N-VIRO INTERNATIONAL CORPORATION
3450 W. CENTRAL AVENUE, SUITE 328
TOLEDO, OHIO 43606
April 23, 2004
To all N-Viro International Corporation Stockholders:
The Board of Directors joins us in inviting you to attend the Annual
Meeting of Stockholders. The meeting will be held in the Garden Room of the
Toledo Club, 235 14th Street, Toledo, Ohio on May 12, 2004. The meeting will
begin at 10:00 a.m. (local time). Registration will begin at 9:30 a.m.
Refreshments will be served before the meeting.
In addition to the matters described in the attached Proxy Statement, we
will report on the business and progress of N-Viro during 2003 and for the first
quarter of 2004. N-Viro's performance for the year ended December 31, 2003 is
discussed in the enclosed 2003 Annual Report to Stockholders.
We hope you will be able to attend the meeting and look forward to seeing
you there.
Sincerely,
/s/ Terry J. Logan
-----------------------
Terry J. Logan
President and Chief Executive Officer
N-VIRO INTERNATIONAL CORPORATION
3450 W. Central Avenue, Suite 328
Toledo, Ohio 43606
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 2004
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of N-Viro
International Corporation, a Delaware corporation, will be held in the Garden
Room of the Toledo Club, Toledo, Ohio on May 12, 2004. The Annual Meeting will
begin at 10:00 a.m. (local time), for the following purposes:
1. To elect three Class II Directors for a term of two years, until their
successors are elected and qualified or until their earlier resignation, removal
from office or death.
2. To approve the Company's 2004 Stock Option Plan.
3. To ratify the appointment of Follmer Rudzewicz PLC to serve as
independent auditors for the Company for its year ended 2004.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Your attention is directed to the Proxy Statement accompanying this Notice
for a more complete description of the matters to be acted upon at the Annual
Meeting. The 2003 Annual Report of the Company is also enclosed. Stockholders
of record at the close of business on March 24, 2004, will be entitled to notice
of, and to vote at, such Annual Meeting or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ James K. McHugh
------------------------
James K. McHugh
Chief Financial Officer, Secretary and Treasurer
Toledo, Ohio
April 23, 2004
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN
IT PROMPTLY IN THE ENVELOPE PROVIDED WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING TO ASSURE THE PRESENCE OF A QUORUM. THE PROXY MAY BE REVOKED BY
YOU AT ANY TIME, AND GIVING YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE ANNUAL MEETING. IF YOU ARE A STOCKHOLDER OF RECORD
(YOUR SHARES ARE IN YOUR NAME), THEN YOU ALSO MAY VOTE YOUR SHARES VIA THE
TELEPHONE BY ACCESSING THE TOLL-FREE NUMBER INDICATED ON YOUR PROXY CARD OR VIA
THE INTERNET BY ACCESSING THE WORLDWIDE WEBSITE INDICATED ON YOUR PROXY CARD.
N-VIRO INTERNATIONAL CORPORATION
3450 W. CENTRAL AVENUE, SUITE 328
TOLEDO, OHIO 43606
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 2004
THIS PROXY STATEMENT IS BEING SENT TO THE STOCKHOLDERS OF N-VIRO
INTERNATIONAL CORPORATION (THE "COMPANY") ON OR ABOUT APRIL 16, 2004, IN
CONNECTION WITH THE SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF THE
COMPANY TO BE VOTED AT THE ANNUAL MEETING OF STOCKHOLDERS (THE "ANNUAL
MEETING"), WHICH IS SCHEDULED TO BE HELD ON WEDNESDAY, MAY 12, 2004 AT 10:00
A.M. (LOCAL TIME) AS SET FORTH IN THE ATTACHED NOTICE. A proxy card is
enclosed. The record date for the Annual Meeting is the close of business on
March 24, 2004 (the "Record Date"). Only holders of record of the Company's
Common Stock on the Record Date are entitled to notice of the Annual Meeting and
to vote at the Annual Meeting. On the Record Date, there were 2,994,905 shares
of Common Stock outstanding.
A share of the Company's Common Stock cannot be voted at the Annual Meeting
unless the holder thereof is present or represented by proxy. Whether or not
you plan to attend the Annual Meeting in person, please sign, date and return
the enclosed proxy card as promptly as possible in the postage paid envelope
provided to ensure that there is a quorum and that your shares will be voted at
the Annual Meeting. When proxies in the accompanying form are returned properly
executed and dated, the shares represented thereby will be voted at the Annual
Meeting. If a choice is specified in the proxy, the shares represented thereby
will be voted in accordance with such specification. If no specification is
made, the proxy will be voted FOR approval of the proposals: (i) to elect three
Class II Directors to serve for a term of two years and until their successors
are elected and qualified or until their earlier resignation, removal from
office or death; (ii) to approve the Company's 2004 Stock Option Plan and (iii)
to ratify the appointment of Follmer Rudzewicz PLC to serve as independent
auditors for the Company for its year ended 2004.
Any stockholder giving a proxy has the right to revoke it any time before
it is voted by filing with the Secretary of the Company a written revocation, or
by filing a duly executed proxy bearing a later date, or by attending the Annual
Meeting and voting in person. The revocation of a proxy will not be effective
until notice thereof has been received by the Secretary of the Company.
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the total number of shares of Common Stock outstanding on the
Record Date shall constitute a quorum for the transaction of business by such
holders at the Annual Meeting. Abstentions will be counted as shares that are
present and entitled to vote for purposes of determining whether a quorum is
present. Shares held by nominees for beneficial owners will also be counted for
purposes of determining whether a quorum is present if the nominee has the
discretion to vote on at least one of the matters presented, even though the
nominee may not exercise discretionary voting power with respect to other
matters and even though voting instructions have not been received from the
beneficial owner (a "broker non-vote"). Abstentions and broker non-votes are
not counted in determining whether a proposal has been approved.
Holders of the Common Stock have one vote for each share on any matter that
may be presented for consideration and action by the stockholders at the Annual
Meeting. Stockholders are not entitled to cumulative voting in the election of
directors. In the election of directors, the nominees for election as directors
who receive the highest number of votes therefore at the Annual Meeting shall be
elected as directors. The approval of the 2004 Stock Option Plan and the
ratification of the appointment of Follmer Rudzewicz PLC as independent auditors
shall require the affirmative vote of the holders of a majority of the shares of
the Common Stock present or represented by proxy at the Annual Meeting.
The cost of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, directors and officers of the Company may
solicit proxies by telephone, facsimile or personal interview. The Company will
reimburse directors and officers for their reasonable out-of-pocket expenses in
connection with such solicitation. The Company will request brokers and
nominees who hold shares in their names to furnish these proxy materials to the
persons for whom they hold shares and will reimburse such brokers and nominees
for their reasonable out-of-pocket expenses in connection therewith.
The executive offices of the Company are located at 3450 West Central
Avenue, Suite 328, Toledo, Ohio 43606. The telephone number is (419) 535-6374.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2003, INCLUDING THE FINANCIAL STATEMENTS, MAY BE OBTAINED WITHOUT CHARGE BY
WRITING TO THE CORPORATE SECRETARY, N-VIRO INTERNATIONAL CORPORATION AT THE
ABOVE ADDRESS. Such Annual Report is also available on the Company's website at
www.nviro.com under "Investor Information".
PROPOSAL 1 - ELECTION OF DIRECTORS
The Amended and Restated Certificate of Incorporation and Bylaws of the
Company provide that the Board of Directors shall be divided into two classes of
equal or approximately equal number and that the number of directors shall from
time to time be fixed and determined by a vote of a majority of the Company's
entire Board of Directors serving at the time of such vote, provided, that the
authorized number of directors shall be no less than seven and no more than
nine. The number of directors of the Company is currently set at seven. The
directors are elected for a two-year term or until the election and
qualification of their respective successors or until their resignation, removal
from office or death. Holders of the Company's Series A Redeemable Preferred
Stock, par value $.01 per share (the "Series A Redeemable Preferred Stock") have
the right to elect one of the Class II Directors. As of the date of this proxy
statement, J. Patrick Nicholson is the only holder of the Company's Series A
Redeemable Preferred Stock and he has elected Brian P. Burns as a Class II
Director. It is intended by the Board that proxies received will be voted to
elect the three Class II Directors named below to serve for a two-year term and
until their respective successors are elected and have qualified or until their
earlier resignation, removal from office or death.
The Board is currently composed of three Class I Directors (R. Francis
DiPrete, Daniel J. Haslinger and Christopher J. Anderson) and four Class II
Directors (Terry J. Logan, Michael G. Nicholson, Phillip Levin and Mr. Burns),
whose terms will expire upon the election and qualification of directors at the
annual meetings of stockholders to be held in 2005 and 2004, respectively. At
each annual meeting of stockholders, directors will be elected for a full term
of two years to succeed those directors whose terms are expiring.
The Board has nominated Terry J. Logan, Michael G. Nicholson and Phillip
Levin as Class II Directors, each to serve until the 2006 annual meeting of
stockholders. THE BOARD OF DIRECTORS RECOMMENDS THAT MESSRS. LOGAN, NICHOLSON
AND LEVIN BE ELECTED AT THE ANNUAL MEETING AS CLASS II DIRECTORS.
Each of the nominees has consented to serve until his term expires if
elected at the Annual Meeting as a Class II Director of the Company. If any
nominee declines or is unable to accept such nomination to serve as a Class II
Director, events which the Board does not now expect, the proxies reserve the
right to vote for another person as a Board nominee. The proxy solicited hereby
will not be voted to elect more than three Class II Directors.
The three nominees for Class II Directors receiving a plurality of the
votes of the shares of Common Stock present in person or represented by proxy
and entitled to vote shall be elected as directors, provided a quorum is
present.
Certain information about all of the directors and nominees for director is
furnished below.
MANAGEMENT - DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth (i) the names and ages of the directors and
executive officers of the Company and the positions they hold with the Company
and (ii) the names and ages of the nominees for director listed herein.
Executive officers serve at the pleasure of the Board of Directors.
Name Age Position
Christopher J. Anderson 49 Class I Director (2)(4)(6)
Brian P. Burns 37 Class II Director (1)(3)(6)(7)
R. Francis DiPrete 49 Class I Director (2)(4)(5)
Daniel J. Haslinger 48 Class I Director (3)(5)(6)
Phillip Levin 64 Class II Director, Chairman of the Board (1)(2)(3)(4)(5)
Terry J. Logan, Ph.D. 61 President, Chief Executive Officer, Class II Director (1)
Michael G. Nicholson 37 Chief Operating Officer, Senior Vice President Sales and Marketing, Class II Director (1)
James K. McHugh 45 Chief Financial Officer, Secretary, Treasurer
(1) Directors currently nominated for re-election.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
(4) Member of Nominating Committee.
(5) Member of Finance Committee.
(6) Member of Planning Committee
(7) Elected to Board by J. Patrick Nicholson pursuant to rights granted to
Mr. Nicholson as the holder of the Series A Redeemable Preferred Stock of the
Company and as described in that certain Certificate of Designation of Series A
Redeemable Preferred Stock of the Company, as filed with the Secretary of State
of the State of Delaware on September 4, 2003.
CHRISTOPHER J. ANDERSON, AGE 49. Mr. Anderson is currently the President of
Anderson Consulting and has served as President of Chris Anderson Consulting,
LLC since 2002. From 1999 until 2001, he was employed as Executive
Vice-President of The Andersons in Maumee, Ohio and, from 1995 until 1998, as
President of the Processing and Manufacturing Group of The Andersons. Mr.
Anderson holds an MBA from Harvard Business School and has served as a director
of the Company since his appointment on October 29, 2003, and is a member of the
Board's Audit, Nominating and Planning Committees.
BRIAN P. BURNS, AGE 37. Mr. Burns presently is employed as a division manager
with Hammill Manufacturing Co. Impact Cutoff Service. Mr. Burns has been with
Hammill Manufacturing Co. since 1997. From 1993 to 1997, Mr. Burns was employed
as an attorney with the law firm of Eastman & Smith, LLC, in Toledo, Ohio. Mr.
Burns is a magna cum laude graduate of the University of Toledo College of Law
and he has a bachelor of arts degree in economics from Harvard University. Mr.
Burns has served as a director of the Company since his appointment on August
29, 2003, and is a member of the Board's Compensation and Planning Committees.
R. FRANCIS DIPRETE, AGE 49. Mr. DiPrete is an attorney and from March 1999
until December, 2003, served as President and Board Chairman of Strategic Asset
Management, Inc. (formerly Worldtech Waste Management, Inc.), a Nevada
corporation and holding company. From August 2003 until December 2003, Mr.
DiPrete served as President and director of Ophir Holdings, Inc., a Nevada
corporation and consulting firm specializing in public and shareholder
relations, and is currently employed by it as a business consultant. Mr.
DiPrete is a graduate of Rutgers University and Roger Williams University,
School of Law. Mr. DiPrete has served as a Director of the Company since May
2000, and is a member of the Board's Audit, Nominating and Finance Committees.
DANIEL J. HASLINGER, AGE 48. Mr. Haslinger is presently Chief Executive Officer
and Owner of Micro Macro Integrated Technologies, a Nevada company specializing
in industrial automation integration. Mr. Haslinger is also Chairman and Chief
Executive Officer of WJZE 97.3FM RASP Broadcast Enterprises, Inc., a local
broadcast company. Mr. Haslinger is a member of N-Viro Filipino, LLC, an
international licensee of the Company, and is also a member of DJH Holdings,
LLC. Mr. Haslinger has served as a director of the Company since May 1999 and
is a member of the Board's Planning, Compensation and Finance Committees.
PHILLIP LEVIN, AGE 64. Mr. Levin has been the President of both Levin
Development Company and MGM Consulting Services, a real estate development and
financial consulting company, respectively, located in Troy, Michigan, since
1992. Mr. Levin holds an MBA in both Accounting and Finance, and was a
partner-in-charge of PriceWaterhouseCoopers' consulting division in Michigan for
16 years. Mr. Levin has served as a director of the Company since November 2002
and is a member of the Audit, Compensation, Nominating and Finance Committees.
TERRY J. LOGAN, PH.D., AGE 61. Dr. Logan served as Chief Operating Officer and
President of the Company since joining the Company in July 1999, and was
appointed Chief Executive Officer in May 2002. From 1971 until July 1999, Dr.
Logan was a professor of Agronomy at The Ohio State University. Dr. Logan
served as President of Pan-American N-Viro Inc. (subsidiary of the Company) from
1994 through 1995 and is the President of Logan Environmental, Inc.
(environmental consulting firm). Dr. Logan has served as a director of the
Company since May 1993.
MICHAEL G. NICHOLSON, AGE 37. Mr. Nicholson was appointed Chief Operating
Officer in May 2002, and has served as the Vice-President of Sales and Marketing
of the Company since December 1996 and Senior Vice-President after May 2000.
Prior to December 1996, Mr. Nicholson served the Company and N-Viro Energy
Systems Ltd. in various sales management positions since his hiring in 1990.
Mr. Nicholson is the son of J. Patrick Nicholson, and has served as a director
of the Company since February 1998.
JAMES K. MCHUGH, AGE 45. Mr. McHugh has served as Chief Financial Officer,
Secretary and Treasurer of the Company since January 1997. Prior to that date,
Mr. McHugh served the Company and N-Viro Energy Systems Ltd. in various
financial positions since his hiring in April 1992.
KEY RELATIONSHIPS
Michael Nicholson is the son of J. Patrick Nicholson, a more than 5%
beneficial reporting owner, consultant and former Chairman of the Board of
Directors of the Company, and the current holder of the Series A Redeemable
Preferred Stock of the Company.
BOARD OF DIRECTORS
The Company's business, property and affairs are managed under the
direction of the Board of Directors. The Board of Directors of the Company held
twelve formal meetings during 2003, consisting of four regular meetings and
eight special meetings.
The Company encourages stockholder communications with directors.
Stockholders may communicate with a particular director, all directors or the
Chairman of the Board by mail or courier addressed to him or the entire Board in
care of James K. McHugh, Corporate Secretary, N-Viro International Corporation,
3450 West Central Avenue, Suite #328, Toledo, OH 43606. All correspondence
should be in a sealed envelope marked "Confidential" and will be forwarded
unopened to the director as appropriate.
The Company is committed to a Board in which a majority of its members
consist of independent directors, as defined under the New York Stock Exchange
("NYSE") Rules. The Board has reviewed the independence of its members,
applying the NYSE Rules and considering other commercial, legal, accounting and
familial relationships between the directors and the Company. The Board has
determined that Messrs. Logan and Nicholson are management directors by virtue
of their positions as executive officers of the Company.
AUDIT COMMITTEE
The Audit Committee, consisting of Messrs. Levin, DiPrete and Anderson,
recommends the appointment of the outside auditor, oversees the accounting and
internal audit functions of the Company and reviews and approves the terms of
transactions between the Company and related party entities. The directors who
serve on the Committee are all "independent" for purposes of the NYSE listing
standards. That is, the Board of Directors has determined that none of them has
a relationship to the Company that may interfere with their independence from
the Company and its management. The Board of Directors has determined that Mr.
Levin qualifies as a "financial expert" as defined by the SEC. During 2003, the
Audit Committee met six times. The Audit Committee has retained Follmer
Rudzewicz PLC to conduct the audit for the year ended December 31, 2004. The
audit committee is governed by a written charter, a copy of which was attached
as an appendix to the proxy statement for the 2002 annual meeting.
The Company adopted a Code of Ethics which covers the Chief Executive
Officer and Chief Financial Officer, which is administered and monitored by the
Audit Committee of the Board. A copy of the Code of Ethics is attached as
Appendix A to this Proxy Statement.
COMPENSATION COMMITTEE
The Compensation Committee, consisting of Messrs. Haslinger, Burns and
Levin, determines officers' salaries and bonuses and administers the grant of
stock options pursuant to the Company's stock option plans. The Compensation
Committee met two times during 2003.
FINANCE COMMITTEE
The Finance Committee, consisting of Messrs. DiPrete, Haslinger and Levin,
assists in monitoring cash flow requirements of the Company and approves any
internal or external financing or leasing arrangements. This committee did not
meet during the year ended December 31, 2003.
NOMINATING COMMITTEE
The Nominating Committee, consisting of Messrs. Levin, DiPrete and
Anderson, considers and recommends to the Board of Directors qualified
candidates for election as Board members, and establishes and periodically
reviews criteria for selection of directors. The Nominating Committee does not
have a charter as of the date of this proxy statement. All members of the
Committee are independent under the NYSE Rules, and met one time during the year
ended December 31, 2003. The Nominating Committee will consider candidates
recommended by stockholders, directors, officers, third-party search firms and
other sources for nomination as a director. The Committee considers the needs
of the Board and evaluates each director candidate in light of, among other
things, the candidate's qualifications. All stockholder recommended candidates
should be independent and possess substantial and significant experience which
would be of value to the Company in the performance of the duties of a director.
Recommended candidates must be of the highest character and integrity, free of
any conflicts of interest and possess the ability to work collaborately with
others, and have the time to devote to Board activities. All candidates will be
reviewed in the same manner, regardless of the source of the recommendation.
All stockholder nominations should be directed to N-Viro International
Corporation, 3450 W. Central Avenue, Suite 328, Toledo, Ohio 43606, Attention:
Chairman, Nominating Committee, c/o James K. McHugh, Corporate Secretary, and
must be received by the Company at least 90 days before the date of the next
annual meeting. Such stockholder recommendations must be in writing and, at a
minimum, provide the stockholder's name; address; the number and class of shares
owned; the candidate's biographical information, including name, residential and
business address, telephone number, age, education, accomplishments, employment
history (including positions held and current position), and current and former
directorships; and the stockholder's opinion as to whether the stockholder
recommended candidate meets the definitions of "independent" and "financially
literate" under the NYSE Rules. In addition, the recommendation letter must
provide the information that would be required to be disclosed in the
solicitation of proxies for election of directors under federal securities laws.
The stockholder must include the candidate's statement that he/she meets these
requirements; is willing to promptly complete the Questionnaire required of all
officers, directors and candidates for nomination to the Board; will provide
such other information as the Committee may reasonably request; and consents to
serve on the Board if elected.
The Board encourages all members of the Board of Directors to attend the
Company's annual stockholder meeting. Failure to attend annual meetings without
good reason is a factor the Nominating Committee will consider in determining
whether to renominate a current board member. Six out of the seven members of
the Board attended the 2003 Annual Meeting.
PLANNING COMMITTEE
The Planning Committee, consisting of Messrs. Anderson, Burns and
Haslinger, is a new committee formed by the Board in November, 2003. This
committee assists the Board of Directors in long-range strategic planning and
budgeting. This committee met one time during the year ended December 31, 2003.
See "Certain Relationships and Related Transactions" for additional
information on certain members of the Board and management.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own beneficially
more than ten percent (10%) of the shares of Common Stock of the Company, to
file reports of ownership and changes of ownership with the Securities and
Exchange Commission. Copies of all filed reports are required to be furnished
to the Company pursuant to Section 16(a). Based solely on the reports received
by the Company and on written representations from reporting persons, the
Company believes that the current directors and executive officers complied with
all applicable filing requirements during the fiscal year ended December 31,
2003, with the following exceptions:
A former director who owns beneficially more than ten percent of the shares
of Common Stock of the Company, J. Patrick Nicholson, filed a report of
beneficial ownership in January, 2004, reporting late nine sales of common
stock; two acquisitions of common stock upon the exercise of options and
warrants; and two dispositions of options and warrants by exercise.
Michael Nicholson filed a report of beneficial ownership on February 3,
2004, reporting late one disposition of common stock warrants by exercise. The
simultaneous acquisition of common stock upon the exercise of the warrants has
not been reported.
Daniel Haslinger filed a report of beneficial ownership on January 22,
2004, reporting late one sale of common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company had outstanding 2,994,905 shares of common stock, $.01 par
value per share (the "Common Stock"), on March 24, 2004. The Company also has a
single share of Series A Redeemable Preferred Stock, $.01 par value per share
issued and outstanding. The terms and conditions associated with the share of
Series A Redeemable Preferred Stock are set forth in that certain Certificate of
Designation of Series A Redeemable Preferred Stock as filed by the Company with
the Secretary of State of the State of Delaware on September 4, 2003, a copy of
which was filed by the Company with the Securities Exchange Commission as an
exhibit to a Form 8-K filed on August 29, 2003. The Common Stock and the single
share of Series A Redeemable Preferred Stock constitute the only classes of
outstanding voting securities of the Company.
At March 24, 2004, the following were the only persons known to the Company
to own beneficially more than 5% of the outstanding shares of Common Stock:
Name and Address of Beneficial Owner Shares of Common Stock Beneficially Owned Percentage of Outstanding Shares of Common Stock
J. Patrick Nicholson (1)
2025 Richmond Rd.
Toledo, Ohio 43607. . . . . . . . . 529,589 17.33%
N-Viro Energy Systems, Inc. (2)
3450 West Central Avenue, Suite 328
Toledo, Ohio 43606. . . . . . . . . 310,095 10.35%
Ophir Holdings, Inc. (3)
600 Boston Neck Road
N. Kingstown, Rhode Island 02852. . 230,472 7.42%
Cooke Family Trust
75 Secluded Drive
Narragansett, RI 02882 . . 251,356 8.39%
Robert Cooke (4)
75 Secluded Drive
Narragansett, RI 02882 . . 251,356 8.39%
(1.) The shares attributed to Mr. Nicholson include the 310,095 shares owned
beneficially by N-Viro Energy Systems, Inc, of which Mr. Nicholson is the
majority owner of the voting shares. Also attributed to Mr. Nicholson are 50,000
shares owned jointly by Mr. Nicholson and three of his sons: Michael G.
Nicholson, Robert F. Nicholson and Timothy J. Nicholson. Michael is the Chief
Operating Officer and a director of the Company, Robert and Timothy are both
employees of the Company. Also included are a total of 61,500 shares issuable
upon exercise of options which are currently exercisable at prices ranging from
$1.50 to $5.00 per share. Mr. Nicholson resigned as a director of the Company on
August 28, 2003 and is presently a consultant to the Company.
(2.) N-Viro Energy Systems, Inc. was formerly the corporate general partner of
N-Viro Energy Systems, Limited, a limited partnership that was terminated as of
December 31, 2001 and was one of the predecessor entities that combined to form
the Company in October 1993. The general partners of N-Viro Energy Systems,
Limited were J. Patrick Nicholson, N-Viro Energy Systems, Inc., a corporation of
which Mr. Nicholson is the controlling stockholder, and four trusts established
for the benefit of Mr. Nicholson's children.
(3.) Ophir Holdings, Inc. filed a Form 13D on February 6, 2004, indicating total
holdings in the Company of 669,918 shares. As of that date, Ophir planned on
acquiring, through a Security Units Purchase Agreement, the full offering of
333,334 shares as well as 333,334 warrants, for a total of 666,668 shares. An
additional 3,250 shares were owned directly at that time. Subsequent to February
6, 2004 and through the date of this filing, Ophir purchased 111,111 shares
along with 111,111 warrants, for a total of 222,222 shares attributed, pursuant
to the terms of the Security Units Purchase Agreement, and an additional 5,000
shares purchased on the open market.
(4.) The shares attributed to Mr. Cooke include the 251,356 shares owned by the
Cooke Family Trust, over which Mr. Cooke exercises dispositive power. Mr. Cooke
also is a significant shareholder in Ophir Holdings, Inc., which beneficially
owns 230,472 shares of N-Viro common stock. The Company has no information
concerning Mr. Cooke's ability to direct the voting or disposition of any of the
shares owned by Ophir Holdings, or his personal holdings of N-Viro common stock,
if any.
The following table sets forth, as of March 24, 2004, unless otherwise
specified, certain information with respect to the beneficial ownership of the
Company's shares of Common Stock by each person who is a director of the
Company, a nominee for the Board, each of the Named Executive Officers, and by
the directors and executive officers of the Company as a group. Unless
otherwise noted, each person has voting and investment power, with respect to
all such shares, based on 2,994,905 shares of Common Stock outstanding on the
Record Date. Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock which a person has the right to acquire within 60 days of
the date hereof pursuant to the exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage ownership of such person
but are not deemed outstanding for the purpose of computing the percentage
ownership of any other person.
Name of Beneficial Owner Beneficial Ownership of Common Stock Percent of Class
Christopher J. Anderson . . . . . . . . . . . . . . . . . . -0- -0-%
Brian P. Burns. . . . . . . . . . . . . . . . . . . . . . . -0- -0-%
R. Francis DiPrete. . . . . . . . . . . . . . . . . . . . . 271,296(1) 9.06%
Daniel J. Haslinger . . . . . . . . . . . . . . . . . . . . 20,769(2) 0.69%
Phillip Levin . . . . . . . . . . . . . . . . . . . . . . . 11,529 0.38%
Terry J. Logan. . . . . . . . . . . . . . . . . . . . . . . 92,212(3) 2.99%
James K. McHugh . . . . . . . . . . . . . . . . . . . . . . 47,796(4) 1.57%
Michael G. Nicholson. . . . . . . . . . . . . . . . . . . . 114,884(5) 3.76%
All directors and executive officers as a group (8 persons) 558,486(6) 17.45%
(1.) The shares attributed to Mr. DiPrete include the 251,356 shares owned by
the Cooke Family Trust, over which Mr. DiPrete shares voting power as
co-trustee.
(2.) Represents 14,369 shares of Common Stock owned by Mr. Haslinger, and a
total of 6,400 shares issuable upon exercise of options which are currently
exercisable at prices ranging from $0.91 to $5.19 per share.
(3.) Represents 812 shares of Common Stock owned by Dr. Logan, and a total of
91,400 shares issuable upon exercise of options which are currently exercisable
at prices ranging from $1.50 to $5.00 per share.
(4.) Represents 796 shares of Common Stock owned by Mr. McHugh, and a total of
47,000 shares issuable upon exercise of options which are currently exercisable
at prices ranging from $1.50 to $5.00 per share.
(5.) Represents 4,884 shares of Common Stock owned by Mr. Nicholson, 60,000
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $1.50 to $5.00 per share, and 50,000 shares owned jointly by
Mr. Nicholson, his father, J. Patrick Nicholson, and his brothers, Robert F.
Nicholson and Timothy J. Nicholson. J. Patrick is a more than 5% beneficial
owner and consultant to the Company and, Robert and Timothy are both employees
of the Company.
(6.) Represents 52,330 shares of Common Stock owned by the Directors and
Officers, 301,356 shares owned indirectly and a total of 204,800 shares issuable
upon exercise of options which are currently exercisable at prices ranging from
$0.91 to $5.19 per share.
EQUITY COMPENSATION PLAN INFORMATION
Number of
securities to be Number of securities
issued upon remaining available for
exercise of future issuance under
outstanding Weighted-average equity compensation
options, warrants exercise price of outstanding plans (excluding
Plan category and rights options, warrants and rights securities reflected in column (a))
Equity compensation plans approved
by security holders . . . . . . . . . 527,675 $ 2.38 -0-
Equity compensation plans not approved
by security holders . . . . . . . . . -0- -0- -0-
Total. . . . . . . . . . . . . . . . . 527,675 $ 2.38 -0-
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The Board of Directors of the Company has approved the payment of cash
compensation to non-employee directors in exchange for their service on the
Board. The amount of cash compensation to be received by each non-employee
director is $1,000 per regular meeting attended during each calendar year, and
$500 per special meeting attended. The Board of Directors of the Company
generally has four regular meetings per calendar year. The Directors are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or any committees thereof.
From December 15, 2000, until May 10,2003, non-employee directors also
received, as of the date of the annual stockholders meeting each year, a stock
option grant of 700 shares of Common Stock of the Company for each regular and
special board meeting attended during the previous year. These option awards
ended with the grant on the date of the 2002 annual meeting, due to the
termination on May 10, 2003, of the Company's 1998 Amended and Restated Stock
Option Plan (the "1998 Plan"). At the 2003 annual stockholders meeting, the
stockholders failed to approve a proposed 2003 Stock Option Plan, which provided
for automatic awards to the non-employee directors, as of the day of each Board
meeting, of an option to purchase 2,500 shares of Common Stock for each regular
meeting attended, and an option to purchase 1,250 shares of Common Stock for
each special meeting attended, subject to a maximum of options to purchase
15,000 shares awarded in any calendar year
In February 2004, the Board approved the issuance of unregistered shares of
common stock to current and former outside directors, to replace the automatic
awards of stock options which were not granted to the non-employee directors
between August 2002 and May 8, 2003 as a result of the termination of the 1998
Plan and the failure of the stockholders to approve the 2003 Stock Option Plan
at the 2003 annual meeting. Messrs. DiPrete and Haslinger each received 5,040
shares and Mr. Levin received 4,200 shares. The stock was issued in March 2004.
The Board of Directors has proposed the adoption of a new stock option plan
by the stockholders at the Annual Meeting which provides for the automatic grant
of options to purchase 2,500 shares of Common Stock for each regular meeting
attended, and an option to purchase 1,250 shares of Common Stock for each
special meeting attended, subject to a maximum of options to purchase 15,000 in
any year. This Plan also provides for the automatic grant to the non-employee
Directors to replace the automatic awards of stock options which were not
granted to the non-employee directors after May 10, 2003 as a result of the
termination of the 1998 Plan and the failure of the stockholders to approve the
2003 Stock Option Plan at the 2003 annual meeting. See Proposal 2 below. If
the 2004 Stock Option Plan is not approved by the stockholders, it is not known
if the Board will decide to provide any compensation to the non-employee
directors for meetings attended in addition to the cash compensation described
above, although the Board may provide such additional compensation as it deems
advisable, without stockholder approval, which compensation may include stock
options, restricted stock or additional cash compensation in such amounts as the
Board shall determine to be advisable.
Directors who are employees of the Company do not receive additional
compensation for serving as directors.
See "Compensation Committee Interlocks and Insider Participation" and
"Certain Relationships and Related Transactions" for additional compensation to
directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table presents the total compensation paid to the Chief
Executive Officer during 2001, 2002 and 2003. There were no other executive
officers of the Company who were serving at the end of 2003 and whose total
annual salary and bonus, if any, exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Securities
Annual Compensation Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options(#)(1) Compensation ($)
------------------------------------- ------------------- ------------ ------------ -------- -------------------
CURRENT MANAGEMENT
Terry J. Logan. . . . . . . . . . . . 2003 $ 122,000 $ 300 -0- $ 1,584(2)
President and Chief Executive Officer 2002 $ 120,000 $ 250 -0- $ 1,488(2)
2001 $ 120,000 $ 300 20,000 $ 1,782
----------------------------------------------------------------------------------------------------------------------
FORMER MANAGEMENT
J. Patrick Nicholson(3) . . . . . . . . 2003 $ -0- $ -0- -0- $ 125,467(4)
2002 $ 76,563(3) $ 250 -0- $ 72,289(3)
2001 $ 131,250 $ 14,300 -0- $ 27,146
(1.) The numbers shown represent the number of shares of Common Stock for which
options were granted to the Named Executive Officers in 2001, 2002 and 2003.
(2.) Dr. Logan received term life insurance premium payment benefits for a
$250,000 term policy with his spouse named as beneficiary.
(3.) Mr. Nicholson retired as Chief Executive Officer effective May 2002, and
received salary through July 2002, per his employment agreement. After this time
and including up to August 28, 2003, Mr. Nicholson received compensation from
the Company in his capacity as a consultant to the Company under and pursuant to
the terms of a consulting agreement entered into by and between Mr. Nicholson
and the Company in 1999.
(4.) Mr. Nicholson presently receives compensation from the Company in his
capacity as a consultant to the Company under and pursuant to the terms of a
consulting agreement entered into by and between Mr. Nicholson and the Company
on August 28, 2003.
OPTION GRANTS IN LAST FISCAL YEAR
No option grants were made by the Company in fiscal year 2003 to Named
Executive Officers of the Company.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Value of Value of
Number of Number of Unexercised Unexercised
Unexercised Unexercised In-The-Money In-The-Money
Options at Options at Options at Options at
Shares Acquired Value Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Name On Exercise Realized ($) End(1): End(1): End ($)(2): End ($)(2):
Exercisable Unexercisable Exercisable Unexercisable
--------------- --------------- ------------ -------------
CURRENT MANAGEMENT
Terry J. Logan . . . -0- $ -0- 89,900 10,500 $ 264,225 $ 29,250
FORMER MANAGEMENT
J. Patrick Nicholson -0- $ -0- 65,000 2,500 $ 191,750 $ 3,250
(1.) All options granted prior to November 1995 have been adjusted to reflect a
one-for-four reverse stock split effective October 31, 1995.
(2.) Options are "in-the-money" only if the closing market price of the Common
Stock on December 31, 2003 exceeded the exercise price of the options. There
were 140,300 options "in-the-money" that were held by Named Executive Officers
of the Company on December 31, 2003 based upon the $3.25 per share closing price
for the stock on that date.
EMPLOYMENT AGREEMENTS
On June 14, 1999, Dr. Logan entered into an employment agreement with the
Company at a minimum annual salary of $144,000. Such agreement is for a
five-year term, provided, however, that it is subject to review and termination
for breach annually. Such agreement also provides that Dr. Logan shall be
entitled to (i) bonuses to be payable at the discretion of the Board of
Directors, (ii) other benefits, including insurance and pension plan, as are
provided to other executive officers of the Company, and (iii) stock options to
purchase 50,000 shares of the Company's Common Stock. Effective July 1, 1999,
Dr. Logan voluntarily agreed to reduce his minimum annual salary to $120,000 for
the years ended December 31, 2001, 2002 and in the first month of 2003. In
February, 2003, Dr. Logan further reduced his salary by 10% to a rate of
$108,000, and in July 2003, Dr. Logan resumed his salary level per the
employment agreement of $144,000.
On August 28, 2003, J. Patrick Nicholson and the Company entered into a new
consulting agreement, a copy of which was filed with the Securities Exchange
Commission on August 29, 2003 as an exhibit to a Form 8-K. Under the terms of
Mr. Nicholson's new consulting agreement he will provide consulting services to
the Company for a period of five years, subject to renewal at the Company's
discretion for up to three additional one year terms. In exchange for such
consulting services, Mr. Nicholson will be paid at a rate of $125.00 per hour,
with a minimum commitment on the part of the Company to use at least 16 hours
per month of consulting services. Mr. Nicholson also is eligible to receive a
bonus during each year of the term of his consultancy in an amount equal to five
percent of the net income of the Company, subject to a maximum payment during
each year of $30,000.00. Additionally, Mr. Nicholson is entitled to receive
commissions in exchange for obtaining government research grants, license fees
and other income opportunities. Additional benefits to Mr. Nicholson include
the Company's payment of up to $500.00 per month for office expenses and
secretarial support. The Company also has agreed to provide Mr. Nicholson and
his spouse with medical insurance to supplement their coverage under the federal
government's Medicare program, with coverage for Mr. Nicholson's spouse to begin
on her 65th birthday. The obligation to provide medical insurance continues for
a period of 10 years from August 28, 2003. Mr. Nicholson also receives from the
Company reimbursement for life insurance policy premiums up to a maximum of
$10,000.00 per year for a period of 10 years from August 28, 2003. Finally, the
Company has agreed to pay Mr. Nicholson $48,000.00 per year for the next 10
years, from August 28, 2003, in exchange for a covenant not to compete with the
Company. From February 2003 until the start of his new consulting contract in
August 2003, Mr. Nicholson voluntarily reduced his consulting rate by 10%.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During most of the 2003 fiscal year, the members of the Compensation
Committee consisted of Mr. Bobby Carroll, Mr. Haslinger and Mr. B.K. Wesley
Copeland. Mr. Copeland and Mr. Carroll both retired from the Board in November,
2003, and were replaced by Mr. Burns and Mr. Levin on the Committee. Mr.
Haslinger is a member of N-Viro Filipino, a licensee of the Company for the
territory of the Philippine Islands, but has not received any fees or revenue
from the Company. Mr. Copeland is an agent of the Company for the territory of
all of Africa except North Africa, but has not received any fees or revenue from
the Company. Mr. Carroll, a former consultant and sales representative to the
Company, received no fees from the Company in 2003.
The information contained in the following sections entitled "Compensation
Committee Report," "Performance Graph" and "Audit Committee Report" do not
constitute soliciting material and should not deemed filed or incorporated by
reference into any other Company filing under the Securities Act of 1933, or
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates these reports or performance graph by reference therein.
COMPENSATION COMMITTEE REPORT
The following report was prepared by Daniel J. Haslinger, Brian Burns and
Phillip Levin, as members of the Company's Compensation Committee.
The compensation of the Company's executive officers is determined by the
Compensation Committee of the Board of Directors.
The Committee's compensation philosophy is to provide competitive forms and
levels of compensation compared to industrial companies of similar size and
business area. This philosophy is intended to assist the Company in attracting,
retaining and motivating executives with superior leadership and management
abilities. Consistent with this philosophy, the Committee determines a total
compensation structure for each officer, consisting primarily of salary, bonus
and stock options. The proportions of the various elements of compensation vary
among the officers depending upon their levels of responsibility.
The Committee establishes salary recommendations to the Board of Directors
at a level intended to be competitive with the average salaries of executive
officers in comparable companies with adjustments made to reflect the financial
health of the Company. Bonuses are intended to provide executives with an
opportunity to receive additional cash compensation, but only if they earn it
through Company and individual performance.
Long-term incentives are provided through stock options granted under the
Company's Stock Option Plan. The stock options represent an additional vehicle
for aligning management's and stockholders' interest, specifically motivating
executives to remain focused on the market value of the Common Stock in addition
to earnings per share and return on equity goals.
The Committee, subject to any employment agreements in effect with its
executive officers, reviews and recommends to the Board of Directors for
approval the salaries, bonuses and long-term incentives of the Company's
officers, including its most highly compensated executive officers. In
addition, the Committee recommends to the Board of Directors the granting of
stock options under the Company's Stock Option Plan to executive officers and
other selected employees, directors and to consultants, and otherwise
administers the Company's Stock Option Plan.
With respect to Chief Executive Officer compensation, Dr. Logan's base
salary is determined by his employment agreement with the Company dated June 14,
1999 which entitles him to a minimum annual base salary of $144,000. See
"Employment Agreements." Dr. Logan is scheduled to be paid an annual minimum
base salary of $144,000 through June 30, 2004, when his current employment
contract expires. Dr. Logan accepted a reduced base salary of $120,000 per year
from his starting date in June, 1999 through January, 2003. In February, 2003,
he further reduced his salary by 10% to a rate of $108,000, and in July 2003,
Dr. Logan resumed his salary level per the employment agreement of $144,000.
The Committee is also responsible for recommending to the Board of
Directors bonus amounts, if any, payable to Dr. Logan, the Chief Executive
Officer. Any bonuses payable will be determined by the Committee, based on the
same elements and factors relating to the other Executive Officers of the
Company.
The Committee has not formulated any policy regarding qualifying
compensation paid to the Company's Executive Officers for deductibility under
the limits of Section 162(m) of the Internal Revenue Code of 1986, as amended,
because the Committee does not anticipate that any executive officers would
receive compensation in excess of such limits in the foreseeable future.
Daniel J. Haslinger
Brian P. Burns
Phillip Levin
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change and
the cumulative total stockholder return on the Company's shares against the
cumulative total return of the NASDAQ Stock Market (U.S. Companies) Index, the
Russell 2000 Index and an index comprised of Peer Group companies. The Peer
Group consists of companies considered to be either competitors or similar to
the Company. We added the Russell 2000 index as an additional comparison
because the Company was delisted from the Nasdaq market in May 2002 and now
trades on the Over-The-Counter Market. Upon written request to the
Secretary/Treasurer, N-Viro International Corporation, 3450 West Central Avenue,
Suite 328, Toledo, Ohio 43606, the Company shall provide stockholders with the
names of the component issuers. The data is for the period beginning December
31, 1998, and ending December 31, 2003. The calculation assumes that $100 was
invested at the close of business on December 31, 1998 and all dividends are
assumed to be reinvested. Total return is based on historical results and is
not intended to indicate future performance.
[GRAPHIC OMITED]
12/31/98 12/31/99 12/29/00 12/31/01 12/31/02 12/31/03
NASDAQ Index 100.0 185.4 111.8 88.7 61.3 91.7
Russell 2000 100.0 119.6 114.6 115.8 90.8 132.0
Company. . . 100.0 120.4 118.2 66.1 112.7 236.3
Peer Group . 100.0 89.2 102.8 126.0 138.6 192.7
AUDIT COMMITTEE REPORT
The following report was prepared Phillip Levin, Daniel J. Haslinger and
Christopher J. Anderson, as members of the Company's Audit Committee.
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. We meet with management periodically to
consider the adequacy of the Company's internal controls and the objectivity of
its financial reporting. We discuss these matters with the Company's
independent auditors and with appropriate Company financial personnel and
internal auditors. We regularly meet privately with both the independent
auditors and the internal auditors, each of whom has unrestricted access to the
Committee, and recommend to the Board the appointment of the independent
auditors and review periodically their performance and independence from
management. In addition, the Committee reviews the Company's financing plans
and reports recommendations to the full Board for approval and to authorize
action.
Management has primary responsibility of the Company's financial statements
and the overall reporting process, including the Company's system of internal
controls. The independent auditors audit the annual financial statements
prepared by management, express an opinion as to whether those financial
statements fairly present the financial position, results of operations and cash
flows of the Company in conformity with generally accepted accounting principles
and discuss with us any issues they believe should be raised with us.
This year, we reviewed the Company's audited financial statements and met
with both management and Follmer Rudzewicz PLC, the Company's independent
auditors, to discuss those financial statements. Management has represented to
us that the financial statements were prepared in accordance with generally
accepted accounting principles.
We have received from and discussed with Follmer Rudzewicz PLC, the written
disclosure and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees). These items related to that
firm's independence from the Company. We also discussed with Follmer Rudzewicz
PLC, any matters required to be discussed by Statement on Auditing Standards No.
61 (Communication with Audit Committees).
Based on these reviews and discussions, we recommended to the Board that
the Company's audited financial statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2003.
Phillip Levin
R. Francis DiPrete
Christopher J. Anderson
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
J. Patrick Nicholson, a consultant to the Company, received fees of
$109,250 in 2003 for consulting services pursuant to the terms of two Consulting
Agreements in force during 2003, one dated December 2, 1999 and the current
agreement dated August 28, 2003. Mr. Nicholson also received benefits of
approximately $11,500 in 2003, including life insurance and medical benefit
payments, pursuant to the terms of the aforementioned Consulting Agreements. In
addition, expenses totaling $7,606 were offset against the receivable due from
N-Viro Energy Systems, Inc., a corporation of which Mr. Nicholson is the
controlling stockholder, decreasing the balance owed the Company to
approximately $17,000 (the "Loans"). Fees for attending board meetings as a
member of the Company's Board of Directors through August 2003 totalled $1,500.
Also, loan fees and the cost of warrants paid in 2003 pursuant to the agreement
to provide additional collateral to secure the Company's bank financing amounted
to $2,176.
Michael Nicholson, the Chief Operating Officer and Director of the Company,
was paid $88,343 and $90,430 in salary, bonuses and additional benefits, for
2003 and 2002, respectively. Mr. Nicholson is the son of J. Patrick Nicholson,
former Chairman and former Chief Executive Officer of the Company.
In February 2003 the Company closed on an $845,000 credit facility with
Monroe Bank + Trust (the "Bank"). This senior debt credit facility was
comprised of a $295,000 four year term note at 7.5% and a line of credit up to
$550,000 at Prime plus 1.5% and secured by a first lien on all assets of the
Company. The Company used the funds to refinance its prior debt and to provide
working capital. Previously, the Company had a $750,000 line of credit with
another financial institution, secured by a $400,000 restricted Certificate of
Deposit, required and held by this financial institution. Effectively, the
former line of credit provided only $350,000 of additional working capital. The
effective increase in the line provided the Company with additional working
capital, and the debt refinance provided lower cost and longer term debt,
improving cash flow. To secure the credit facility, the Company was required by
the Bank to obtain additional collateral of $100,000 (the "Additional
Collateral") from a real estate mortgage from a third party. Messrs. J. Patrick
Nicholson, the former Chairman of the Board and Consultant to the Company;
Michael G. Nicholson, the Company's Chief Operating Officer and a Director;
Robert F. Nicholson, a Company employee, and Timothy J. Nicholson, a Company
employee, ("the Nicholsons") collectively provided the $100,000 Additional
Collateral. In exchange for their commitment, the Company agreed to provide the
Nicholsons the following: (1) an annual fee in an amount equal to $2,000 per
annum; (2) interest at an annual rate of 5% of the $100,000 value of the
Additional Collateral beginning on the first anniversary date of the closing of
the credit facility, and (3) a warrant to acquire in the aggregate, 50,000
shares of the Company's voting common stock at a purchase price of $0.90 per
share, which was the closing market price of the Company's common stock on the
prior business day to the closing of the Credit Facility. The warrant was
exercisable, in whole or in part, at any time and from time to time until
February, 2006. In addition, the Company granted to the Nicholsons a lien upon
the Company's inventory and accounts receivable. This lien is subordinated to
both existing liens on the Company's assets and all liens granted by the Company
in favor of the financial institution providing the Credit Facility. In
February, 2004, the Nicholsons exercised the warrant and acquired 50,000 of the
Company's common stock at a purchase price of $0.90 per share.
As previously reported in a Form 8-K filed by the Company with the
Securities Exchange Commission on August 29, 2003, on June 11, 2003, Strategic
Asset Management, Inc. ("SAMI") filed suit in the Delaware Chancery Court
against the Company and its Board of Directors (other than director R. Francis
DiPrete, who is a former officer and a former member of the Board of Directors
of SAMI, resigning from both in December 2003). The action filed by SAMI was a
stockholder's derivative suit seeking, among other things, to enjoin the Company
from modifying the terms of J. Patrick Nicholson's then existing consulting
agreement with the Company and further seeking Mr. Nicholson's termination. So
as to provide time to resolve the matters raised in the lawsuit voluntarily and
without incurring litigation costs, the parties consented to the entry of a
preliminary injunction that provided that the Company would not enter into any
new consulting agreement with Mr. Nicholson without SAMI's consent.
At a special meeting held on July 28, 2003, the Board of Directors approved
entering into a settlement agreement (the "Settlement Agreement") with SAMI,
which the Company entered into as of August 1, 2003. A copy of this Settlement
Agreement was attached as an exhibit to the Company's Form 8-K filed with the
Securities Exchange Commission on August 29, 2003. The Settlement Agreement
provides that, by a set date, either Mr. Nicholson, the Company and SAMI shall
participate in a specially tailored arbitration proceeding to set the terms of
Mr. Nicholson's compensation as a consultant to the Company or, if Mr. Nicholson
would not agree to participate in the arbitration, that the Company would
terminate Mr. Nicholson's previous consulting agreement for cause.
The Settlement Agreement also requires the Company to reimburse SAMI for up
to $100,000.00 in legal, accounting and consulting fees incurred by SAMI in
connection with the lawsuit. The settlement further obligates the Company to
issue SAMI a warrant to acquire up to 75,000 shares of the Common Stock of the
Company at a purchase price per share of $.72. This price was determined based
upon the closing trading price for the Company's Common Stock on the date that
the parties reached oral agreement on the settlement terms. Mr. Nicholson is
required to repay the Loans pursuant to the terms of the Settlement Agreement.
The Settlement Agreement terms are subject to the Chancery Court's approval,
which approval will not be obtained until after notice has been sent to all
stockholders of the Company of their opportunity to raise objections to the
settlement at a hearing to be held for such purpose. A draft of the notice to
stockholders in connection with the settlement was filed with the Delaware
Chancery Court on October 3, 2003. It will be distributed to stockholders after
approval.
Following the execution of the Settlement Agreement but prior to the
initiation of the arbitration proceeding contemplated therein, the Company, SAMI
and Mr. Nicholson agreed to determine the new terms of Mr. Nicholson's
consultancy by agreement rather than arbitration. Mr. Nicholson executed a new
consulting agreement with the Company on August 28, 2003. As previously noted
in this proxy, a copy of this new consulting agreement was filed as an Exhibit
to the Form 8-K filed by the Company with the Securities Exchange Commission on
August 29, 2003.
INDEPENDENT AUDITORS
APPOINTMENT OF FOLLMER RUDZEWICZ PLC
The firm of Follmer Rudzewicz PLC served as independent auditors of the
Company for the year ended December 31, 2003 and has been selected by the
Company to serve as its independent auditors for the year ending December 31,
2004. Follmer Rudzewicz PLC was approved as the Company's independent auditors
by the Board of Directors on January 23, 2004, succeeding Hausser + Taylor, LLP
who served as the independent auditors of the Company since September 21, 1999.
Follmer Rudzewicz PLC is part of the Centerprise Association of CPA firms,
located nationally with approximately 20 offices and over 1,200 employees.
Under a separate practices agreement, Follmer Rudzewicz PLC provides audit and
other attest services, including audits, forecasts and projections, fraud
investigation, collateral audits and audits of qualified plans.
AUDIT FEES
Audit services of the Company's predecessor auditor, Hausser + Taylor, LLP
for the year ended December 31, 2002 included the audit of the financial
statements of the Company for 2002, and services related to quarterly filings
with the Securities and Exchange Commission through the reporting period ended
September 30, 2003. Fees for these services totaled approximately $70,400 and
$25,400, respectively, for the year ended December 31, 2002 and the interim
quarters ended September 30, 2003, respectively.
Audit services of the Company's current auditor, Follmer Rudzewicz PLC for
the year ended December 31, 2003 included the audit of the financial statements
of the Company for 2003. Fees for these services totaled approximately $45,000
for the year ended December 31, 2003.
AUDIT RELATED FEES
There were no fees billed for the year ended December 31, 2002 and through
the reporting period September 30, 2003, for assurance and related services by
Hausser + Taylor, LLP, that are reasonably related to the performance of the
audit or review of the Company's financial statements.
There were no fees billed for the year ended December 31, 2003 for
assurance and related services by Follmer Rudzewicz PLC, that are reasonably
related to the performance of the audit or review of the Company's financial
statements.
TAX FEES
There were no fees billed for the year ended December 31, 2002 and through
the reporting period September 30, 2003, for professional services rendered by
Hausser + Taylor, LLP, for tax compliance, tax advice, and tax planning.
There were no fees billed for the year ended December 31, 2003 for
professional services rendered by Follmer Rudzewicz PLC, for tax compliance, tax
advice, and tax planning.
ALL OTHER FEES
Hausser + Taylor, LLP provided consultation and assistance on accounting
related matters for the year ended December 31, 2002 and through the reporting
period September 30, 2003. Fees for these services totaled approximately $5,700
for the year ended December 31, 2002, and $8,900 through the reporting period
September 30, 2003, respectively.
Follmer Rudzewicz PLC did not provide any consultation or assistance on
accounting related matters for the year ended December 31, 2003
Although the Audit Committee Charter does not explicitly require it, the
Committee approves all engagements of outside auditors before any work is begun
on the engagement.
PROPOSAL2 - APPROVAL OF THE N-VIRO INTERNATIONAL CORPORATION
2004 STOCK OPTION PLAN
The Board of Directors adopted the N-Viro International Corporation 2004
Stock Option Plan (the "2004 Plan") on February 12, 2004, subject to stockholder
approval, and the 2004 Plan will become effective when stockholder approval is
obtained. The material terms of the 2004 Plan are summarized below and are
qualified in their entirety by the terms of the 2004 Plan, which is attached as
Appendix B to this Proxy Statement.
GENERAL
The Board of Directors has recently adopted the 2004 Plan to provide for
the grant of stock options to key employees, officers, consultants and
non-employee directors of the Company and its subsidiaries. The Company
currently has no plan in effect which provides for the grant of stock options or
restricted stock to any of such persons. The Company's most recent plan, the
1998 Amended and Restated Stock Option Plan (the "1998 Plan"), terminated
according to its terms on May 10, 2003, so no further grants may be made under
that plan. The termination of the 1998 Plan did not affect awards previously
granted under the 1998 Plan, and previously granted awards will continue to be
governed by the terms of the 1998 Plan.
The 2004 Plan provides for the grant of awards with respect to a maximum of
1,000,000 shares of Common Stock. The purposes of stockholder approval of the
2004 Plan are:
- to permit the stock options granted under the 2004 Plan to qualify for
incentive stock option treatment under Section 422 of the Internal Revenue Code
1986, as amended (the "Code"); and
- to satisfy the performance-based compensation exception to the $1 million
limit under Section 162(m) of the Code.
If the 2004 Plan is approved by the stockholders at the Annual Meeting,
each Non-Employee Director who was a member of the Board of Directors at any
time after May 8, 2003 will be granted, on the date the Plan is approved by the
Company's stockholders, a nonqualified stock option to purchase 2,500 shares of
Common Stock for each regular Board meeting and 1,250 shares of Common Stock for
each special Board meeting held since May 8, 2003 through and including the last
Board meeting on April 16, 2004. The non-employee Directors and the number of
shares of Common Stock subject to such options are set forth in the chart below:
Name Number of Shares underlying Options
---------------------- -----------------------------------
Christopher Anderson . 11,250
Brian Burns. . . . . . 15,000
Bobby B. Carroll * . . 8,750
B.K. Wesley Copeland * 11,250
R. Francis DiPrete . . 22,500
Daniel J. Haslinger. . 21,250
Phillip Levin. . . . . 22,500
J. Patrick Nicholson * 5,000
-----------------
Total. . . . . . . . . 117,500
=================
* resigned from Board in 2003.
Each such option will have an exercise price equal to the fair market value of
the Company's Common Stock on May 12, 2004 or such later date as this plan is
approved by the Company's stockholders. These stock options are intended to
replace the stock options that would have been automatically granted to these
Non-Employee Directors under the terms of the Company's proposed 2003 Stock
Option Plan presented at the 2003 Annual Stockholders Meeting, and each such
grant is expressly conditioned on the Non-Employee Director's waiver of any
claim to receive stock options under Section 3.3 of the Company's 1998 Amended
and Restated Stock Option Plan for attending Board meetings held after May 8,
2003. Each such option will vest six (6) months after the date of grant and
will expire on the tenth anniversary of grant (if not exercised or terminated at
any earlier date).
Additionally, the Company will grant 50,000 options to Michael Nicholson
under the terms of his Employment Agreement dated June 6, 2003, as filed as an
Exhibit to the Form 8-K filed with the Securities and Exchange Commission on
June 10, 2003. Because these options will not be granted until and unless the
2004 Plan is approved on May 12, 2004, but will be priced as of June 6, 2003 if
granted, the Company may be required to take a charge to earnings estimated to
be approximately $100,000, based on current market price and historical pricing
methods. At this time, it is not known if any other employees will receive
grants under the 2004 Plan or the number of shares that will be covered by any
such grants. Such determinations will be made from time to time by the
administrator.
PURPOSE OF THE 2004 PLAN
The purpose of the 2004 Plan is to attract and retain qualified officers,
other key employees and non-employee directors, and to provide an incentive for
such officers, key employers and directors of the Company to expand and improve
the profits and prosperity of the Company.
ADMINISTRATION AND DURATION OF THE 2004 PLAN
The 2004 Plan is administered by the Board of Directors, unless the Board
delegates its authority to a committee appointed by the Board, provided that all
grants to persons who qualify as "named executive officers" under Regulation S-K
of the Securities and Exchange Commission, may only be delegated to a committee
that is comprised only of directors who qualify as "non-employee directors"
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, and
as "outside directors" within the meaning of the Internal Revenue Code Section
162(m) and the regulations promulgated under such section. The administrator of
the 2004 Plan is authorized, subject to the provisions of the 2004 Plan, to
establish such rules and regulations as it may deem appropriate for the proper
administration of the 2004 Plan, and to make such determinations under, and such
interpretations of, and to take such steps in connection with, the 2004 Plan and
plan awards as it may deem necessary or advisable. The 2004 Plan will have a
duration of 10 years from the date the 2004 Plan becomes effective.
Accordingly, the 2004 Plan will terminate on May 12, 2014, unless sooner
terminated by the Board. Upon such termination, the outstanding awards granted
under the 2004 Plan will remain in effect until their exercise, expiration, or
termination. The Board may at any time terminate the 2004 Plan, or amend the
2004 Plan as it deems advisable. Stockholder approval will be required for any
amendment for which stockholder approval is required under Section 422 of the
Code or the rules of an stock exchange on which the Company's common stock is
listed.
TYPES OF AWARDS
The 2004 Plan provides for certain automatic grants to non-employee
directors of options to purchase shares of Common Stock of the Company (as
described under "General" above and under "Automatic Option Awards for
-
Non-Employee Directors" below), and authorizes the administrator to grant awards
of stock options to other eligible participants. The participants to whom
option awards are granted by the administrator and the terms of the awards
granted, including the number of shares of Common Stock subject to such option
awards, are within the discretion of the administrator, subject to the terms and
conditions set forth in the 2004 Plan.
Discretionary Awards. Stock option awards under the 2004 Plan may be in the
form of "incentive stock options," which are options that meet the requirements
of Section 422 of the Code, or "nonqualified stock options," which are options
that do not meet such requirements. Except for incentive stock options granted
to stockholders owning more than 10% of the voting power of all classes of the
Company's capital stock, the per share exercise price of an incentive stock
option granted or to be granted pursuant to the 2004 Plan, as determined by the
administrator, will be an amount not less than 100% of the fair market value of
a share of Common Stock on the date that the option is granted. For purposes of
the 2004 Plan, if the Common Stock is publicly traded, the "fair market value"
of a share of common stock is determined by reference to the closing price or to
the mean between the closing dealer bid and asked prices for the Common Stock,
as reported on any stock exchange on which the common stock is then traded, on
the preceding business day on which such prices were quoted. For periods in
which no trades or quotations have been reported for at least five (5) business
days, the fair market value may be determined by reference to an average of the
closing or trading prices reported during the prior month or in such other
manner as the Board or committee may deem to be an appropriate method of
estimating the current market value. As to nonqualified stock options granted
under the 2004 Plan, the per share exercise price of such options will also be
at least 100% of the fair market value of a share of Common Stock on the date of
grant.
The term of each option awarded by the administrator will be determined by
the administrator, but in no event in excess of 10 years from the date of its
grant. Payment of the exercise price may be made in cash or by check, or, if
approved by the administrator, by delivery of shares of Common Stock owned by
the participant for at least six months which are equivalent in fair market
value to the exercise price, or by a combination of cash and shares of Common
Stock, at the election of the optionee and subject to the terms of the
applicable stock option agreement. Subject to the terms of each stock option
agreement, options granted under the 2004 Plan may be exercised in whole or in
part. Upon exercise of an option, the participant must pay in full the exercise
price for the shares of Common Stock being purchased.
Automatic Option Awards for Non-Employee Directors. After the Annual
Meeting, each non-employee Director who attends a regular meeting of the Board
will automatically be granted a nonqualified stock option to purchase 2,500
shares of Common Stock of the Company, effective as of the date of the Board
meeting. Also, each non-employee director who attends a special meeting of the
Board will automatically be granted a non-qualified stock option to purchase
1,250 shares of Common Stock of the Company effective as of the date of the
Board meeting, provided that the options granted to a non-employee director
during a single calendar are to be limited to options to purchase a maximum of
15,000 shares. The exercise price for each option will be equal to the fair
market value of the Common Stock on the meeting date, or if the meeting is not
held on a business day, the preceding business day. Each option will become
exercisable six (6) months after the date of grant, and will have a 10-year
term.
SHARES SUBJECT TO AWARDS
Subject to adjustment as provided in the 2004 Plan, the number of shares of
Common Stock that may be issued by outstanding awards granted under the 2004
Plan will not in the aggregate exceed 1,000,000, which may be original issue
shares, treasury shares, or a combination thereof. To the extent that awards
granted under the 2004 Plan expire or terminate without having been exercised in
full, the Common Stock subject to those expired or terminated awards will become
available for further award grants under the 2004 Plan. Provision is made under
the 2004 Plan for appropriate adjustment in the number of shares of Common Stock
covered by the 2004 Plan, and covered by each award granted thereunder and any
related exercise or purchase price, in the event of any change in the Common
Stock by reason of a stock dividend, merger, reorganization, stock split,
recapitalization, combination, exchange of shares or otherwise.
ELIGIBILITY AND EXTENT OF PARTICIPATION
In addition to the non-employee directors of the Company, all employees of
the Company and its subsidiaries who are designated by the administrator for
participation in the 2004 Plan are eligible to receive awards under the 2004
Plan. As of the date hereof, there were approximately 16 individuals employed
by the Company and its subsidiaries who are eligible to participate in the 2004
Plan. However, no incentive stock option will be granted to any employee who,
immediately after such option is granted, owns capital stock of the Company
possessing more than 10% of the total combined voting power or value of all
classes of capital stock of the Company unless the exercise price at the time
such incentive stock option is granted is at least 110% of the fair market value
of the shares subject to the incentive stock option and such incentive stock
option is not exercisable by its terms after the expiration of five years from
the date of its grant. The administrator may also, in the exercise of its
discretion, grant awards under the 2004 Plan to consultants who are not
employees, except that incentive stock options may not be granted to such
non-employees. An incentive stock option will be granted under the 2004 Plan to
an employee only if the aggregate fair market value (determined as of the date
the option is granted) of the common stock for which options are exercisable for
the first time by such employee during any calendar year does not exceed
$100,000. Options granted to all participants during a single calendar year
shall be limited under the 2004 Plan so that such options shall in no event
cover more than a maximum of 200,000 shares of Common Stock.
LIMITATIONS ON TRANSFERABILITY AND EFFECT OF DEATH OR TERMINATION OF EMPLOYMENT
Except as otherwise provided by the administrator, awards granted under the 2004
Plan are generally not transferable other than by will or by the laws of descent
and distribution. If a participant's employment (or other relationship, in the
case of a consultant or Director) with the Corporation is involuntarily
terminated, or is terminated by the participant without the Corporation's
express consent, for any reason other than retirement, disability or death, his
or her unvested options will terminate upon the date of the termination of
employment, unless the administrator decides, in its sole discretion, to waive
this termination and causes the participant's option agreement to provide for an
extended exercise period after such termination. The administrator will
determine, either in an award agreement or otherwise, the extent to which vested
options may be exercised subsequent to the death of the employee or the
termination of the employee's employment. However, any incentive stock options
granted under the 2004 Plan must terminate not later than ninety days after the
participant's termination of employment for any reason other than disability or
death, and it must terminate not later than twelve months after the
participant's termination of employment as a result of death or disability.
FEDERAL INCOME TAX CONSIDERATIONS
Incentive Stock Options. Under current federal tax law, the holder of an
option that qualifies as an incentive stock option under Section 422 of the Code
generally does not recognize income for federal income tax purposes at the time
of the grant or exercise of an incentive stock option (but the spread between
the exercise price and the fair market value of the underlying shares on the
date of exercise generally will constitute a tax preference item for purposes of
the alternative minimum tax). The optionee generally will be entitled to
long-term capital gain treatment upon the sale of shares acquired pursuant to
the exercise of an incentive stock option if the shares have been held for more
than two years from the date of grant of the option and for more than one year
after exercise, and the Company will not be entitled to any deduction for
federal income tax purposes. If the optionee disposes of the stock before the
expiration of either of these holding periods (a "disqualifying disposition"),
the gain realized on disposition will be compensation income to the optionee to
the extent the fair market value of the underlying stock on the date of exercise
(or, if less, the amount realized on disposition of the underlying stock)
exceeds the applicable exercise price and a corresponding deduction will be
allowed to the Company.
Nonqualified Stock Options. Under current federal tax law, an optionee
does not recognize income for federal income tax purposes upon the grant of a
nonqualified stock option but must recognize ordinary income upon exercise to
the extent of the excess of the fair market value of the underlying shares on
the date of exercise over the exercise price of the option. The Company
generally will be entitled to a deduction in the same amount and at the same
time as ordinary income is recognized by the optionee. A subsequent disposition
of the shares acquired pursuant to the exercise of a nonqualified option
typically will give rise to capital gain or loss to the extent the amount
realized for the sale differs from the fair market value of the shares on the
date of exercise. This capital gain or loss will be long-term gain or loss if
the shares sold had been held for more than one year after the date of exercise.
Compliance with Section 162(m). The 2004 Plan should allow certain stock
option awards to be treated as qualified performance-based compensation under
Section 162(m) of the Code. However, the administrator may, from time to time,
award compensation that is not deductible under Section 162(m).
The approval of the 2004 Plan requires the affirmative vote of the holders
of a majority of the shares of the Common Stock present or represented by proxy
at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE N-VIRO INTERNATIONAL
CORPORATION 2004 STOCK OPTION PLAN, AND URGES EACH STOCKHOLDER TO VOTE "FOR"
APPROVAL OF THE 2004 PLAN.
PROPOSAL 3 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Follmer Rudzewicz PLC served as independent auditors of the
Company for the year ended December 31, 2003 and has been selected by the
Company to serve as its independent auditors for the year ending December 31,
2004. Although the submission of this matter for approval by the stockholders
is not legally required, the Board believes that such submission follows sound
business practice and is in the best interests of the stockholders. If the
appointment is not ratified by the holders of a majority of the shares present
in person or by proxy at the Annual Meeting, the Directors will consider the
selection of another accounting firm. If such a selection were made, it may not
become effective until 2005 because of the difficulty and expense of making such
a substitution. A representative of Follmer Rudzewicz PLC is expected to attend
the Annual Meeting and will be available to respond to appropriate questions.
That representative will have the opportunity to make a statement if he or she
desires to do so.
On January 23, 2004, the Company dismissed Hausser + Taylor LLC as its
independent auditors, and engaged the services of Follmer Rudzewicz PLC as its
new independent auditors. This change followed the Company's decision to seek
proposals from independent accountants to audit its financial statements, and
was approved by the Company's Board of Directors upon the recommendation of its
Audit Committee.
During the two fiscal years ended December 31, 2002 and 2001, and the
subsequent interim period ended January 23, 2004, there were no disagreements
between the Company and Hausser + Taylor LLC on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to Hausser + Taylor's
satisfaction, would have caused Hausser + Taylor to make reference to the
subject matter of the disagreement in connection with its reports.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within the two fiscal years ended December 31, 2002 and
2001, or within the interim period ended September 30, 2003.
The audit reports of Hausser + Taylor LLC on the consolidated financial
statements of the N-Viro International Corporation as of and for the fiscal
years ended December 31, 2002 and 2001 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to audit scope or
accounting principles. The reports for each year were prepared on the assumption
of the Company continuing as a going concern, but the reports stated that
certain matters raised substantial doubt about the Company's ability to continue
as a going concern, and included statements to such effect.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF FOLLMER RUDZEWICZ PLC TO SERVE AS
THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2004.
OTHER MATTERS
The Company is not aware of any matters to be presented for action at the
Annual Meeting other than the matters set forth above. If any other matters do
properly come before the meeting or any adjournment thereof, it is intended that
the persons named in the proxy will vote in accordance with their judgment on
such matters.
STOCKHOLDERS' PROPOSALS FOR NEXT ANNUAL MEETING
The Board of Directors requests that any stockholder proposals intended for
inclusion in the Company's proxy materials for the 2005 Annual Meeting be
submitted to James K. McHugh, Chief Financial Officer, Treasurer and Corporate
Secretary of the Company, in writing no later than December 24, 2005. Unless
the Company has been given written notice by March 8, 2005 of a stockholder
proposal to be presented at the 2005 Annual Meeting, persons named in the
proxies solicited by the Board of Directors for the meeting may use their
discretionary voting authority to vote on the proposal.
BY THE ORDER OF THE BOARD OF
DIRECTORS
/s/ James K. McHugh
------------------------
James K. McHugh
Chief Financial Officer, Secretary and Treasurer
Appendix A
N-VIRO INTERNATIONAL CORPORATION
CODE OF ETHICS
The Board of Directors has determined that the Chief Executive Officer and
Chief Financial Officer of the Company hold important and elevated roles in
corporate governance. While members of the management team, they are uniquely
capable and empowered to ensure that all stakeholders' interests are
appropriately balanced, protected and preserved. This Code provides principles
to which these individuals are expected to adhere and advocate. They embody
rules regarding individual and peer responsibilities to the Company, the
Company's clients and shareholders. Violations of the Code of Ethics may
subject the officer to censure, suspension or termination.
Each of the Chief Executive Officer and Chief Financial Officer shall, at
all times:
1. Act with honesty and integrity, avoiding actual or apparent conflicts of
interest in personal and professional relationships. All material transactions
and relationships involving a potential conflict of interest between the Company
and the Chief Executive Officer or Chief Financial Officer must be approved in
advance by the Board of Directors of the Company.
2. Provide full, fair, accurate, timely, and understandable disclosure in
reports and documents that the Company files with, or submits to, the Securities
and Exchange Commission and in other public communications made by the Company.
3. Comply with applicable rules and regulations of federal, state,
provincial and local governments, and other appropriate private and public
regulatory agencies.
4. Act in good faith, responsibly, with due care, competence and diligence,
without misrepresenting material facts or allowing his independent judgment to
be subordinated.
5. Respect the confidentiality of information acquired in the course of his
work except when authorized or otherwise legally obligated to disclose.
Confidential information acquired in the course of his work shall not be used
for personal advantage.
6. Share knowledge and maintain skills important and relevant to the
Company's needs.
7. Proactively promote ethical behavior as a responsible partner among peers
in his work environment.
8. Achieve responsible use of and control over all Company assets and
resources employed or entrusted to him.
9. Report promptly known or suspected violations of this Code to the
Chairman of the Audit Committee.
Each waiver of a provision of this Code of Ethics, and each material
transaction and relationship involving a conflict of interest between the
Company and the Chief Executive Officer or Chief Financial Officer which is
approved by the Board of Directors, must be disclosed in the periodic reports
filed by the Company with the Securities and Exchange Commission, pursuant to
the rules of the Commission.
Appendix B
N-VIRO INTERNATIONAL CORPORATION
2004 STOCK OPTION PLAN
----------------------
I. PURPOSE.
-------
The purpose of this N-Viro International Corporation 2004 Stock Option
Plan is to enable N-Viro International Corporation (the "Corporation") to
attract and retain qualified officers, other key employees and non-employee
directors, and to provide an incentive for such officers, key employers and
directors of the Corporation to expand and improve the profits and prosperity of
the Corporation.
The Stock Option Plan was approved by the Board of Directors on
February 12, 2004, and is being submitted for approval by the Corporation's
stockholders at the Annual Meeting of Stockholders scheduled for May 12, 2004.
II. DEFINITIONS.
-----------
The following terms shall have the meanings shown:
2.1 "Administrator" shall mean the Board of Directors or, if the Board
of Directors has delegated its authority to administer this Plan to a committee
pursuant to Article VIII hereof, the Committee.
2.2 "Board of Directors" shall mean the Board of Directors of the
Corporation.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as the same
shall be amended from time to time.
2.4 "Committee" shall mean the Compensation Committee of the Board of
Directors, or such other Committee as the Board may appoint to administer this
Plan. Grants to Named Executive Officers shall be approved by the Committee
only if all members of the Committee are directors who qualify as "non-employee
directors" of the Corporation within the meaning of Rule 16b-3 and as "outside
directors" within the meaning of Treasury Regulation 1.162-27(e)(3).
2.5 "Common Stock" shall mean the common stock, par value $.01 per
share, of the Corporation, except as provided in Section 6.2 of the Plan.
2.6 "Consultant" shall mean any individual engaged to perform services
for the Corporation or any of its Subsidiaries on a regular and on-going basis
who is not a common law employee of the Corporation.
2.7 "Date of Grant" shall mean the date specified by the Administrator
on which a grant of Options shall become effective. The Date of Grant shall not
be earlier than the date on which the Administrator takes action with respect
thereto.
2.8 "Employee" means any person performing services for the Corporation
or any Subsidiary as a common law employee. The Administrator may, in its
discretion, treat any individual as an Employee for purposes of this Plan even
if he or she is not employed by the Corporation, as long as he or she could
properly be classified as a common law employee of the Corporation or a
Subsidiary for payroll tax purposes.
2.9 "Fair Market Value" shall mean the fair market value of a share of
Common Stock of the Corporation as determined by the Administrator. For periods
when the Common Stock is publicly traded, this shall be determined by reference
to the closing price or to the mean between the closing dealer bid and asked
prices for the Common Stock, as reported on any stock exchange on which the
Common Stock is then traded, on the preceding business day on which such prices
were quoted. For periods in which no trades or quotations have been reported
for at least five (5) business days, the Fair Market Value may be determined by
reference to an average of the closing or trading prices reported during the
prior month or in such other manner as the Administrator may deem to be an
appropriate method of estimating the current market value.
2.10 "ISOs" shall mean stock options granted by the Corporation which
are intended to qualify as incentive stock options under Section 422 of the
Code.
2.11 "Named Executive Officer" shall mean the Corporation's Chief
Executive Officer and the four highest compensated officers (other than the
Chief Executive Officer), as determined pursuant to the executive compensation
disclosure rules of Item 402 of Regulation S-K under the Securities Exchange Act
of 1934.
2.12 "Nonemployee Director" shall mean a member of the Board of
Directors who is not an employee or Consultant of the Corporation or any
Subsidiary.
2.13 "Nonstatutory Options" shall mean stock options which are not
intended to qualify as ISOs.
2.14 "Option Agreement" shall mean a written agreement between the
Corporation and a Participant who has been granted Options under this Plan.
2.15 "Option Price" shall mean, with respect to any Option, the amount
designated in a Participant's Option Agreement as the price per share he or she
will be required to pay to exercise the Option and acquire the shares subject to
such Option.
2.16 "Options" shall mean any rights to purchase shares of Common Stock
granted pursuant to Article IV of this Plan, including both ISOs and
Nonstatutory Options.
2.17 "Participant" shall mean any current or former employee,
Consultant or director of the Corporation or a Subsidiary who has been granted
Options under the terms of this Plan.
2.18 "Plan" shall mean this N-Viro International Corporation 2004 Stock
Option Plan, as the same may be amended from time to time.
2.19 "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under Section 16 of the Securities Exchange Act of 1934,
as amended from time to time.
2.20 "Subsidiary" shall mean any corporation which, on the date of
determination, qualifies as a subsidiary corporation of the Corporation under
Section 425(f) of the Code.
2.21 "Ten Percent Stockholder" shall mean any Participant who at the
time an ISO is granted owns (within the meaning of Section 425(d) of the Code)
more than ten percent of the voting power of all classes of stock of the
Corporation.
III. ELIGIBILITY.
-----------
3.1 Key Employees. The Administrator may grant Options under this Plan
-------------
to any officer or other key employee of the Corporation or of any Subsidiary.
In granting such Options and determining their form and amount, the
Administrator shall give consideration to the functions and responsibilities of
the individual, his or her potential contributions to profitability and sound
growth of the Corporation and such other factors as the Administrator may, in
its discretion, deem relevant.
The Administrator may also grant Options to Consultants. In granting
such Options and determining their form and amount, the Administrator shall
consider the extent of the individual's relationship to the Corporation, his or
her potential contributions to its financial success, the potential adverse
accounting consequences to the Corporation of stock option grants to
Consultants, and such other factors as the Administrator may, in its discretion,
deem to be relevant.
3.2 Named Executive Officers. Notwithstanding Section 3.1, no Named
--------------------------
Executive Officer shall be granted Options unless the grant has been approved in
advance by the Compensation Committee of the Board of Directors or another
Committee satisfying the requirements stated in Section 2.4.
3.3 Directors. Members of the Board of Directors who are employees or
---------
Consultants of the Corporation shall be eligible for Options under this Plan on
the same terms as other officers. Other members of the Board of Directors shall
be eligible for Options only to the extent specified in this Section 3.3, as it
may be amended from time to time by the Board of Directors.
(a) Each Non-Employee Director who attends at least one of the four
regularly scheduled meetings of the Board for each year shall automatically be
granted Nonstatutory Options to purchase 2,500 shares of Common Stock for each
such meeting attended during the year. In addition, each Non-Employee Director
who attends a special meeting (i.e., not a regularly scheduled meeting) of the
Board shall automatically be granted Nonstatutory Options to purchase 1,250
shares of Common Stock for each special meeting of the Board attended; provided
that the maximum number of shares with respect to which a Non-Employee Director
may be granted Options for attending either regular or special Board meetings
during any single calendar year shall be limited to 15,000 shares of Common
Stock. Options granted to a Non-Employee Director for attending Board meetings
shall be granted on the date of the meeting, and the Option Price for all such
Options shall be equal to the Fair Market Value of the Common Stock on that
date. These Options shall first become exercisable six (6) months after the
Date of Grant.
(b) In addition, each Non-Employee Director who was a member of the Board
of Directors at any time after May 8, 2003 shall be granted on the date this
Plan is approved by the Company's stockholders Nonstatutory Stock Options with
respect to that number of shares provided in subsection (a) above multiplied by
the number of meetings of the Board of Directors such Non-Employee Director
attended after May 8, 2003, each at an Option Price equal to the Fair Market
Value of the Company's Common Stock on May 12, 2004 or such later date as this
plan is approved by the Company's stockholders. Each such Option shall vest six
(6) months after the date of grant and shall expire on the tenth anniversary of
grant (if not exercised or terminated at any earlier date). These Nonstatutory
Stock Options are intended to replace the stock options that would have been
automatically granted to these Non-Employee Directors under the terms of the
Company's proposed Stock Option Plan presented at the 2003 Annual Stockholders
Meeting, and each such grant is expressly conditioned on the Non-Employee
Director's waiver of any claim to receive stock options under Section 3.3 of the
Company's 1998 Amended and Restated Stock Option Plan for attending Board
meetings held after May 8, 2003.
IV. OPTIONS.
-------
4.1 Terms and Conditions. The Administrator may, in its sole
----------------------
discretion, from time to time grant Options to any officer, key employee or
Consultant of the Corporation or any one of its Subsidiaries. The grant of an
Option to an eligible officer, employee or Consultant shall be evidenced by a
written Option Agreement in substantially the form approved by the
Administrator. Such Option shall be subject to the following express terms and
conditions and to such other terms and conditions, not inconsistent with the
terms of this Plan, as the Administrator (or, in the case of a Named Executive
Officer, the Compensation Committee) may deem appropriate.
(a) Shares Covered. The Administrator shall, in its discretion,
---------------
determine the number of shares of Common Stock to be covered by the Options
granted to any Participant. The maximum number of shares of Common Stock with
respect to which Options may be granted to any employee during any one calendar
year is 25,000 shares.
(b) Exercise Period. The term of each Option shall be for such
----------------
period as the Administrator shall determine, but for not more than ten years
from the Date of Grant thereof. The Administrator shall also have the
discretion to determine when each Option granted hereunder shall become
exercisable, and to prescribe any vesting schedule limiting the exercisability
of such Options as it may deem appropriate. The Administrator shall have the
discretion to prescribe such vesting schedules based on achievement of corporate
or individual performance targets as it may deem to be appropriate, in addition
to vesting schedules based upon periods of continued employment. If no other
vesting schedule is specified by the Administrator, a grant of Options shall
vest and become exercisable in five (5) equal annual installments, with
successive installments vesting, on the Date of Grant and the first four
anniversaries of the Date of Grant.
(c) Option Price. The Option Price payable for the shares of
-------------
Common Stock covered by any Option shall be determined by the Administrator but
shall in no event be less than the Fair Market Value of a share of Common Stock
on the Date of Grant (except as specifically provided in Section 3.3 above).
(d) Exercise of Options. A Participant may exercise his or her
---------------------
Options from time to time by written notice to the Corporation of his or her
intent to exercise the Options with respect to a specified number of shares.
The specified number of shares will be issued and transferred to the Participant
upon receipt by the Corporation of (i) such notice and (ii) payment in full for
such shares, and (iii) receipt of any payments required to satisfy the
Corporation's tax withholding obligations pursuant to Article V.
(e) Payment of Option Price Upon Exercise. Each Option Agreement
--------------------------------------
shall provide that the Option Price for the shares with respect to which an
Option is exercised shall be paid to the Corporation at the time of exercise.
This payment generally must be made in the form of cash. Alternatively, if the
Participant owns fewer than the lesser of either (i) 50,000 shares of the
Corporation's Common Stock, or (ii) one percent (1%) of the issued and
outstanding shares of Common Stock of the Corporation calculated as of the date
of exercise (the "Amount Held", and, for purposes of this paragraph, the
calculation of the Participant's Amount Held shall include all vested Options),
the Corporation may accept as payment of the Option Price:
(1) delivery of stock certificates for whole shares of Common Stock
already owned by the Participant for at least six months (at the time of
exercise), valued at their Fair Market Value on the business day immediately
preceding the date of exercise;
(2) delivery of a signed, irrevocable notice of exercise, accompanied
by payment in full of the Option Price by the Participant's stockbroker and an
irrevocable instruction to the Corporation to deliver the shares of Common Stock
issuable upon exercise of the Option promptly to the Participant's stockbroker
for the Participant's account;
(3) an instruction to withhold as payment of the Option Price a portion
of the shares of Common Stock issuable under the Option with a Fair Market Value
(valued as of the business day immediately preceding the date of exercise) equal
to the Option Price (provided that the amount paid in cash shall not be less
than the par value of the shares issuable upon such exercise); or
(4) any combination of the above methods equal to the total Option
Price for the shares;
provided that, the Corporation may refuse to accept any such alternative method
of payment of the Option Price to the extent it determines in good faith that
such method of exercise would violate the federal securities laws, including
Rule 16b-3, Section 402 of the Sarbanes-Oxley Act or rules regulating margin
loans.
4.2 Effect of Termination of Employment, Retirement, Disability or
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Death.
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(a) If a Participant's employment (or other relationship, in the
case of a Consultant or Director) with the Corporation is involuntarily
terminated, or is terminated by the Participant without the Corporation's
express consent, for any reason other than retirement, disability or death, his
or her unvested Options shall terminate upon the date of the termination of
employment, unless the Administrator decides, in its sole discretion, to waive
this termination and causes the Participant's Option Agreement to provide for an
extended exercise period after such termination.
(b) Any Option Agreement may include such provisions as the
Administrator deems advisable with respect to the Participant's right to
exercise his or her vested Options subsequent to termination of employment,
provided that if the Participant's Option Agreement contains no other provision
on this point, the Participant's right to exercise the vested Options shall
terminate ninety (90) days after the date of termination of the Participant's
employment. No ISO shall be exercisable at any time more than ninety (90) days
after the date of termination of employment, except as provided in Section
4.2(c) or (d).
(c) Option Agreements may provide for an extended period of
continued exercisability following the Participant's retirement or other
termination with the consent of the Corporation, or subsequent to termination of
the Participant's employment by reason of total and permanent disability (within
the meaning of Section 22(e)(3) of the Code); provided, that, in no event shall
--------
any Option be exercisable after the fixed termination date set forth in the
Participant's Option Agreement pursuant to Section 4.1(b). No ISO shall be
exercisable at any time subsequent to the expiration of the period of ninety
(90) days from the date of termination of employment, or the period of twelve
(12) months from the date of termination of the Participant's employment (or
other relationship with the Corporation) by reason of total and permanent
disability, as the case may be. A termination of employment shall be considered
retirement if the Participant has reached normal retirement age under the
Corporation's retirement plan, or as otherwise mutually agreed by the
Participant and the Administrator.
(d) Any Option Agreement may, in the Administrator's sole
discretion, provide that, in the event the Participant dies while in the employ
of the Corporation (or while serving as an active Consultant), or while he or
she has the right to exercise his or her Options under the preceding Sections
4.2(b) or (c), the Options may be exercised (to the extent it had become
exercisable prior to the time of the Participant's death), during such period of
up to one year after date of the Participant's death as the Administrator deems
to be appropriate, by the personal representative of the Participant's estate,
or by the person or persons to whom the Options shall have been transferred by
will or by the laws of descent and distribution.
(e) For purposes of this Section 4.2, a Participant's employment
with the Corporation shall be considered to terminate on the last day for which
the Participant is paid through the Corporation's payroll, unless the
Administrator expressly determines that another date should be used as the date
of termination of employment. The Administrator shall determine the date of
termination of any Participant, based on its judgment as to when the Participant
is no longer employed as a common law employee or Consultant of the Corporation
or any Subsidiary. Part-time or non-exclusive employment by the Corporation may
be considered employment by the Corporation as long as the Participant is
treated as an Employee for purposes of FICA and payroll taxes, as shall
employment by a Subsidiary. In addition, the Administrator shall have full
discretion to determine whether a Participant's reduction in hours, medical or
disability leave, FMLA leave, absence on military or government service, or
other authorized leave of absence, shall constitute a termination of employment
for purposes of this Plan. Any such determination of the Administrator shall be
final and conclusive, unless overruled by the Board of Directors.
4.3 Designation of Options as Incentive Stock Options. The
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Administrator may, in its discretion, specify that any Options granted to a
Participant who is an employee of the Corporation or any Subsidiary shall be
ISOs qualifying under Code Section 422. Each Option Agreement which provides
for the grant of ISOs shall designate that such Options are intended to qualify
as ISOs. Each provision of the Plan and of each Option Agreement relating to an
Option designated as an ISO shall be construed so that such Option qualifies as
an ISO, and any provision that cannot be so construed shall be disregarded.
Any Options granted under this Plan which are designated as ISOs shall
comply with the following additional requirements:
(a) The aggregate Fair Market Value (determined at the time an ISO
is granted) of the shares of Common Stock (together with all other stock of the
Corporation and all stock of any Subsidiary) with respect to which the ISOs may
first become exercisable by an individual Participant during any calendar year,
under all stock option plans of the Corporation (or any Subsidiaries) shall not
exceed $100,000. To the extent this limitation would otherwise be exceeded, the
Option shall be deemed to consist of an ISO for the maximum number of shares
which may be covered by ISOs pursuant to the preceding sentence, and a
Nonstatutory Option for the remaining shares subject to the Option.
(b) The Option Price payable upon the exercise of an ISO shall not
be less than the Fair Market Value of a share of Common Stock on the Date of
Grant.
(c) In the case of an ISO granted to a Participant who is a Ten
Percent Stockholder, the period of the Option shall not exceed five years from
the Date of Grant, and the Option Price shall not be less than 110 percent of
the Fair Market Value of Common Stock on the Date of Grant.
(d) No ISO granted under this Plan shall be assignable or
transferable by the Participant, except by will or by the laws of descent and
distribution. During the life of the Participant, any ISO shall be exercisable
only by the Participant.
(e) Any ISO granted under the Plan shall terminate no more than
one (1) year after termination of the Participant's employment as an Employee or
after the date of any termination of employment by reason of the Participant's
death or disability.
4.4 Authority to Make Adjustments. The Administrator may make such
------------------------------
adjustments to the terms of such Options as it may deem necessary or appropriate
in connection therewith, including amending the Option Agreement to recognize
that all or a portion of the Options no longer qualify as ISOs under Section
4.3.
4.5 Non-Assignability. Options granted under this Plan shall generally
-----------------
not be assignable or transferable by the Participant, except by will or by the
laws of descent and distribution, or as described in the next paragraph.
Notwithstanding the foregoing, the Administrator may, in its
discretion, permit a Participant to transfer all or a portion of his or her
Options to members of his or her immediate family, to trusts for the benefit of
members of his immediate family, or to family partnerships or limited liability
companies in which immediate family members are the only partners, provided that
the Participant may receive no consideration for such transfers, and that such
Options shall still be subject to termination in accordance with Section 4.2
above in the hands of the transferee.
4.6 Covenants Not to Compete. The Administrator may, in its
---------------------------
discretion, condition any Option granted to an Employee, Consultant or director
on such Participant's agreement to enter into such covenant not to compete with
the Corporation as the Administrator may deem to be desirable. Such covenant
not to compete shall be set forth in the Participant's Option Agreement, and the
Option Agreement shall provide that the Option shall be forfeited immediately,
whether otherwise vested or not, if the Administrator determines that the
Participant has violated his or her covenant not to compete. In addition, in
the Administrator's discretion, the Participant's Option Agreement may also
provide that if the Participant breaches his or her covenant not to compete, the
Corporation shall have the right to repurchase any shares of Common Stock
previously issues to the Participant pursuant to an exercise of the Option, at a
repurchase price equal to the Option Price paid by the Participant.
V. TAX WITHHOLDING.
----------------
5.1 Withholding Taxes. The Corporation shall have the right to
------------------
require Participants who are employees to remit to the Corporation an amount
sufficient to satisfy any federal, state and local withholding tax requirements
prior to the delivery of any shares of Common Stock under the Plan. If a
Participant sells, transfers, assigns or otherwise disposes of shares of Common
Stock acquired upon the exercise of an ISO within two (2) years after the date
on which the ISO was granted or within one (1) year after the receipt of the
shares of Common Stock by the Participant, the Participant shall promptly notify
the Corporation of such disposition and the Corporation shall have the right to
require the Participant to remit to the Corporation the amount necessary to
satisfy any federal, state and local tax withholding requirements imposed on the
Corporation by reason of such disposition.
5.2 Methods of Withholding. Amounts which the Corporation is entitled
-----------------------
to withhold pursuant to Section 5.1, may, at the election of the Participant and
with the approval of the Administrator, be (i) paid in cash by the Participant,
(ii) withheld from the Participant's salary or other compensation payable by the
Corporation, or (iii) withheld in the form of shares of Common Stock otherwise
issuable to the Participant upon exercise of an Option that have a Fair Market
Value on the date on which the amount of tax to be withheld is determined (the
"Tax Date") not less than the minimum amount of tax the Corporation is required
to withhold, or (iv) paid by means of the Participant's delivery to the
Corporation of shares of Common Stock already held by the Participant that have
a Fair Market Value on the Tax Date not greater than the minimum amount of tax
the Corporation is required to withhold, or (v) in any other form mutually
satisfactory to the Administrator and the Participant, provided that any such
method of satisfying the Participant's obligation does not violate any federal
or state law, including Section 402 of the Sarbanes-Oxley Act. A Participant's
election to have shares of Common Stock withheld that are otherwise issuable
shall be in writing, shall be irrevocable upon approval by the Administrator,
and shall be delivered to the Corporation prior to the Tax Date with respect to
the exercise of an Option.
VI. AGGREGATE LIMITATION ON SHARES OF COMMON STOCK.
----------------------------------------------------
6.1 Number of Shares of Common Stock. Shares of Common Stock which
-----------------------------------
may be issued pursuant to Options granted under the Plan may be either
authorized and unissued shares of Common Stock or of Common Stock held by the
Corporation as treasury stock. The number of shares of Common Stock which may
be issued under this Plan shall not exceed a total of 1,000,000 shares of Common
Stock, subject to such adjustments as may be made pursuant to Section 6.2.
Further, the Options granted to all Participants during a single calendar year
shall be limited so that such Options shall in no event cover more than a
maximum of 200,000 shares of Common Stock (subject to such adjustments as may be
made pursuant to Section 6.2).
For purposes of this Section 6.1, upon the exercise of an Option, the
number of shares of Common Stock available for future issuance under the Plan
shall be reduced by the number of shares actually issued to the Participant,
exclusive of any shares withheld for payment of taxes.
Any shares of Common Stock subject to an Option which for any reason
is cancelled, terminates unexercised or expires shall again be available for
issuance under the Plan.
6.2 Adjustments of Stock. The Administrator shall proportionately
----------------------
adjust the number of shares of Common Stock which may be issued under this Plan,
the number of shares of Common Stock subject to Options theretofore granted
under this Plan and the Option Price of such Options, in the event of any change
or changes in the outstanding Common Stock of the Corporation by reason of any
stock dividend, recapitalization, reorganization, merger, consolidation,
split-up, combination or any similar transaction, and make any and all other
adjustments deemed appropriate by the Administrator to prevent substantial
dilution or enlargement of the rights granted to any Participant.
New option rights may be substituted for the Options granted under the
Plan, or the Corporation's duties as to Options outstanding under the Plan may
be assumed by another corporation or by a parent or subsidiary (within the
meaning of Section 425 of the Code) of such other corporation, in connection
with any merger, consolidation, acquisition, separation, reorganization,
liquidation or like occurrence in which the Corporation is involved. In the
event of such substitution or assumption, the term Common Stock shall thereafter
include the stock of the corporation granting such new option rights or assuming
the Corporation's duties as to such Option.
6.3 Dissolution or Merger. Upon dissolution or liquidation of the
------------------------
Corporation, or upon a merger or consolidation in which the Corporation is not
the surviving corporation, all Options outstanding under the Plan shall
terminate; provided, however, that each Participant (and each other person
entitled under this Plan to exercise an Option) shall have the right,
immediately prior to such dissolution or liquidation, or such merger or
consolidation, to exercise such Participant's Options in whole or in part, but
only to the extent that such Options are otherwise exercisable under the terms
of the Plan.
VII. MISCELLANEOUS.
-------------
7.1 General Restriction. Any Option granted under this Plan shall be
--------------------
subject to the requirement that, if at any time the Board of Directors shall
determine that any registration of the shares of Common Stock, or any consent or
approval of any governmental body, or any other agreement or consent, is
necessary as a condition of the granting of an Option, or the issuance of Common
Stock in satisfaction thereof, such Option or Common Stock will not be issued or
delivered until such requirement is satisfied in a manner acceptable to the
Administrator.
7.2 Investment Representation. If the Administrator determines that a
--------------------------
written representation is necessary in order to secure an exemption from
registration under the Securities Act of 1933, the Administrator may demand that
the Participant deliver to the Corporation at the time of any exercise of any
Option, any written representation that Administrator determines to be necessary
or appropriate for such purpose, including but not limited to a representation
that the shares to be issued are to be acquired for investment and not for
resale or with a view to the distribution thereof. If the Administrator makes
such a demand, delivery of a written representation satisfactory to the
Administrator shall be a condition precedent to the right of the Participant to
acquire such shares of Common Stock.
7.3 No Right to Employment. Nothing in this Plan or in any agreement
------------------------
entered into pursuant to it shall confer upon any participating employee the
right to continue in the employment of the Corporation or affect any right which
the Corporation may have to terminate the employment of such participating
employee.
7.4 Non-Uniform Determinations. The Administrator's determinations
---------------------------
under this Plan (including, without limitation, its determinations of the
persons to receive Options, the form, amount and timing of such awards and the
terms and provisions of such awards) need not be uniform and may be made by it
selectively among Participants who receive, or are eligible to receive, awards
under this Plan, whether or not such Participants are similarly situated.
7.5 No Rights as Stockholders. Participants granted Options under this
-------------------------
Plan shall have no rights as stockholders of the Corporation as applicable with
respect thereto unless and until certificates for shares of Common Stock are
issued to them.
7.6 Transfer Restrictions. The Administrator's may determine that any
----------------------
Common Stock to be issued by the Corporation upon the exercise of Options shall
be subject to such further restrictions upon transfer as the Administrator
determines to be appropriate.
7.7 Fractional Shares. The Corporation shall not be required to issue
------------------
any fractional Common Shares pursuant to this Plan. The Administrator may
provide for the elimination of fractions or for the settlement thereof in cash.
VIII. ADMINISTRATION.
--------------
(a) The Plan shall be administered by the Board of Directors
unless the Board has delegated its authority to a Committee consisting of such
members as may be appointed by the Board of Directors from time to time.
Notwithstanding the preceding sentence, the Board of Directors may delegate its
authority with respect to Named Executive Officers only to the Compensation
Committee. With respect to other Participants, the members of the Committee
need not be members of the Board of Directors, and shall serve at the pleasure
of the Board of Directors.
(b) Except as provided in Section 3.2, the Committee shall have
the authority, in its sole discretion, from time to time: (i) to grant Options,
to officers, key employees, and Consultants of the Company, as provided for in
this Plan; (ii) to prescribe such limitations, restrictions and conditions upon
any such awards as the Committee shall deem appropriate; (iii) to determine the
periods during which Options may be exercised as it may deem appropriate; (iv)
to modify, cancel, or replace any prior Options and to amend the relevant Option
Agreements with the consent of the affected Participants, including amending
such agreements to amend vesting schedules, extend exercise periods or increase
or decrease the Option Price for Options, as it may deem to be necessary; and
(v) to interpret the Plan, to adopt, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations and to take all other
action necessary or advisable for the imple-mentation and administration of the
Plan. With respect to any Named Executive Officer, this authority shall be
transferred to the Compensation Committee, or may be exercised by the Board of
Directors subject to the condition that the express approval of the Compensation
Committee must be obtained.
(c) All actions taken by the Board of Directors or Committee shall
be final, conclusive and binding upon any eligible employee. No member of the
Board of Directors or Committee shall be liable for any action taken or decision
made in good faith relating to the Plan or any award thereunder.
(d) Each member of the Committee shall be entitled, in good faith,
to rely or act upon any report or other information furnished to him or her by
any officer or other employee of the Corporation or any Subsidiary, the
Corporation's independent certified public accountants, or any executive
compensation consultant, counsel, or other professional retained by the
Corporation to assist in the administration of the Plan. No member of the Board
of Directors or the Committee shall be liable for any action or determination
made by him or her in good faith.
IX. AMENDMENT AND TERMINATION.
---------------------------
9.1 Amendment or Termination of the Plan. The Board of Directors may
--------------------------------------
at any time terminate this Plan or any part thereof and may from time to time
amend this Plan as it may deem advisable; provided, however the Board of
Directors shall obtain stockholder approval of any amendment for which
stockholder approval is required under Section 422 of the Code, or the
stockholder approval requirements imposed on the Corporation by the listing
rules of any stock exchange on which the Common Stock is listed. The
termination or amendment of this Plan shall not, without the consent of the
Participant, affect such Participant's rights under an award previously granted.
9.2 Term of Plan. Unless previously terminated pursuant to Section
--------------
9.1, the Plan shall terminate on the tenth anniversary of the date on which the
Plan became effective, and no Options may be granted on or after such date.