa Clara.
                  Beginning January 1, 2001, the regions defined by the zip
                  codes set forth in Attachment C located in the following
                  counties will be added: Alameda, Contra Costa, Santa Cruz and
                  Marin, and any additional regions as directed by the CPUC.

         1.20     Used Oils: Used refrigeration compressor oil.

         1.21     Work: Any and all obligations of ARCA to be performed pursuant
                  to this Agreement.

2.       GENERAL TERMS

         2.1      ARCA shall perform the work and its associated obligations
                  described below as an independent contractor.

         2.2      This Agreement is appended to, and part of a Purchase Order
                  executed by the Parties.

         2.3      The Program is subject to spending limits, and ARCA shall not
                  invoice SCE for an aggregate amount in excess of $5.5 million
                  to be spent in only PG&E's Territory, or an aggregate amount
                  in excess of $3.0 million to be spent in only SDG&E's
                  Territory.

3.       CONTRACT DOCUMENTS

         3.1      This Agreement shall consist of the following documents: this
                  Agreement, any amendments to this Agreement, the Purchase
                  Order, and Change Orders. Except as provided below in Section
                  13 (Year 2000 warranty provision), in the event of any
                  conflict or apparent conflict between any of the provisions of
                  the documents comprising this Agreement, the following order
                  of construction of the documents shall apply:

                  3.1.1    Amendments to the Agreement in chronological order
                           from the most recent to the earliest;

                  3.1.2    Change Orders incorporating and reflecting any
                           Amendments to the Agreement in chronological order
                           from the most recent to the earliest.

                  3.1.3    This Agreement.

                  3.1.4    Purchase Order incorporating this Agreement.

         3.2      Each Party shall notify the other immediately upon the
                  identification of any such conflict or inconsistency.

4.       SCOPE OF WORK

         4.l.     Advertising and Marketing. ARCA shall:

                  o        Submit to the Administrator all advertising and other
                           marketing materials for approval prior to publishing
                           or distributing.
                  o        Implement a multi-media advertising/marketing
                           campaign (i.e., brochures, print, cable television
                           advertisements, truck signs, 800 number, web site
                           address) for each Target Area which focuses on system
                           load impacts of operating inefficient refrigerators
                           and freezers, operating costs and potential private
                           energy savings, and environmental benefits.

                  o        Provide local print and television media with program
                           information, press kits, facility tours, collection
                           ride-along events, press releases, and other
                           opportunities to feature the Program.
                  o        As appropriate, solicit marketing affiliate
                           participation from major retailers (i.e., Sears,
                           Circuit City, Home Depot) including point-of-sale
                           displays, and provide program information to consumer
                           groups (particularly those assisting under-served
                           segments of the residential electric customer base),
                           community-based organizations, local governments,
                           property owner/manager's associations, homeowner and
                           tenant organizations, environmental organizations,
                           and civic groups.
                  o        Provide a per-unit "bounty" to the authorized
                           marketing affiliate for each participant referred to
                           the program who turns in an Eligible Appliance for
                           recycling.
                  o        Ensure that all advertising and promotional materials
                           include program guidelines and restrictions, duration
                           of the program, incentive amount, public and private
                           program benefits, the 800 number and web site
                           address; and will clearly state that the program is
                           funded by California electric utility customers under
                           the auspices of the Commission.
                  o        Explore adding program information to the
                           Commission's web site and creating links from other
                           sites to direct potentially Eligible Customers to the
                           Program web site.

         4.2      Customer Services.  ARCA shall:

                  o        Establish an 800 telephone number and provide trained
                           customer service staff to assist residential
                           consumers Monday through Friday from 6:00 a.m. to
                           6:00 p.m. Pacific time with questions about the
                           program and to schedule their participation.
                  o        Verify customer eligibility (i.e., live in the
                           Territory, own a working refrigerator/freezer).’
                  o        Schedule in-home appliance removal appointments
                           (choices of service dates and morning/afternoon
                           collection, handle reschedule and cancellation
                           requests).
                  o        Provide customers with information about preparing
                           their refrigerator for removal (appliance must be
                           plugged in and working at the time of pickup, empty
                           and defrosted).
                  o        Conduct a brief customer survey, using questions
                           provided by Administrator, with a randomly selected
                           20% of customers who schedule a collection
                           appointment.
                  o        Produce written confirmation of appliance collection.
                  o        Provide customers with a day-ahead confirmation call.
                  o        Fulfill incentive payments (checks are sent
                           approximately 3 weeks after collection of the
                           refrigerator/freezer).

         4.3      Collection.  ARCA shall:

                  o        Hire and train drivers in the program service
                           territory, provide collection vehicles and trailers,
                           and establish a local transfer site.
                  o        Collect all Eligible Appliances from customers'
                           residences or facilities within 20 days from the date
                           of initial customer contact unless otherwise
                           requested by the customer, and secure customer
                           signature.
                  o        Contact customers a day ahead of their collection
                           appointment as a reminder and assist customers
                           needing to reschedule appointments.
                  o        Ask program participants to have their old
                           refrigerator/freezer plugged in at the time of
                           collection, or located within 50 feet of an outlet,
                           so that the operational condition of the appliance
                           can be confirmed.
                  o        Remove refrigerators and freezers and transfer to
                           trailers to be shipped to ARCA's center in Compton,
                           CA for processing and recycling.

         4.4      Refrigerator Processing.  ARCA shall:

                  o        Operate a center in compliance with all federal,
                           state and local hazardous waste management and
                           recycling regulations.
                  o        Ensure that all Refrigerants are recovered and
                           recycled.
                  o        Recover and recycle CFC-11 blowing agents in the
                           polyurethane foam insulation of refrigerators and
                           freezers.
                  o        Ensure that all hazardous components, such as
                           capacitors containing polychlorinated biphenyls
                           (PCBS) or mercury-containing switches, are removed
                           and properly stored prior to shipment for disposal or
                           recycling.
                  o        Ensure that used compressor oil is recovered and
                           processed to reduce the level of hazardous halogens
                           before the oil is collected by a licensed oil
                           recycler.
                  o        Ensure that PCB components are incinerated at a
                           federally licensed hazardous waste incineration
                           facility.
                  o        Ensure that mercury is recovered by a licensed
                           mercury reclamation facility for recycling.
                  o        Ensure that Refrigerants and non-CFC refrigerants are
                           sold to a certified refrigerant reclamation facility
                           for recycling.
                  o        Ensure that processed refrigerators and freezers are
                           sold to a metals recovery facility for recycling.

         4.5      Records. ARCA shall document and maintain records for services
                  under this Agreement as follows:

                  4.5.1    A Customer Comment Tracking System for recording
                           customer inquiries, complaints, and positive
                           feedback.

                  4.5.2    Appliance Turn-in Order Form ("ATO") to collect data
                           such as customer name, address, home and work phone
                           numbers; Appliance manufacturer's name; Appliance
                           model and style; defrost type; color, size, and
                           estimated age of unit; location of Appliance within
                           the residence; final disposition code (which
                           indicates operating condition of Appliance and/or
                           Incentive received); special pick-up instructions (if
                           applicable); and other information as needed to
                           provide required reports under this Agreement.

                  4.5.3    Compilation of data in subsection 4.5.2 in electronic
                           mode, employing a software program suitable for
                           exchange of information with Administrator, subject
                           to the approval of Administrator's Program Manager.

         4.6      Customer Survey. ARCA shall conduct a customer survey, shown
                  in Exhibit A, which is attached and incorporated by reference
                  herein, using a stratified purposeful sample of 5% to 20% of
                  the Program Participants. The purpose of the survey shall be
                  to elicit information such as appliance use, customer
                  demographics and customer satisfaction. Administrator may
                  modify the information collected or reported in the survey, or
                  the stratification and frequency of the survey, provided the
                  modified survey is comparable to Exhibit A.

         4.7      Incentives. ARCA shall establish and implement a financial
                  incentive service as follows:

                  4.7.1    Each Program Participant will be entitled to receive
                           a check in an amount to be determined by ARCA, not to
                           exceed seventy-five Dollars ($75.00). The check is
                           referred to as the "Incentive".

                           4.7.1.1      In the event ARCA determines the
                                        incentive amount will be less than
                                        $75.00, ARCA will notify SCE at least 30
                                        days prior to implementing the lower
                                        incentive amount.

                  4.7.2    ARCA shall provide Administrator with a weekly
                           listing of Customers who receive an Incentive.

                  4.7.3    Upon Administrator's payment to ARCA as described in
                           Section 7 of this Agreement, Administrator shall be
                           under no further obligation with respect to
                           reimbursement of such amounts and such reimbursement
                           shall constitute full payment to ARCA on behalf of
                           the Program Participants entitled to Incentives. Upon
                           Administrator's payment to ARCA of such
                           reimbursement, ARCA shall be deemed the holder of
                           such property as far as the interests of the Program
                           Participants entitled thereto are concerned for any
                           and all purposes, including, but not limited to,
                           complying with the unclaimed property laws of
                           California and any and all other applicable states.
                           Administrator shall not assume any responsibility for
                           other disposition of the Incentive after such payment
                           is paid to ARCA and shall not be entitled to the
                           reversion of any amounts so paid.

         4.8      Reporting. ARCA shall provide Administrator with reports for
                  the services performed under this Agreement as follows:

                  4.8.1    A monthly report, provided no later than the 15th day
                           of the month, and a quarterly report, each which
                           shall contain the following:

                           (a)      the number of Eligible Appliances processed
                                    under this Agreement during the previous
                                    month and the size in cubic feet, year of
                                    manufacture, style, and defrost type.

                           (b)      environmental data such as an estimated
                                    breakdown of amount of refrigerants
                                    recovered; number of pounds of Refrigerants,
                                    PCBs and Mercury removed; amount of Used
                                    Oils recycled; number of units containing
                                    CFC-11 foam; and weight of metals and
                                    non-recyclable materials sold for recycling.

                           (c)      monthly Customer Comment Tracking System
                                    information required pursuant to Section
                                    4.5.1.

                           (d)      aging reports indicating the number of
                                    Eligible Appliances that were collected
                                    during the preceding month and that were
                                    scheduled for collection from Customers
                                    during that month, the date of the initial
                                    contact with the Customer, the date or dates
                                    the appliance was scheduled for collection,
                                    and the actual collection date.

                  4.8.2    A final report no later than thirty (30) days after
                           the termination of this Agreement of all amounts paid
                           by ARCA in compliance with any unclaimed property
                           laws pursuant to Section 4.7.3 hereof.

                  4.8.3    Weekly invoices as provided in Section 8.

                  4.8.4    Upon reasonable written request from an authorized
                           representative of Administrator, special and
                           nonrecurring reports during the course of the
                           Program. Such report content will be developed by the
                           Parties and shall not necessitate unreasonable labor
                           which would otherwise require the negotiation of a
                           charge separate from the Basic Recycling Charge.

                  4.8.5    ARCA shall maintain records of its Program
                           Participants. In all cases, when ARCA picks up an
                           Eligible Appliance from a Program Participant, ARCA
                           shall obtain the Program Participant's signature on
                           the ATO.

                  4.8.6    ARCA shall submit to Administrator estimates of
                           Program impact in the form of a final report at the
                           end of the Contract Period. Such report shall include
                           (but need not be limited to) the following:

                           o        a description of all activities undertaken
                                    as part of the Program
                           o        the number of units retired and recycled
                           o        a demonstration of the energy and demand
                                    savings achieved.

                  4.8.7    ARCA shall make all data used in the preparation of
                           the final report of Program impact estimates,
                           referred to in Section 4.8.6 above, available to
                           Administrator for auditing or other verification
                           purposes.

         4.9      Website. ARCA shall design and, subject to the prior approval
                  of Administrator, implement a website which enables Eligible
                  Customers in the Territories to electronically submit
                  information for prequalification and schedule appointments on
                  a 24 hour, seven day a week basis.

         4.10     Cooperation, ARCA will work cooperatively with the
                  Administrator, the CPUC and other interested parties to
                  provide feed-back, determine Program effectiveness and
                  recommend modifications to the Program's design or procedures.

5.       CUSTOMER AND APPLIANCE ELIGIBILITY

         5.1      Customer eligibility for the Program shall depend on the
                  following:

                5.1.1      Customer is an Eligible Customer in the Territories
                           listed in Section 1.9 and occupies a single-family
                           residential (Domestic Rate) or multi-unit dwelling or
                           mobile home, or other customers as determined
                           eligible under the Pilot Programs described in
                           Section 5.1.4.

                5.1.2      Customer is the owner of the Eligible Appliance or
                           possesses written consent from the actual owner to
                           turn in the Eligible Appliance.

                5.1.3      Customer turns in no more than two Eligible
                           Appliances per year unless otherwise allowed pursuant
                           to Pilot Programs described in Section 5.1.4.

                5.1.4      The Pilot Programs to be implemented during the
                           Contract Period of this Program shall include: i)
                           acceptance of Eligible Appliances from
                           landlords/multi-family unit owners; (ii) acceptance
                           of Eligible Appliances from non-profit organizations
                           located within the Territories; and (iii) acceptance
                           and prequalifications of PG&E and SDG&E's customers
                           who participate in Refrigerator Rebate Programs if
                           linkages to the utility programs can be created.

         5.2      Commercial customers do not qualify for the Program. Landlords
                  are considered commercial customers unless otherwise
                  determined eligible under the Pilot Programs described in
                  Section 5.1.4.

         5.3      An Eligible Appliance must be capable of cooling and/or
                  freezing, as applicable, at time of collection and its size
                  must be 10 cubic feet or more unless it is otherwise
                  determined eligible under the Pilot Programs described in
                  Section 5.1.4.

         5.4      Commercial refrigerators, ammonia-containing gas
                  refrigerators, commercial freezers, and room air conditioners
                  do not qualify as Eligible Appliances.

6.       OWNERSHIP AND CONFIDENTIALITY

         6.1      All information disclosed by Administrator during meetings or
                  negotiations with regard to the Program, and any information
                  contained in drawings, specifications, technical reports, and
                  data, provided by Administrator to ARCA during performance of
                  this Agreement shall be held in confidence by ARCA and used
                  only for the performance of the Work pursuant to this
                  Agreement.

         6.2      ARCA, its employees, and any subcontractors shall not disclose
                  any information concerning SDG&E's or PG&E's customers to any
                  person other than Administrator's personnel either during the
                  term of this Agreement or after its completion, without ARCA
                  having obtained the prior written consent of Administrator,
                  except as provided by lawful court order or subpoena and
                  provided ARCA gives Administrator advance written notice of
                  such order or subpoena. Prior to any approved disclosure,
                  persons receiving said information, including ARCA, its
                  employees, or third parties, must enter into a nondisclosure
                  agreement with Administrator. ARCA agrees to require its
                  employees and subcontractors to execute a nondisclosure
                  agreement prior to performing any services under this
                  Agreement. This provision, however, does not prohibit ARCA
                  from disclosing non-confidential information concerning this
                  Agreement to the CPUC in any CPUC proceeding, or any
                  CPUC-sanctioned meeting or proceeding or other public forum.

         6.3      All materials provided by Administrator to ARCA during the
                  performance of this Agreement shall be returned to
                  Administrator after this Agreement is terminated or at the
                  request of Administrator. ARCA shall not duplicate any
                  material furnished by Administrator without prior written
                  approval from Administrator.

         6.4      Except as required by the CPUC, Administrator, its employees
                  and any subcontractors of Administrator shall not disclose any
                  confidential or proprietary information provided by ARCA
                  ("ARCA's Confidential Information") to any person other than
                  ARCA's personnel, either during the term of the Agreement, or
                  after its completion, without having obtained the prior
                  written consent of ARCA. By way of example, ARCA's
                  Confidential Information shall include, without limitation,
                  ARCA's systems for oil degassing, Refrigerant recovery and
                  ARCA's computer software. Administrator agrees to require its
                  employees to comply with the non-disclosure requirements of
                  this Section prior to any contact with, or evaluation of
                  ARCA's Confidential Information.

         6.5      Administrator agrees that, without the prior written consent
                  of ARCA, it will not, during the term or after termination of
                  this Agreement, directly or indirectly, disclose to any
                  individual, corporation, or other entity, or use for its own
                  or such other's benefit, any of ARCA's Confidential
                  Information, whether reduced to written or other tangible
                  form, which:

                  6.5.1    Is not generally known to the public or in the
                           industry;

                  6.5.2    Has been treated by ARCA or any of its subsidiaries
                           as confidential or proprietary; and

                  6.5.3    Is of a competitive advantage to ARCA or any of its
                           subsidiaries and in the confidentiality of which ARCA
                           or any of its subsidiaries has a legally protectable
                           interest.

         6.6      ARCA's Confidential Information which becomes generally known
                  to the public or in the industry, or, in the confidentiality
                  of which, ARCA and its subsidiaries cease to have a legally
                  protectable interest, shall cease to be subject to the
                  restrictions of this Section 6.

7.       COMMERCIAL TERMS

         7.1      Payment

                  Administrator shall pay to ARCA, as full compensation for
                  completing the Work, the prices set forth in Exhibit B as
                  described in this Section 7.

         7.2      Summary of Charges

                  7.2.1    Basic Recycling Charge. Administrator shall pay to
                           ARCA a per-unit Basic Recycling Charge for the number
                           of units collected and recycled pursuant to this
                           Agreement at the price or prices set forth on Line C
                           of Exhibit B. The Basic Recycling Charge covers the
                           scope of work described in Section 4, excluding: the
                           Incentive charge, CFC-11 Charge, Advertising Charge,
                           and any Financing Charge.

                           7.2.1.1  True-Up. The pricing in line C of Exhibit B
                                    assumes a total volume for the Project of
                                    20,001 to 40,000 units. In the event the
                                    total number of units collected and recycled
                                    under the Program at any time exceeds
                                    40,000, then the pricing under Exhibit B
                                    shall be based on line D for the 40,000
                                    units previously processed, and for all
                                    subsequent

                                    units processed (up to 60,000 units). In
                                    addition, ARCA shall provide Administrator
                                    with a credit, allocated based on the number
                                    of such 40,000 units attributable to PG&E's
                                    and SDG&E's Territory, in the total amount
                                    of $228,000. ARCA shall apply such credited
                                    amounts against future invoices for each of
                                    PG&E's and SDG&E's Territory, respectively,
                                    subject to the spending limitations in
                                    Section 2.3. ARCA shall refund to
                                    Administrator any unused credit within 30
                                    days after termination of this Agreement.

                  7.2.2    Incentive Charge. Administrator shall pay to ARCA the
                           per-unit Incentive charge in the amount set forth in
                           line C of Exhibit B.

                  7.2.3    CFC-11 Charge. Administrator shall pay to ARCA the
                           per-unit CFC-11 charge in the amount set forth in
                           Line C of Exhibit B for all units collected.

                  7.2.4    Advertising Charge. Administrator shall pay to ARCA
                           the perunit advertising charge in the amount set
                           forth in line C of Exhibit B.

                  7.2.5    Financing Charges. Administrator shall pay to ARCA
                           monthly interest at the rate of three-quarter of one
                           percent (0. 75%) on the average monthly balance of
                           any unpaid and overdue invoice over and above the
                           charges set forth on Exhibit B.

         7.3      ARCA agrees that any agreement it has, or in which it may
                  enter with other utilities or agencies for a recycling
                  program, shall not detrimentally affect ARCA's services under
                  this Agreement.

8.       BILLING

         8.1      ARCA shall submit separate weekly invoices respectively
                  relating to the Territories of SDG&E and PG&E, respectively,
                  indicating the per-unit charges for the refrigerators and
                  freezers collected, processed, and recycled. ARCA shall
                  include with each invoice copies of all ATOs relating to
                  invoiced amounts, and a summary, setting forth for each ATO
                  included with the invoice, the ATO number, zip code, first
                  unit price, additional units, and total price. Administrator
                  shall have no obligation to pay any invoice unless all of the
                  data and documents listed above have been received. ARCA shall
                  apply a per-unit charge on units that have been disabled and
                  only for the following transactions:

                  8.1.1    Collection of an Eligible Appliance.

                  8.1.2    Collection contact made for Eligible Appliance that
                           cannot be removed due to obstruction because of size
                           of structural barrier provided that ARCA obtains
                           written permission from Customer to permanently
                           disable said unit, and ARCA then permanently disables
                           the unit.

         8.2      ARCA shall apply a 25% per unit discount to the Basic
                  Recycling Charge to any additional units when two Eligible
                  Appliances are removed during a single collection appointment
                  from a Customer's residence. Said discount shall be clearly
                  documented and identified in ARCA's invoice.

         8.3      Administrator shall make payment (less any unsubstantiated or
                  incorrect charge) within thirty days of receipt of an invoice
                  from ARCA.

         8.4      ARCA acknowledges that Administrator will forward to SDG&E and
                  PG&E, for their review, copies of the supporting documentation
                  and reports ARCA submits to Administrator. In the event SDG&E
                  or PG&E provides Administrator with evidence demonstrating
                  that any invoiced amount paid by Administrator to ARCA was
                  incorrect or improper, Administrator shall have the right to
                  offset from current payments due ARCA the full amount of such
                  incorrect or improper payment, pending resolution of the
                  discrepancy. No Financing Charges shall accrue on any amount
                  offset by Administrator unless the offset was improper or
                  incorrect.

9.       RESPONSIBILITIES OF ADMINISTRATOR AND ARCA

         9.1      Administrator shall be responsible for making contractual
                  arrangements to transfer funding from PG&E and SDG&E to
                  Administrator for payment, for arranging for its cost sharing
                  with PG&E and SDG&E, and shall administer the Program for
                  purposes of streamlining administration and oversight.

         9.2      ARCA shall work with the Administrator to ensure that the
                  Program meets the test for cost-effectiveness, using the 1.0
                  minimum ratio total resource cost test, as set forth in the
                  Rulings. ARCA shall provide Administrator with all
                  documentation necessary to demonstrate such test is met.

         9.3      ARCA shall provide Administrator with estimates of Program
                  impact at the conclusion of this Contract.

         9.4      Administrator and ARCA shall meet their respective directives
                  pursuant to the Rulings.

10.      RIGHT TO AUDIT

         During the Program and for 3 years after termination of the Agreement,
         Administrator, or its Authorized Representative, shall have the right
         and free access, at any reasonable time during normal business hours,
         to examine, audit, and copy all ARCA's records and books as related to
         ARCA's obligations under this Agreement, including, but not limited to,
         verification of costs to Administrator, as claimed by ARCA.

11.      CHANGES

         Changes to this Agreement shall be made by mutual agreement of the
         Parties through a written amendment to the Agreement. Such written
         amendment may be incorporated into this Agreement through a subsequent
         Purchase Order or Change Order.

12.      PERMITS, CODES, AND STATUTES

         12.1     ARCA shall perform the Work set forth in this Agreement in
                  accordance with all applicable federal, state, and local laws,
                  rules, and/or ordinances. Prior to performance of any
                  services, ARCA shall, at its own cost, have obtained, and
                  shall have required all Subcontractors to obtain, all licenses
                  and permits required by law, rule, regulation, and ordinance,
                  or any of them, to engage in the activities required in
                  connection with this transaction. Said licenses and permits
                  shall be kept current at all times during the term of the
                  Agreement. ARCA also represents and warrants that, to the best
                  of its knowledge, based upon reasonable and prudent inquiry,
                  any storage site and any disposal facility to which the
                  Hazardous Materials may be moved are in compliance with any
                  and all federal, state and local laws and regulations
                  pertaining thereto and that such storage sites and disposal
                  facilities are suitable and may lawfully receive and/or
                  dispose of the Hazardous materials.

         12.2     ARCA shall comply with all applicable local, state, and
                  federal safety and health laws in effect an the date of this
                  Agreement, including, but not limited to, EPA, California EPA,
                  RCRA, the Occupational Safety and Health Act of 1970 (OSHA),
                  and all standards, rules, regulations, and orders issued
                  pursuant to such local, state, and federal safety and health
                  laws. Should any such law, rule, or regulation be enacted or
                  promulgated subsequent to the date of this Agreement, which
                  renders ARCA's performance impractical, ARCA and Administrator
                  shall, in good faith, negotiate an amendment to this Agreement
                  reasonably compensating ARCA for its additional costs.

13.      WARRANTY

         13.1     ARCA warrants to Administrator that the Work shall be
                  performed in a competent manner, in accordance with this
                  Agreement, and that the acceptance, handling, storage,
                  recycling, and disposal of the refrigerators and freezers and
                  the Hazardous Materials shall be in accordance with (i) the
                  requirements of this Agreement and (ii) the applicable local,
                  state, and federal laws and regulations in effect at the time
                  of the work performed.

         13.2     ARCA represents and warrants (i) that it has knowledge of the
                  California Public Resources Code and the California Health and
                  Safety Code which require that refrigerators and freezers be
                  processed to remove Refrigerants, PCBS, Mercury, and Used Oils
                  prior to crushing for transport or transferring to a baler or
                  shredder for recycling; (ii) that it has knowledge of the
                  hazards associated with the removal, handling, storage,
                  recycling, and legal disposal of Hazardous Materials; (iii)
                  that it has experience and expertise in such removal,
                  handling, storage, recycling, and legal disposal; (iv) that it
                  uses only qualified personnel, (including subcontractor's and
                  agent's personnel) who have been instructed and certified in
                  the proper safety procedures to be used in such removal,
                  handling, storage, recycling, or legal disposal; and (v) that
                  it will continue to operate and maintain its Recycling Center.

         13.3     Year 2000 Warranty. ARCA hereby represents and warrants to
                  Administrator and agrees that its software, hardware and
                  equipment, and any piece, part, component or system thereof,
                  and/or work provided hereunder will (a) at the time of
                  delivery or performance be and will remain Year 2000 Compliant
                  and (b) not fail to meet, or to be delivered in accordance
                  with, all the requirements and specifications of this
                  Agreement, as a result of any failure of ARCA or of its
                  operations, suppliers, software, hardware or equipment to be
                  Year 2000 compliant. In order for the software to be Year 2000
                  Compliant, it must accurately process date/time data
                  (including, but not limited to, calculating, comparing,
                  sorting, sequencing and calendar generation), including single
                  century formulas and multi-century formulas, from, into,
                  within and between the twentieth and twenty-first centuries,
                  including all dates and leap year calculations, and will not
                  malfunction or generate abnormal endings, incorrect values or
                  invalid results involving such date/time data; (ii) accurately
                  interface with other software, hardware or equipment, as
                  necessary and appropriate, in order to supply, receive,
                  process or transmit date/time and other data; (iii) provide
                  that date/time-related functionalities, date/time fields and
                  any user input interfaces include a four digit year format
                  and/or other appropriate indication of century; (iv) not cause
                  any of Administrator's other software, hardware or equipment
                  that Administrator deems to be otherwise Year 2000 compliant
                  to fail to be Year 2000 compliant; and (v) not cause any of
                  Administrator's other software, hardware or equipment that

                  Administrator deems to be otherwise Year 2000 ready to fail to
                  be Year 2000 ready. For purposes of this Agreement,
                  Administrator shall deem software, hardware or equipment to be
                  "Year 2000 compliant" if it has been or is determined by
                  Administrator to accurately process date/time data from, into,
                  within and between the twentieth and twenty-first centuries
                  including all dates and leap year calculations. For purposes
                  of this Agreement, Administrator shall deem software, hardware
                  or equipment to be "Year 2000 ready" if it has been or is
                  determined by Administrator to be suitable for continued use
                  into the Year 2000 and beyond.

         13.4     Year 2000 Warranty Controlling. In the event of any conflict
                  or apparent conflict between any other provisions of this
                  Agreement the terms and conditions of this Year 2000 Warranty
                  shall control. Nothing in this Year 2000 Warranty shall be
                  construed to limit any rights or remedies Administrator may
                  otherwise have under any other provision of this Agreement, or
                  under any other contract or agreement between the Parties.

14.      TITLE

         14.1     Title to the Hazardous Materials shall pass to ARCA when ARCA
                  collects refrigerators and freezers from Customers.

         14.2     Title of collected refrigerators and freezers shall pass to
                  ARCA.

15.      INSURANCE

         15.1     Without limiting ARCA's liability to Administrator, including
                  the requirements of Section 16 (Indemnity), ARCA shall
                  maintain for the Work, and shall require that each
                  Subcontractor of the first tier maintain, at all times during
                  the Work and at its own expense, valid and collectible
                  insurance as described below. This insurance shall not be
                  terminated, expire, not be materially altered, except on
                  thirty days written notice to Administrator. ARCA shall
                  furnish Administrator with certificates of insurance and forms
                  acceptable to Administrator and shall require each
                  Subcontractor of the first tier to furnish ARCA with
                  certificates of insurance, as evidence that policies do
                  provide the required coverage and limits of insurance listed
                  below. Such certificates shall be furnished to Administrator's
                  Program Manager by ARCA upon receipt of the Purchase Order,
                  and by Subcontractor for the first tier upon receipt of its
                  subcontract, but in any event prior to start of its portion of
                  the Work. Any other insurance carried by Administrator, its
                  officers, agents, and employees, which may be applicable,
                  shall be deemed to be excess insurance, and ARCA's insurance
                  shall be deemed primary for all purposes notwithstanding any
                  conflicting provision in ARCA's policies to the contrary.

                  (i)      Workers' Compensation Insurance with statutory
                           limits, as required by the state in which the Work is
                           performed, and Employer's Liability Insurance with
                           limits of not less than $5,000,000. Carriers
                           furnishing such insurance shall be required to waive
                           all rights of subrogation against Administrator, its
                           officers, agents, employees, and other contractors
                           and subcontractors.

                  (ii)     Comprehensive Bodily Injury and Property Damage
                           Liability Insurance, including owners, and
                           contractors' protective liability, product/completed
                           operations liability, contractual liability, and
                           coverage for liability incurred as a result of sudden
                           and accidental discharge, dispersal, release or
                           escape of polluting materials, (excluding automobile)
                           with a combined single limit of not less than
                           $3,000,000 for each occurrence. Such insurance shall:
                           (a) acknowledge Administrator and SDG&E or PG&E, as
                           appropriate, their respective officers, agents, and
                           employees, as additional insureds; (b) be primary for
                           all purposes; and (c) contain standard
                           cross-liability provisions.

                  (iii)    Automobile Bodily Injury and Property Damage
                           Liability Insurance with a combined single limit of
                           not less than $3,000,000 for each occurrence. Such
                           insurance shall cover liability arising out of the
                           use by ARCA and Subcontractors of owned, non owned
                           and hired automobiles in the performance of the Work.
                           As used herein, the term "automobile" means vehicles
                           licensed or required to be licensed under the Vehicle
                           Code of the state in which the Work is performed.
                           Such insurance shall acknowledge Administrator and
                           SDG&E or PG&E, as appropriate as additional insureds
                           and be primary for all purposes.

                  (iv)     Environmental Impairment Expense Insurance with a
                           combined single limit of not less than $5,000,000 for
                           each occurrence and overall limits of $10,000,000.
                           Such insurance shall provide coverage for necessary
                           costs or expense of removing, cleaning up,
                           transporting, nullifying, and rendering ineffective,
                           or any of them, any substance which has caused
                           environmental impairment and such insurance shall
                           contain no exclusions for non-sudden and/or
                           non-accidental discharge, release or escape of
                           polluting materials. Such insurance shall acknowledge
                           Administrator and SDG&E or PG&E, as appropriate, as
                           additional insureds and be primary for all purposes.

                           ARCA shall report immediately to Administrator and
                           confirm in writing any injury, loss, or damage
                           incurred by ARCA or Subcontractors in excess of
                           $500.00, or its receipt of notice of any claim by a
                           third party in excess of $500.00, or any occurrence
                           that might give rise to such claim.

                           If ARCA fails to comply with any of the provisions of
                           this Section 15, ARCA shall, at its own cost, defend,
                           indemnify, and hold harmless Administrator, its
                           officers, agents, employees, assigns, and successors
                           in interest, from and against any and all liability,
                           damages, losses, claims, demands, actions, causes of
                           action, costs, including in-house and outside
                           attorney's fees and expenses, or any of them,
                           resulting from the death or injury to any person or
                           damage to any property to the extent that
                           Administrator would have been protected had ARCA
                           complied with all of the provisions of this Section.

16.      INDEMNITY

         16.1     ARCA shall, at its own cost, indemnify, defend, reimburse, and
                  hold harmless Administrator, its officers, directors,
                  employees, agents, assigns, and successors in interest, from
                  and against any and all liability, damages, losses, claims,
                  suits, demands, actions, causes of action, costs, expenses,
                  including in-house and outside attorney's fees and expenses,
                  or any of them resulting from the death or injury to any
                  person or damage to or destruction of any property caused by
                  ARCA, Subcontractors, and employees, officers and agents of
                  either ARCA or Subcontractors, or any of them, and arising out
                  of or attributable to the performance or nonperformance of
                  ARCA's obligations under this Agreement and including, without
                  limitation, failure to comply fully with any federal, state,
                  or local law, statute, regulation, rule, ordinance, or
                  government directive which directly or indirectly regulates or
                  affects the handling, storage, recycling, or disposal of the
                  Hazardous Materials to be managed by ARCA hereunder. In all
                  cases of death or injury to employees, officers or agents of
                  either ARCA or Subcontractors, whether or not caused by ARCA,
                  Administrator shall be indemnified by ARCA for any and all
                  liability except to the extent such death or injury results
                  from the negligence of Administrator.

         16.2     ARCA shall, at its own cost, indemnify, defend, reimburse, and
                  hold harmless Administrator, its officers, directors,
                  employees, and agents, assigns, and successors in interest,
                  from and against any and all liability imposed upon, or to he
                  imposed upon Administrator, under any law imposing liability
                  for the environmental clean-up of the Hazardous Materials at
                  any location (other than Administrator's property) where the
                  Hazardous Materials have been placed, stored or disposed of in
                  the performance or nonperformance of ARCA's obligations under
                  this Agreement, or any other site to which the Hazardous
                  Materials have migrated.

         16.3     The indemnities set forth in this Section 16 shall not be
                  limited by the insurance requirements set forth in Section 15.

17.      TERM AND TERMINATION

         17.1     This Agreement shall commence on the date first written above
                  and shall continue in effect until the first to occur of (1)
                  conclusion of the Contract Period, and (ii) ninety (90) days
                  after ARCA has invoiced Administrator for a total aggregate
                  amount of $8.5 million under this Agreement. In either event,
                  ARCA shall complete all work associated with all amounts
                  invoiced under this Agreement. This Agreement may be extended
                  as agreed to in writing by the Parties, subject to approval by
                  the CPUC.

         17.2     Either Party may terminate the Agreement for cause by
                  providing 60 days advance written notice to the other Party.
                  If the default has not been cured within the 60 day notice
                  period, the non-defaulting party may declare this Agreement
                  terminated, effective on the last day of said notice period
                  ("Termination Date"). ARCA shall be paid for all work
                  performed prior to the Termination Date.

         17.3     Administrator shall have the right to terminate this Agreement
                  by providing 30 days advance written notice to ARCA upon CPUC
                  mandate, or upon depletion of the amount of funding authorized
                  by the CPUC for the Contract Period. In the event the
                  Agreement is terminated upon CPUC mandate, Administrator shall
                  pay ARCA all amounts owed under the Agreement as of 30 days
                  after Administrator's written notice to ARCA of the CPUC's
                  mandate (the "Termination Date"). In such event, Administrator
                  shall only be obligated to pay contractor for such
                  refrigerators and freezers actually collected by ARCA for
                  recycling as of the Termination Date.

         17.4     In the event of termination pursuant to this Section 17, ARCA
                  and Administrator shall work cooperatively to facilitate the
                  termination of the Summer Initiative.

         17.5     Each Party shall immediately provide at no cost to the other,
                  any report, testimony, or any communications with the CPUC, or
                  any board, division, committee or member thereof, which could
                  reasonably be anticipated to effect the Program or which
                  addresses it in any manner.

18.      WRITTEN NOTICES

         18.1     Any written notice, demand or request required or authorized
                  in connection with this Agreement, shall be deemed properly
                  given if delivered in person or sent by facsimile, nationally
                  recognized overnight courier, or first class mail, postage
                  prepaid, to the address specified below, or to another address
                  specified in writing by Administrator as follows:

                  ADMINISTRATOR:  Southern California Edison Company
                                  Attn: Jeannette Duvall-Ward
                                  2244 Walnut Grove Avenue - Quad 2A
                                  Rosemead, CA 91770
                                     (626) 302-8791 telephone
                                     (626) 302-8313 facsimile

                  ARCA:           Appliance Recycling Centers of America, Inc.
                                  Attention: Mr. Jack Cameron President
                                  7400 Excelsior Boulevard Minneapolis, MN 55426
                                     (952) 612-1717 telephone
                                     (952) 612-1801 facsimile

         18.2     Notices shall be deemed received (a) if personally or
                  hand-delivered, upon the date of delivery to the address of
                  the person to receive such notice if delivered before 5:00
                  p.m., or otherwise on the Business Day following personal
                  delivery; (b) if mailed, three Business Days after the date
                  the notice is postmarked; (c) if by facsimile, upon electronic
                  confirmation of transmission, followed by telephone
                  notification of transmission by the noticing Party; or (d) if
                  by overnight courier within the time limits set by that
                  courier for next-day

19.      SUBCONTRACTS.

         19.1     ARCA shall contractually require each Subcontractor of the
                  first tier providing service in connection with the Work to be
                  bound by general terms and conditions protecting Administrator
                  which are equivalent to the terms and conditions of this
                  Agreement.

         19.2     ARCA shall, at all times, be responsible for the work, and
                  acts and omissions, of Subcontractors and persons directly or
                  indirectly employed by them for services in connection with
                  the Work. The Purchase Order and this Agreement shall not
                  constitute a contractual relationship between any
                  Subcontractor and Administrator nor any obligation for payment
                  to any Subcontractor.

20.      CALIFORNIA PUBLIC UTILITIES COMMISSION

         This Agreement and the Purchase Order incorporating this Agreement are
         entered into in furtherance of the Ruling, and shall at all times be
         subject to such changes or modifications by the CPUC as it may from
         time to time direct in the exercise of its jurisdiction.

21.      NON-WAIVER

         None of the provisions of the Agreement shall be considered waived by
         either Party unless such waiver is specifically stated in writing.

22.      ASSIGNMENT

         Administrator may be required to assign its rights, duties and
         obligations under this Agreement to the CPUC and/or its designee. ARCA
         and Administrator hereby consent to such assignment. Other than an
         assignment to the CPUC or the CPUC's administrator, neither Party shall
         delegate or assign this Agreement or any part or interest thereof,
         without the prior written consent of the other Party, and any
         assignment without such consent shall be void and of no effect.

23.      FORCE MAJEURE

         Failure of ARCA to perform any of the provisions of this Agreement by
         reason of any of the following shall not constitute an event of default
         or breach of this Agreement: strikes, picket lines, boycott efforts,
         earthquakes, fires, floods, war (whether or not declared), revolution,
         riots, insurrections, acts of God, acts of government (including,
         without limitation, any agency or department of the United States of
         America), acts of the public enemy, scarcity or rationing of gasoline
         or other fuel or vital products, inability to obtain materials or
         labor, or other causes which are reasonable beyond the control of the
         ARCA.

24.      GOVERNING LAW

         The contract shall be interpreted, governed, and construed under the
         laws of the State of California as if executed and to be performed
         wholly within the State of California.

25.      SECTION HEADINGS

         Section headings appearing in this Agreement are for convenience only
         and shall not be construed as interpretations of text.

26.      SURVIVAL

         Notwithstanding completion or termination of the Work, of this
         Agreement, any amendment to the Agreement, or of any Purchase Order or
         Change Order, the Parties shall continue to be bound by the provisions
         of this Agreement and any Purchase order incorporating this Agreement,
         Amendment to this Agreement and Change Orders, which by their nature
         shall survive such completion or termination. Such provisions shall
         include, but not be limited to, ARCA's indemnity protecting
         Administrator from any liability for environmental clean up as provided
         in Section 16 of this Agreement.

27.      NO RELIANCE

         Neither Party has relied upon any representation, warranty, projection,
         estimate or other communication from the other not specifically so
         identified in this Agreement.

28.      ATTORNEYS' FEES

         In the event of any legal action or other proceeding between the
         Parties arising out of this Agreement or the transactions contemplated
         herein, the prevailing Party in such legal action or proceeding shall
         be entitled to have and recover from the other Party all costs and
         expenses incurred therein, including reasonable in-house and outside
         attorneys' fees.

29.      COOPERATION

         Each Party agrees to cooperate with the other Party in whatever manner
         reasonably required to facilitate the successful completion of the
         Agreement.

30.      ENTIRE AGREEMENT

         This Agreement contains the entire agreement and understanding between
         the Parties and merges and supersedes all prior representations and
         discussions pertaining to the Agreement, including ARCA's proposal. Any
         changes, exceptions, or different terms and conditions proposed by ARCA
         are hereby rejected unless expressly stated in this Agreement.

         SIGNATURES

         Each of the persons signing this Agreement individually represents that
         he or she is duly authorized to execute this Agreement on behalf of the
         Party for whom he or she signs.

         SOUTHERN CALIFORNIA                     APPLIANCE RECYCLING
         EDISON COMPANY                          OF AMERICA, INC.

         By: /s/ Pamela A. Bass                  By: /s/ Edward R. Cameron

         Name:  Pamela A. Bass                   Name:  Edward R. Cameron

         Title:  Sr. Vice President              Title:  President

         Date:      October 5, 2000              Date:      September 26, 2000EXHIBIT 10.1

                          CONFIDENTIAL SEPARATION AGREEMENT

This Confidential Separation Agreement ("Agreement") is made and entered into
this 15 day of August 2000 by and among Applied Biometrics, Inc. all of its
subsidiaries, affiliates, members and related entities (collectively: "Company"
or "Applied Biometrics"), and Andrew M. Weiss ("Mr. Weiss") as follows:

Applied Biometrics and Mr. Weiss wish to provide for the termination of their
employment relationship and all agreements that may have existed between them,
and fully and finally to settle any and all disputes Mr. Weiss may have arising
out of his employment by Applied Biometrics or the termination of that
employment, without any admission of any kind by either party.

All remaining employees of Applied Biometrics are eligible to participate in
this group exit incentive. The offer to participate will remain open until
October 15, 2000. Attached to this Agreement, as Exhibit 1 is a listing of the
job titles and ages of all individuals eligible for this incentive. There are no
remaining employees who are not eligible for this incentive.

THEREFORE, in consideration of the promises and agreements set forth in this
Agreement, Applied Biometrics and Mr. Weiss agree as follows:

                                       RELEASE

1.    Employment Separation:

      a.    Separation: Effective on October 31, 2000, or on an earlier date
            mutually agreed upon by Mr. Weiss and Applied Biometrics, Mr. Weiss
            shall have no duties and no authority to make any representations or
            commitments on behalf of Applied Biometrics as an employee or in any
            capacity whatsoever. Thereafter, Mr. Weiss shall have no further
            rights deriving from his employment by Applied Biometrics, and shall
            not be entitled to any further compensation or non-vested benefits,
            except as provided in this Agreement.

      b.    Consideration: In exchange for the promises and release of claims
            contained in this Agreement, and subject to its terms, Applied
            Biometrics agrees to provide Mr. Weiss the following benefits as
            consideration. If Mr. Weiss elects not to sign the Agreement, Mr.
            Weiss shall receive only those benefits and payments required by
            law.

            1)    SEVERANCE PAYMENTS.

                  (a)   Applied Biometrics will pay Mr. Weiss as severance a
                        gross amount equal to twelve months ("Severance Period")
                        salary and car allowance. This severance payment will be
                        payable as a lump sum payment, to be paid on the next
                        regularly scheduled payday following the expiration of
                        the rescission period described in

                                       1
<PAGE>

                        Paragraph 8 of the Agreement, or the last date actually
                        worked by Mr. Weiss, whichever is later. This payment
                        will be subject to all applicable deductions, including
                        federal, state, FICA and other taxes. Mr. Weiss will not
                        be eligible for bonus or bonus payments after his last
                        day of work at the Company. Applied Biometrics will
                        issue an IRS Form W-2 for this payment.

                  (b)   BENEFITS PAYMENTS. Applied Biometrics will pay Mr. Weiss
                        a lump sum payment in the amount of $8,200, which equals
                        the cost of maintaining COBRA benefits for Mr. Weiss
                        during the severance period. This payment will be made
                        on the next regularly scheduled payday following the
                        expiration of the rescission period described in
                        Paragraph 8 of the Agreement, or the last date actually
                        worked by Mr. Weiss, whichever is later. To the extent
                        such payments constitute taxable income to Mr. Weiss,
                        Mr. Weiss will pay all associated taxes.

2.    Mr. Weiss has the option to assume as primary lessee the Company's lease
      with Audi Financial Service, account #715119308, ("lease"), associated
      with a 1999 Audi A6 VIN WAUDA34B7XN076028 ("vehicle") or purchase the
      vehicle from the Company for $31,480.

      If Mr. Weiss elects to become the primary lessee of the lease, Mr. Weiss
      agrees to lease the vehicle in an "as is" condition. Mr. Weiss agrees to
      comply fully with the terms of the lease, including maintaining the
      vehicle and making all payments required under the lease. Mr. Weiss agrees
      to defend and indemnify Applied Biometrics against any and all claims and
      complaints arising from his use of the vehicle, failure to properly
      maintain the vehicle and/or failure to fully comply with the terms of the
      lease. Mr. Weiss agrees to maintain insurance on the vehicle as is
      required by the lease, naming Applied Biometrics as an additional insured.

      Mr. Weiss has until September 15, 2000 to elect either to assume the lease
      or purchase the vehicle from the Company. If Mr. Weiss does not choose
      either of the above options, Mr. Weiss agrees to return the vehicle to
      Carousel Automobiles on or before September 30, 2000.

3.    Mr. Weiss certifies that he has reviewed the Agreement provided by Applied
      Biometrics, given to him on or before August 15, 2000.

      Mr. Weiss has forty-five (45) days to consider whether to accept this
      Agreement and enter into this Release, and he has been advised to consult
      with legal counsel of his choice. If he chooses to sign before forty-five
      (45) days have passed, he understands that it is his decision to execute
      the Agreement early and that Applied Biometrics has made the full
      forty-five (45) day period available for his to consider the Agreement.

4.    Mr. Weiss understands that the offer to accept the Agreement remains in
      effect for forty-five (45) days after August 15, 2000. After forty-five
      (45) days have passed, this offer

                                       2

<PAGE>

      expires and Applied Biometrics will be under no obligation to accept the
      release or to provide any benefits under the Agreement.

5.    After considering the Agreement and other relevant matters, Mr. Weiss
      voluntarily agrees to waive any claims he (or anyone acting in his name or
      on his behalf) may have against Applied Biometrics relating to his
      employment with or separation from Applied Biometrics in exchange for the
      consideration described in Paragraph 1. Mr. Weiss understands that this is
      a full and complete release and waiver of all claims, complaints, causes
      of action or demands relating to his employment with and separation from
      Applied Biometrics that she/he may have against Applied Biometrics, its
      successors, affiliates or related companies, all directors, officers,
      employees and agents of Applied Biometrics, as of the date of his signing
      the Release (the "Claims") based on events occurring up to the date he
      signs this Agreement.

      Mr. Weiss understands that this Release extends to, but is not limited to,
      any Claims which he may have for age discrimination or any other form of
      employment discrimination prohibited under Title VII of the Civil Rights
      Act of 1964, the Age Discrimination in Employment Act, the Older Workers
      Benefit Protection Act, the American with Disabilities Act, ERISA, the
      Rehabilitation Act of 1973, the Minnesota Human Rights Act, the Minnesota
      Human Rights Act, and any other local state or federal anti-discrimination
      law or ordinance, any applicable wage and hour laws, and for wrongful
      discharge, breach of contract, breach of any express or implied promise,
      retaliation, breach of public policy, defamation, negligence or other
      tortious conduct, or any other theory, whether legal or equitable and
      including any Claims which could have been asserted to date. Mr. Weiss
      acknowledges that he has been provided a full opportunity to review and
      reflect on the terms of this Agreement and to seek legal counsel of his
      choice, and any and all releases and waivers have been made with advice of
      counsel. Notwithstanding the provisions of this Paragraph, nothing in this
      Agreement shall be construed as a waiver by Mr. Weiss or Applied
      Biometrics of any claim either may have for insurance coverage for defense
      costs and/or indemnity based on actions performed by Mr. Weiss during his
      employment at Applied Biometrics. Nothing in this agreement shall be
      construed as waiving Mr. Weiss's coverage or rights under the Company's
      Director and Officers Insurance Policy.

6.    Mr. Weiss agrees to keep the terms of the Agreement strictly confidential,
      except that he may disclose the terms of the Agreement to his spouse, his
      attorney and tax advisor, or as required by law, provided each party to
      whom disclosure occurs is advised and agrees not to disclose the
      information further. Mr. Weiss understands and agrees that except as set
      forth in this paragraph, disclosure in any fashion of the existence of
      this Agreement or any or all of its terms or conditions shall be a
      material breach of the Agreement. Mr. Weiss agrees that any breach of this
      confidentiality provision shall be specifically enforceable by a court of
      law or equity, and further agrees to indemnify and hold Applied Biometrics
      harmless for any costs, including reasonable attorneys' fees, incurred in
      the enforcement of this confidentiality provision.

                                       3
<PAGE>

7.    Mr. Weiss agrees to refrain from making, or encouraging others to make,
      any disparaging remarks about Applied Biometrics, including Applied
      Biometrics' divisions, subsidiaries, affiliates, officers, directors,
      employees, agents, and locations worldwide.

8.    Mr. Weiss acknowledges that he has been provided a full opportunity to
      review and reflect on the terms of the Agreement and to seek the legal
      counsel of his choice. Mr. Weiss further acknowledges that he fully
      understands and accepts the terms of the Agreement, and that he has
      voluntarily and knowingly given it to Applied Biometrics.

9.    Mr. Weiss realizes that he may cancel the Agreement at any time on or
      before the fifteenth (15th) day following the date on which he signs this
      Agreement. He understands that if he cancels the Agreement, the Agreement
      shall not become effective or enforceable and he further understands that
      Applied Biometrics shall not pay his the consideration set forth in
      Paragraph 1. To be effective, the decision to cancel must be in writing
      and delivered to Applied Biometrics personally or by certified mail, to
      the attention of:

                              Board of Directors
                              Applied Biometrics, Inc.
                              501 East Highway 13, Suite 108
                              Burnsville, MN 55357

10.   Proprietary Information. Nothing in this Agreement shall be interpreted as
      releasing Mr. Weiss from compliance with any Applied Biometrics
      Confidentiality Agreement (or similar titled agreement) that Mr. Weiss may
      have executed. Mr. Weiss agrees not to disclose, in any manner to any
      person, any Applied Biometrics Confidential Information. Mr. Weiss agrees
      to return all originals and copies of documents containing Confidential
      Information as well as all documents generated by Mr. Weiss on behalf of
      Applied Biometrics and all documents relating to the business of Applied
      Biometrics from any source whatsoever. For purposes of this Agreement,
      "Applied Biometrics Confidential Information" means any information that
      Mr. Weiss learned or developed during the course of employment with
      Applied Biometrics that derives independent economic value from not being
      generally known, or not being readily ascertainable by proper means, by
      other persons who can obtain economic value from the disclosure or use of
      such information. Such information includes, but is not limited to Applied
      Biometrics' sales information, information about new or future products,
      Applied Biometrics' marketing plans and goals, lists of Applied
      Biometrics' customers and the identities of preferred customers,
      information about customer purchases and preferences, information
      regarding research and development, information regarding management
      systems and any other confidential information which provides Applied
      Biometrics with a competitive advantage.

11.   Miscellaneous. Except for agreements described in Paragraph 9, this
      Agreement constitutes the entire agreement among the parties hereto as to
      the subject matter hereof and supersedes all other previous written or
      oral agreements or understandings as to such subject matter. This
      Agreement may be modified, and the performance of it may be waived only by
      a writing signed by each of the parties hereto. No parol or other evidence
      may be offered to add to, contradict or otherwise interpret this
      Agreement, which all

                                       4
<PAGE>

      parties agree is clear and concise as to its meaning. This Agreement may
      be signed in any number of counterparts with the same effect as if the
      signatures and all such counterparts were on the same instrument. This
      Agreement shall be construed and enforced in accordance with, and the laws
      of the State of Minnesota shall govern all questions concerning the
      construction, validity, interpretation and performance of this Agreement
      without giving effect to provisions thereof regarding conflict of laws.

        IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of this 15 day of August 2000.

Date:   August 24, 2000                  Date:   August 24, 2000
       -------------------------------          -------------------------------
        /s/ Andrew M. Weiss              By:     /s/ Jeffrey Green
       -------------------------------          -------------------------------
        Mr. Andrew M. Weiss                      Director
                                                -------------------------------
                                                 Applied Biometrics, Inc.

                                        5
<PAGE>

LISTING OF JOB TITLES AND AGES OF ALL EMPLOYEES THAT ARE ELIGIBLE FOR THIS
INCENTIVE

                         JOB TITLE                         AGE
      ----------------------------------------------------------------
        President & Chief Executive Officer                43

                                        6

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