2010-09-20 Special Meeting NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 32
WORK SESSION,SEPTEMBER 20,2010 PAGE 52
ASSEMBLY
The New Hanover County Board of Commissioners held a Work Session on Monday, September 20, 2010,
at 12:08 p.m. in the Assembly Room of the New Hanover County Courthouse, 24 North Third Street, Wilmington,
N.C.
Members present were: Chairman Jason R. Thompson; Vice-Chairman Jonathan Barfield, Jr.;
Commissioner Robert G. Greer; Commissioner William A. Caster; Commissioner Ted Davis, Jr.; County Attorney
Wanda M. Copley;Deputy Clerk to the Board Teresa P.Elmore; and County Manager Bruce T. Shell.
Chairman Thompson called the meeting to order and announced that the purpose of the Work Session was
to review the final draft contract with R3 Environmental,LLC for the management of the County's solid waste.
County Manager introduced Rick Sapir, attorney representing New Hanover County in negotiating the
contract with R3 Environmental,LLC.
Rick Sapir, attorney with Hawkins Delafield&Wood LLP, presented a summary of the draft agreement to
provide municipal solid waste processing and management services between New Hanover County and R3
Environmental,LLC.
Highlights of the key business points of the contract are as follows:
• Scope of Services, Term, Security
• Scope of Services for comprehensive solid waste management services
• No transfer of title-except for rolling stock purchased at fair market value
• Finance,permit, design,build, own and operate Smart MRF and Construction and Debris
(C&D)Facility
• Mine Landfill
• Term- 15 years with County option to extend for 5 years
■ Escalated processing fee for extension period only
• Security
■ $384,000 cash during transition period
■ $5,000,000 replenishable letter of credit
■ Required insurance
• Transition Period-Period between Contract Date and Commencement of Operations by Company
• Significant company transition period responsibilities:
• Obtain$5 million letter of credit
• Pay County's initial$500,000 payment for Cell 6-D development
• Balance of$1,000,000 to be paid over first year
• Offer employment to all County Environmental Management employees at pre-furlough
pay rates and transition employees
• Modify permits to show R3 as operator
• Submit required insurance
• Purchase necessary equipment
• Undertake 90 day diligence review period
• Meet with DENR regarding landfill mining permit
• Transition Period limited to 90 days
■ Delay damages= $24/ton/day assessed weekly
■ 120 Days=Event of Default-forfeiture of security
• No payment by County during Transition Period
■ County responsible for operations during transition
• Key Milestone Dates
• Scheduled operations commencement date
■ 90 Days from signed contract date
• Delay damages=$24/ton/day
■ 120 Days=Event of Default
• Scheduled operations Smart MRF commencement date
• Demonstration of 80%diversion rate over 90 day period by 27th month
• Failure to meet schedule = immediate damage payment of $300,000 plus
$24/ton/day
• Failure to achieve Smart MRF acceptance date by end of 36th month=Event of Default
• Schedule for Mining of Landfill
■ Earlier of 1 year following the Smart MRF acceptance date and 48th month following the
commencement date
• Failure to meet schedule=Event of Default
• Schedule for Landfill Gas Collection/Recovery
• If no mining permit solely due to DENR by 36th month following commencement date,
R3 must install and commence Landfill Gas Collection
• Within earlier of 1 year following Smart MRF acceptance date and 48th month
following the commencement date
• County to receive at least 20%of gross revenues
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 32
WORK SESSION,SEPTEMBER 20,2010 PAGE 53
• WASTEC
• If R3 elects to utilize WASTEC, upgrades completed by 24th month following
commencement date
• If R3 elects not to utilize WASTEC, County may elect to have WASTEC demolished or
County can mothball
• If County elects to demolish,R3 to pay County$1 million over 12 months from
election and R3 entitled to salvage proceeds
• New C&D Facility
• Achieve commercial operations date within 22 months from commencement date
• Failure to achieve date within 34 months=Event of Default
• Key Company Performance Guarantees/Damages
• Receiving Guarantee—receive and process/dispose of all acceptable waste delivered
■ Failure=Actual lost revenues/additional incremental costs
• Landfill Diversion Guarantee—divert 80%of acceptable waste from the Landfill each year
■ Failure=$24/ton based on tonnage that should have been diverted
• Measured quarterly
• In-Place Density Guarantee—Achieve in-place density in Landfill of 1,250 lbs/yd3 annually
■ Failure=Repayment for additional air space
• Must comply with applicable law/no nuisance in operations
■ Failure = Payment of fines and costs as well as bearing cost of necessary operational or
capital changes
• Landfill Mining—Mine 35,625 tons quarterly
■ Failure=$24/ton for shortfall
• Key County Obligations
• Pay for service
• Enforce franchise agreements with waste haulers
• County control over scale house—County retains tipping fees
• County Payment Obligations
• Service fee=Processing charge
• Payments on monthly basis
• $550,000/month-adjusted monthly to reflect$32.56/ton above annual aggregate average
of 16,892 tons per month
• Payments to be offset by damages if not paid within 30 days
• Annual reconciliation based upon following table:
Annual Aggregated Annual
Processing Charge Tons Delivered
$32.56 200,001-300,000
$32.12 300,001-310,000
$30.38 310,001-320,000
$28.45 320,001-330,000
$28.00 330,001-340,000
$27.50 340,001-350,000
■ No escalation of charges during initial term;no increase for any reason
• Waste Delivery
• County to continue to direct franchised haulers to the County's solid waste system
• R3 has primary responsibility to demonstrate"leakage"
• County commitment to deliver a minimum of 150,000 tons of acceptable waste
• Hazardous Waste
• R3 responsible for hazardous waste received or found during landfill mining
• R3 not responsible for groundwater or soil contamination resulting from:
• Release of hazardous waste from Landfill prior to commencement date,or
• Discovered upon demolition of WASTEC unless caused by R3
• Events of Default
• Specified events without cure opportunity include:
• Failure to meet operations commencement date within 30 days of scheduled commercial
operations date
• Failure to meet annual diversion standards
• Failure to maintain security
• Other events with cure opportunity include:
• Failure to pay amounts due
• Failure to commence mining by scheduled date
• Failure to perform other material obligations
• County remedy in event of default
• $5,000,000 liquidated damage payment plus specified liabilities and amounts due and
owing
• Title to Smart MRF building
• Uncontrollable Circumstances Include:
• Changes in law
• Acts of God
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 32
WORK SESSION,SEPTEMBER 20,2010 PAGE 54
• Contract Includes Specified Exclusions Such As:
• Market risk
• Interest rate risk
• Existence or non-existence of environmental credits,incentives or benefits, or markets thereafter
• Landfill fires
• No price relief
• Miscellaneous
• Company indemnification
• Waiver of impossibility/impracticability of performance defense
• As-is risk for the facility but not for the preexisting environmental conditions
• Adjustments Made to Clarify Term Sheet for Contract
• Company to pay deductible for capital modification due to uncontrollable circumstances
• Deletion of convenience termination due to concerns of financing company
• Shift of certain events of default to cure category
• County's right to utilize intellectual properties developed for managed assets following end of
term
• Storage restrictions(Section 10.17 of Contract)
■ R3 unable to store anything that would cause a hazardous or nuisance condition
The Commissioners discussed and received further clarification on the following:
• Effect of the dispute between former partners and R3 Environmental on contract
• R3 provides$5 million check to bank for security
o County holds letter of credit and submits to bank in case of default
• First payment of$550,000 by the County begins after the first 30 days of operation
• Two categories of default
0 1)Does not require notice and time to cure
0 2)Requires notice and time to cure based on the event
• Typically 90 days
• Some events call for several months
• R3 maintains permits for Landfill
• County pays insurance for County-owned facilities
o Company responsible for insurance of new facilities
• Clarification of timeline
• Contract to be signed on September 30, 2010
■ 90 days to get$5 million letter of credit
• Another 30 days with penalties
■ After a total of 120 days in default County gets$384,000 security
• Transition Period=time before receiving letter of credit
• Operation Period=begins after receiving letter of credit
■ First invoice sent after first month of operation
• First$550,000 payment due after first month of operation
• Concerns with obtaining financing
Consensus: The Commissioners agreed by consensus to add a provision in the contract that an internal dispute in
the company does not constitute a default situation and it is not considered an uncontrollable circumstance for
failure to perform contract.
In conclusion of the presentation and discussion, County Manager Shell said that staff had negotiated an
outstanding contract over the past 18 months and he was very pleased with the final draft.
Robin Grathwol affirmed that she was in agreement with the contract and understood the terms. She
assured the Board that the company had received a letter of intent for $30.5 million and obtaining financing was
well ahead of schedule.
In response to questions about Dean Byrd,Ms. Grathwol responded that he is no longer an employee of R3
and he has not received any compensation since May 2010. Although no official role,he has voluntarily assisted the
technical team by supplying information and moving data from his server to the company's server. Mr. Byrd
relinquished ownership in August.
ADJOURNMENT
There being no further discussion, Chairman Thompson adjourned the meeting at 1:25 p.m.
Respectfully submitted,
Teresa P.Elmore
Deputy Clerk to the Board