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This Current Report is filed by Norcal Waste Systems, Inc.
pursuant to certain contractual requirements and not
pursuant to the Securities Exchange Act of 1934
and the rules and regulations thereunder.
Date of Report (Date of earliest event reported):
July 26, 2000
NORCAL WASTE SYSTEMS, INC.
(Exact number of registrant as specified in its charter)
California 94-2922974
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
160 Pacific Avenue San Francisco 94111
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 415/875-1000
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Item 5. Other Events.
Effective as of July 26, 2000, Norcal Waste Systems, Inc.
("Norcal") and Norcal/San Bernardino, Inc. ("Norcal/SB" and
together with Norcal, the "Norcal Parties") entered into a
settlement, expressly denying any wrongdoing or legal liability
of any kind, with San Bernardino County (the "County"), its
current County Administrative Officer and certain County-related
entities (collectively the "County Parties") to settle all of the
claims asserted against the Norcal Parties in a lawsuit filed by
the County Parties on June 8, 2000 in San Bernardino County (the
"Action"). The lawsuit also includes claims unrelated to the
Norcal Parties against various other defendants, against which
the Action will proceed. In the claims against the Norcal
Parties, the complaint generally also names as additional
defendants James J. Hlawek, the immediate former County
Administrative Officer, Harry M. Mays, Mr. Hlawek's predecessor
as County Administrative Officer and a former consultant to
Norcal, Bio-Reclamation Technologies, Inc., a company affiliated
with Mays ("Bio-Reclamation"), and Kenneth James Walsh, a former
employee of Norcal. The County Parties' complaint alleged
against the Norcal Parties claims for breach of fiduciary duty,
fraud, unjust enrichment and constructive trust, as well as
certain claims under California statutes, including alleged
violations of the Political Reform Act, the Unfair Competition
law and the False Claims Act. The complaint also alleged that
the County was entitled to restitution of all payments made to
the Norcal Parties under Norcal's 1995 contract with the County
(the "1995 Contract"), based on Section 1090 of the California
Government Code, which prohibits government officials from being
"financially interested in any contract made by them in their
official capacity, or by any body or board of which they are
members," and Section 1092 of the California Government Code,
which provides that contracts violating Section 1090 "may be
avoided." The complaint was based on allegations of, inter alia,
a conspiracy to influence and reward Hlawek in connection with
procuring and obtaining solid waste management work connected
with the 1995 Contract, pursuant to which Norcal operates
(through Norcal/SB) all active landfills owned by the County and
is primarily responsible for implementing the County's strategic
plan concerning the County's long-term waste disposal needs. The
complaint further alleged that money was paid to Hlawek by Mays
and/or Walsh out of proceeds of payments Norcal made to Bio-
Reclamation under a consulting agreement and kickbacks Walsh
allegedly received from a Norcal/SB subcontractor. Messrs.
Hlawek, Mays and Walsh have all pleaded guilty to federal charges
of conspiring to pay and accept bribes to influence and reward
Mr. Hlawek in connection with his official duties.
The Norcal Parties have vigorously contested each and
every claim alleged against them. Based on its own internal
investigation, Norcal believes that Messrs. Walsh and Mays were
acting purely for their own personal gain and that no other
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employees or consultants of Norcal or its subsidiaries
(collectively the "Company") were aware of or otherwise involved
with Messrs. Walsh's and May's illegal conduct. While the Norcal
Parties believe that they have meritorious defenses to the County
Parties' claims, they also believe that the settlement agreement
is in their best interest because, among other reasons, it
resolves this litigation and thereby avoids the further
investment by the Company of significant time and expense,
management distraction, continuing adverse publicity and
uncertainties inherent in litigation, particularly where
extraordinary damages are sought.
The settlement agreement is filed as an exhibit to this
current report, and the following summary of the settlement
agreement is qualified by the express terms thereof which are
filed as an exhibit to this Current Report. Among other terms,
the settlement agreement provides for a mutual release by the
County and the Norcal Parties of all claims asserted in the
Action and various other claims and counterclaims related to the
subject matter of the Action, preserving, however, any claims
that may arise out of acts occurring after a future date
specified in the settlement agreement and certain claims to
enforce obligations under the 1995 Contract. The releases
generally extend, with certain exceptions, to the parties'
officers, directors, employees, agents and others as well as to
any affiliated parties that control, are controlled by or under
common control with the parties. The settlement agreement also
requires the County Parties to dismiss with prejudice the Action
as against the Norcal Parties. Pursuant to the settlement,
Norcal will pay to the County $6,561,000, as well as 50% of any
net proceeds of certain claims that the Norcal Parties, or either
of them, may choose, in their sole discretion, to assert against
certain other defendants in the Action. It is Norcal's current
intention to pursue these claims. The Company will record the
$6,561,000 settlement amount as a litigation expense in the
quarterly period ending June 30, 2000. The settlement agreement
also provides that the Norcal Parties may not bid on any
successor contract with the County until five years after the
expiration of the 1995 Contract. Further, the settlement
agreement requires both the Norcal Parties and the County Parties
to continue to perform their obligations under the 1995 Contract
until its final termination.
Pursuant to a January 2000 amendment to the 1995
Contract, the 1995 Contract will end no later than 90 days from
Norcal's receipt of written notice of termination by the County
after identification of the successful proposer under the Request
for Proposal process for a new contract, and in any event no
later than June 30, 2001. Although the Company's results of
operations and cash flows will be adversely impacted by the
termination of the 1995 Contract, management believes that such
termination will not have a material adverse effect on the
Company's financial condition or on its ability to maintain its
other operations and service its debt.
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Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(c) Exhibits
99.1 Settlement Agreement, dated July 25, 2000, by and among
Norcal Waste Systems, Inc., Norcal/San Bernardino, Inc., the
County of San Bernardino, William Randolph (County Administrative
Officer of the County of San Bernardino), Inland Empire Public
Facilities Corporation, Inland Empire Solid Waste Financing
Authority, San Bernardino County Financing Authority and San
Bernardino County Flood Control District.
/s/ Mark R. Lomele
_____________________________
Mark R. Lomele
Senior Vice President and
Chief Financial Officer
Dated as of July 26, 2000
