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07-0703_ECO RESOURCES , INC_Settlement Agreement0 0 SETTLEMENT AGREEMENT THIS SETTLEMENT AGREEMENT ("Settlement Agreement") is made and dated as of July 3, 2007 (the `Effective Date") between the City of San Juan Capistrano, California (the "City"), and ECO Resources, Inc., a corporation organized and existing under the laws of the State of Texas (the "Company"). RECITALS WHEREAS, the Capistrano Valley Water District (the "District") and ECO Resources, Inc. ("ECO") executed a Service Contract for the Design, Construction, Financing and Operation of the San Juan Basin Desalter Project on September 3, 2002 (the "Service Contract; capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Service Contract); WHEREAS, following execution of the Service Contract, the District merged with the City pursuant to subsection 16.9(C) of the Service Contract, and the City has assumed all of the rights and obligations of the District under the Service Contract; WHEREAS, the Company achieved satisfaction of the Acceptance Date Conditions set forth in Section 7.7 of the Service Contract as of December 3, 2004, which is the Acceptance Date under the Service Contract, and, accordingly, the Company has no obligation to pay delay liquidated damages to the City in accordance with Section 7.9 of the Service Contract; WHEREAS, the City has withheld retainage funds in the sum of $2,274,447.07 which are due to the Company upon Final Completion of the Design/Build Work; WHEREAS, the City and the Company have certain claims they have asserted against each other relating to the Design/Build Work and other acts or events which occurred during the Construction Period, including a claim by the City that the Design/Buitd Work relating to the Finished Water Transmission Line crossing the I-5 Freeway (the "I-5 Line") is defective because the I-5 Line is not encased in accordance with the requirements of Applicable Law; WHEREAS, the City intends to develop and construct two additional Wells in the vicinity of the Tirador Well at Well sites to be specified by the City because two of the eight Well sites specified under the Service Contract proved to be insufficient for purposes of the Project and only six Wells were constructed by the Company; and WHEREAS, the parties wish to enter into this Settlement Agreement in order to provide for the construction of a new encased I-5 Line, the development and construction of two new Wells, and the resolution and waiver of all claims and disputes arising out of or otherwise relating to the Construction Period. NOW THEREFORE, for consideration agreed to have been made and accepted mutually, the parties hereto agree as follows: 524052.5 022806 AGMT 0 1. Recitals. The recitals set forth above are hereby incorporated into this Settlement Agreement. 2. Release of Retainage. The City shall authorize and direct the Trustee to pay to the Company the retainage held by the Trustee pursuant to Section 5.5 of the Service Contract in the amount of $2,274,447.07 within ten (10) days following execution of this Settlement Agreement. The parties acknowledge and agree that such retainage has been held by the Trustee in an interest bearing account. As of June 1, 2007, the interest which has accrued on the retainage amounts to $187,778.94. The City shall provide for the payment by the Trustee to the Company, concurrently with the payment of the retainage, of the full amount of any interest which has accrued on the retainage up until the date paid, less $33,007.53, which shall be held by the City in an interest bearing account, subject to the provisions of Subparagraphs 6.1, 6.3 and Paragraph 7 below. 3. Resolution of Certain Disputes between the Parties. The Company and the City agree that the Fixed Design/Build Price includes compensation to the Company for the performance of the Design/Build Work associated with the development, drilling, construction and installation of eight Wells. The City and the Company acknowledge and agree that since two of the eight Well sites specified under the Service Contract proved to be insufficient for purposes of the Project, there is a credit due to the City. The City also has certain claims which it has previously asserted against the Company during the Construction Period. However, the City and the Company agree that the Company has performed additional work required and/or requested by the City that was not included in the Fixed Design/Build Price, for which the Company has not been paid. In consideration of the foregoing and without limiting the obligations of the parties under Paragraphs 2, 6, 7 and 8 of this Settlement Agreement, the City and the Company agree that all claims previously asserted by and between the parties which concern or relate to the Design/Build Work, the payment of the Design/Build Price, or any other acts or events relating to the Construction Period, including the credit which otherwise would be due to the City for the work not performed by the Company at two of the eight Well sites as described above, shall be resolved without any additional monetary payment by or between the parties. 4. Waiver and Release of Claims. 4.1 The City and the Company, including their officers, directors, shareholders, partners, board members, employees, representatives, agents, predecessors, successors, assigns, subsidiaries, parent corporations and affiliated entities, agree to fully release each other from all claims, demands, actions, causes of action, obligations, costs, expenses, attorney's fees, damages, losses and liabilities of whatsoever nature, character or kind, whether known, suspected or unsuspected, material or contingent, which concern or relate to the Design/Build Work, the payment of the Design/Build Price or any acts or events relating to the Construction Period, subject to the exclusion set forth in Subparagraph 4.2 of this Settlement Agreement and the obligations of the City and the Company pursuant to Paragraphs 2, 6, 7 and 8 of this Settlement Agreement. Nothing in this Settlement Agreement shall be deemed to relieve the Company from any of its obligations under the Service Contract with respect to the Operation Period, including, but not limited to, the Company's obligation to perform the Operation Services in accordance with the Performance Guarantees. 2 524052.5 022806 AGMT 4.2 The release of the Company by the City set forth in Subparagraph 4.1 of this Settlement Agreement shall not affect or release any rights which the City may have against the Company for unknown or latent defects arising out of or relating to the Design/Build Work performed by the Company, or for any warranties provided by the Company under the terms of the Service Contract. The City warrants and represents that it is currently aware of no latent defects pertaining to the Design/Build Work. 4.3 The Company acknowledges and agrees that the waiver and release of claims provided for under Subparagraph 4.1 of this Settlement Agreement includes all claims for relief by the Company under the Uncontrollable Circumstance provisions of the Service Contract with respect to the Design/Build Work. 4.4 With regard to the claims released herein, the City and the Company agree that, except as provided in Subparagraph 4.2, this release is given with the intention to expressly waive all rights provided by Section 1542 of the Civil Code of the State of California, which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor." Based upon the advice of counsel, the City and the Company expressly, knowingly and voluntarily waive and relinquish any and all rights that they may have under Section 1542 of the Civil Code. Each party assumes the risk of any injury, loss or damage which may arise from such waiver. 5. Agreement Concerning the Development and Construction of Two New Wells. 5.1 The City intends to develop and construct two additional Wells in the vicinity of the Tirador Well at Well sites to be specified by the City (the "New Wells"). Once the precise location of the New Wells is determined and provided that the City, in the exercise of its discretion, determines that such New Well sites are suitable for the Project, the City shall notify the Company in writing of the City's decision to proceed forward with the construction of the New Wells. The City and the Company will jointly review proposals to perform the design work by not less than two companies acceptable to both the Company and the City. The Company shall then submit to the City a written quotation on a lump sum basis for the cost of producing plans and specifications suitable for competitive bidding for the New Wells and the pipelines connecting the Plant to these Wells. The entire cost of this design work shall be considered Extra Design/Build Work pursuant to Section 6.11 of the Service Contract. Once the City and the Company agree on the cost of this Extra Design/Build Work, a Change Order shall be issued by the City authorizing payment to the Company in this sum. Upon issuance of such Change Order, the Company shall promptly proceed with this Extra Design/Build Work, which will be completed within 180 days thereafter unless otherwise provided in the Change Order. The City reserves the right to review and require modifications to the plans and specifications at the preliminary, 50%, 90% and pre -final stage. In the event the modifications made by the City 3 524052.5 022806 AGMT are substantive, the Company and the City will negotiate a further Change Order for the design work. 5.2 After completion of the design documents pursuant to Subparagraph 5.1 of this Settlement Agreement, the Company shall solicit competitive bids for the construction work for evaluation by the Company and the City. The Company shall then submit to the City a written quotation on a lump sum basis for the cost of managing, permitting and constructing the New Wells and the pipelines connecting the Plant to the New Wells. It is agreed that the entire amount of this construction work shall be considered Extra Design/Build Work. The parties shall promptly proceed to negotiate in good faith to reach an agreement on the cost of this Extra Design/Build Work. Once an agreement is reached, the City shall issue a Change Order authorizing payment to the Company for the agreed upon amount. Upon issuance of this Change Order and the receipt of permits from the appropriate governmental agencies authorizing the work to proceed, the Company shall promptly perform this Extra Design/Build Work, and shall achieve substantial completion thereof within one year thereafter, unless otherwise provided in the Change Order. The Company shall operate and maintain the New Wells in accordance with the Service Contract without any adjustment to the Service Fee. 6. Conditions Under Which the Company Shall Provide a New Encased I-5 Line 6.1 The Company shall be responsible for the installation of an encased I-5 Line by constructing a new encased pipeline to replace the existing unencased Finished Water Transmission Line previously installed by the Company under Interstate 5 (the "Existing 1-5 Line") with an equivalent encased distribution pipeline (the "New I-5 Line") upon the occurrence of one of the following two events: (a) the issuance by the City, within two years of the execution of this Settlement Agreement, of written notice to the Company of the City's decision to construct the New Wells, as provided in Subparagraph 5.1 above; or (b) receipt by the City, within two years of the execution of this Settlement Agreement, of written notice from the California Department of Transportation directing the City to replace the Existing I-5 Line. Upon the occurrence of either of such events, the Company shall be responsible, without reimbursement from the City, for the payment of all design and construction costs related to the New I-5 Line and shall perform such work in accordance with Applicable Law and Good Engineering and Construction Practice. Within thirty (30) days after the occurrence of one of the above-described events, the City shall pay to the Company the $33,007.53 withheld by the City pursuant to Paragraph 2 above, plus accrued interest. 6.2 The parties intend to cooperate with each other to coordinate the installation of the New I-5 Line with the Extra Design/Build Work contemplated under Paragraph 5 of this Settlement Agreement. Accordingly, in the event that the City issues the written notice to the Company, within two years of the execution of this Settlement Agreement, of the City's decision to construct the New Wells, as provided in Subparagraph 5.1 above, the Company shall install the New I-5 Line concurrently with the construction of the pipelines contemplated under Paragraph 5 of this Settlement Agreement. 6.3 The Company acknowledges and agrees that the issuance of the Change Orders authorizing the performance of the Extra Design/Build Work contemplated by Paragraph 5 of this Settlement Agreement shall be subject to the City's determination, in its discretion, that 2 524052.5 022806 AGMT 0 0 the two New Well sites identified by the City in the vicinity of the Tirador Well are suitable for the Project. In the event that the City determines not to construct the New Wells, and therefore, does not issue written notice to the Company in accordance with Subparagraph 5.1 of this Settlement Agreement within two years following the date of this Settlement Agreement, the City shall have the right to retain the $33,007.53 held by the City under Paragraph 2, above, and, subject to clause (b) of Subparagraph 6.1 of this Settlement Agreement, the Company shall be relieved of the responsibility to replace the Existing I-5 Line and to install a New I-5 Line, including all work related thereto. 6.4 In the event the City issues a written notice to the Company, within two years of the execution of this Settlement Agreement, of the City's decision to construct the New Wells, as provided in Subparagraph 5.1 above, and (a) the Company fails to commence the design of the New I-5 Line within 120 days of receipt of such notice from the City, or (b) the Company fails to achieve substantial completion of the New 1-5 Line within one year of receipt of the Change Order from the City, pursuant to Subparagraph 5.2 of this Settlement Agreement, and the issuance of permits from the appropriate governmental agencies authorizing the work to proceed, whichever is later, the City shall have the right to provide for the performance or the completion of the performance of the New I-5 Line, either through its own forces or through a contract with a third party, and charge the Company for the costs associated therewith through an offset of the Service Fee. 7. Conditions under Which the City Shall Provide a New Encased I-5 Line. In the event that the Company is relieved of its obligation to replace the Existing I-5 Line with a new I- 5 Line in accordance with Subparagraph 6.3 of this Settlement Agreement, the City shall provide for the replacement of the Existing I-5 Line with a New I-5 Line at its sole cost and expense without reimbursement from the Company. In such event, the City shall retain the $33,007.53 withheld by the City pursuant to Paragraph 2 above, plus accrued interest. 8. Responsibility and Liability for the I-5 Line 8.1 The Company is and shall remain fully responsible and liable for the Existing I-5 Line in accordance with the terms of the Service Contract, including the indemnification provision set forth in Section 14.3 thereof. 8.2 Following a replacement of the Existing I-5 Line with a New I-5 Line by the Company pursuant to Paragraph 6 of the Settlement Agreement, the New I-5 Line shall be considered part of the Project Improvements, and the Company shall have all responsibilities and obligations under the Service Contract with respect thereto, including the obligation to maintain the New I-5 Line in accordance with the Contract Standards, without any adjustment to the Service Fee. 8.3 Following a replacement of the Existing I-5 Line with a New I-5 Line by the City pursuant to Paragraph 7 of this Settlement Agreement, the New I-5 Line shall be considered part of the Project Improvements, and the Company shall have all responsibilities and obligations under the Service Contract with respect thereto, including the obligation to maintain the New I-5 Line in accordance with the Contract Standards, without any adjustment to the Service Fee; provided, however, that the City shall be responsible for any defects or deficiencies in the design 524052.5 022806 AGMT 0 or construction of the New I-5 Line, and the Company shall be relieved of any responsibilities in connection therewith. 9. Effectiveness of the Service Contract. The parties acknowledge and agree that, except as otherwise specifically provided for herein, all terms and conditions of the Service Contract remain in full force and effect. 10. Bindin Eg ffect. This Settlement Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective heirs, executors, administrators, trustees, directors, officers, shareholders, members, successors, and assigns. 11. Governing Law. This Settlement Agreement shall be governed by and interpreted in accordance with the laws of the State of California. 12. Further Assurances. The parties agree that, upon a request of the other party, they will execute and deliver such further documents and undertake such further actions as may reasonably be required to effect any of the agreements and covenants contained in this Agreement. 13. Counterparts. This Settlement Agreement may be executed and delivered in multiple counterparts, and all counterparts so delivered and executed shall constitute one and the same instrument and be enforceable as such. 6 524052.5 022806 AGMT IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the date first set forth above. CITY OF SAN JUAN CAPISTRANO, CALIFORNIA Name Title AILLOJAI-tz ECO RESOURCES, INC. Name: Title: Western Region Vice President 4etATTE. Monahan, City Clerk APPROVED A TO FORM: John Sha , ity Attorney 524052.5 022806 AGMT u 32400 PASEO ADELAN70 SAN JUAN CAPISTRANO, CA 92675 (949) 493-1171 (949) 493-1053 FAx www.sanjuancapstrano. org TRANSMITTAL TO: Thomas O'Neill ECO Resources, Inc. 2230 East Bidwell St. # 200 Folsom, CA 95630 DATE: July 18, 2007 Jwor, k/�� 10.(01100.0.80 ' EST LIS em � 1961 1776 FROM: Maria Morris, Deputy City Clerk (949) 443-6309 RE: Settlement Agreement MEMBERS OF THE CITY COUNCIL Enclosed is an original settlement agreement. If you have questions concerning the agreement, please contact Cindy Russell, Assistant City Manager (949) 443-6301. Cc: Cindy Russell, Assistant City Manager Enclosure San Juan Capistrano: Preserving the Past to Enhance the Future 0 Printed on too/ recycles paper SAMALLEVATO THOMAS W. HRIBAR MARK NIELSEN JOE SOTO DR. LONORES USO