UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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the Securities Exchange Act of 1934 (Amendment No. 1)
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Soliciting Material Pursuant to Sec.240.14a-12
N-VIRO INTERNATIONAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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N-VIRO INTERNATIONAL CORPORATION
3450 W. CENTRAL AVENUE, SUITE 328
TOLEDO, OHIO 43606
June 2, 2005
To all Our Stockholders:
The Board of Directors joins us in inviting you to attend our rescheduled
Annual Meeting of Stockholders. The meeting will be held in the Garden Room of
the Toledo Club, 235 14th Street, Toledo, Ohio on June 30, 2005. The meeting
will begin at 10:00 a.m. (local time) and 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 our business and progress during 2004 and the first quarter of
2005. Our performance for the year ended December 31, 2004 is discussed in the
enclosed 2004 Annual Report to Stockholders.
We hope you will be able to attend the meeting and look forward to seeing
you there.
Sincerely,
/s/ Daniel J. Haslinger
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Daniel J. Haslinger
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 JUNE 30, 2005
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that our Annual Meeting of Stockholders will be held
in the Garden Room of the Toledo Club, 235 14th Street, Toledo, Ohio on June 30,
2005. The Annual Meeting will begin at 10:00 a.m. (local time), for the
following purposes:
1. To approve an amendment to our Certificate of Incorporation to repeal
certain sections of the Certificate of Incorporation concerning the size,
composition, election and vacancies of our board of directors and removal of
directors that are covered by our By-Laws.
2. To approve an amendment to our Certificate of Incorporation to eliminate
the requirement for a 75% supermajority vote of our stockholders for certain
business combinations.
3. To elect four Class I Directors for a term of two years, until their
successors are elected and qualified or until their earlier resignation, removal
from office or death.
4. To ratify the appointment of UHY LLP to serve as our independent auditors
for our year ended 2005.
5. 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. Our 2004 Annual Report is also enclosed. Stockholders of record as of
the close of business on May 12, 2005, 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
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James K. McHugh
Chief Financial Officer, Secretary and Treasurer
Toledo, Ohio
June 2, 2005
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.
N-VIRO INTERNATIONAL CORPORATION
3450 W. CENTRAL AVENUE, SUITE 328
TOLEDO, OHIO 43606
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 30, 2005
SOLICITATION OF PROXIES AND DATE, TIME AND PLACE OF ANNUAL MEETING
THIS PROXY STATEMENT IS FIRST BEING SENT TO THE STOCKHOLDERS OF N-VIRO
INTERNATIONAL CORPORATION ON OR ABOUT JUNE 2, 2005, IN CONNECTION WITH THE
SOLICITATION OF PROXIES BY OUR BOARD OF DIRECTORS TO BE VOTED AT OUR ANNUAL
MEETING OF STOCKHOLDERS, OR THE ANNUAL MEETING, WHICH IS SCHEDULED TO BE HELD ON
THURSDAY, JUNE 30, 2005 AT 10:00 A.M. (LOCAL TIME) AS SET FORTH IN THE ATTACHED
NOTICE. A proxy card is enclosed.
RECORD DATE
The record date for our Annual Meeting is the close of business on May 12,
2005, or the Record Date. Only holders of record of our 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 3,508,559 shares of Common Stock
outstanding.
HOW IS THIS ANNUAL MEETING DIFFERENT FROM THE POSTPONED ANNUAL MEETING?
We have added two proposals to be voted on at our Annual Meeting regarding
certain amendments to our Certificate of Incorporation as discussed below. In
addition, Christopher Anderson has resigned as director and, therefore, is no
longer on our list of director nominees for the election of directors.
HOW DO I VOTE?
A share of our 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 amend our
Certificate of Incorporation to repeal Article Five, (ii) to amend our
Certificate of Incorporation to repeal Article Ten, (iii) to elect four Class I
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, and, (iv) to ratify the appointment of UHY LLP to serve as our
independent auditors for the year ending December 31, 2005. You may also 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.
HOW DO I REVOKE MY PROXY?
Any stockholder giving a proxy has the right to revoke it any time before
it is voted by filing with our Secretary 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 our Secretary.
WHAT CONSTITUTES A QUORUM?
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 will 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 also will 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").
WHAT ARE MY VOTING RIGHTS?
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. The first amendment to our Certificate of Incorporation to repeal
Article Five which deals with the size, composition, election and vacancies of
our Board and removal of directors will 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 second amendment to our Certificate of
Incorporation, to repeal Article Ten concerning removal of the 75% supermajority
vote to approve certain business combinations will require the approval of 75%
of the votes of our stockholders either in person or by proxy. In the election
of directors, a plurality of shares voted, either in person or by proxy, is
required. Plurality votes means that the nominees for election as directors who
receive the highest number of votes at the Annual Meeting will be elected as
directors. The ratification of the appointment of UHY LLP as independent
auditors will 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. For all proposals, abstentions and broker non-votes will not be
counted in determining whether a proposal has been approved.
COST OF SOLICITATION
We will bear the cost of solicitation of proxies. In addition to
solicitation by mail, directors and officers may solicit proxies by telephone,
facsimile or personal interview. We will reimburse directors and officers for
their reasonable out-of-pocket expenses in connection with such solicitation.
We 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.
EXECUTIVE OFFICE
Our executive office is located at 3450 West Central Avenue, Suite 328,
Toledo, Ohio 43606. Our telephone number is (419) 535-6374.
FORM 10-KSB AVAILABLE
A COPY OF OUR ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
2004, INCLUDING THE FINANCIAL STATEMENTS, MAY BE OBTAINED WITHOUT CHARGE BY
WRITING TO OUR CORPORATE SECRETARY AT THE ABOVE ADDRESS. The Annual Report is
also available on our website at www.nviro.com under "Investor Information".
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PROPOSAL 1 - AMENDMENT TO CERTIFICATE OF INCORPORATION
Our Board of Directors, or the Board, has approved and recommends the
approval by our stockholders of an amendment to our Amended and Restated
Certificate of Incorporation, or the Certificate of Incorporation, to eliminate
Article Five, which governs certain matters regarding the size, composition,
election and vacancies of our Board and removal of directors that are also
covered in our Amended and Restated By-Laws, or the By-Laws. We believe that it
is in our best interest to approve this amendment and eliminate Article Five
from our Certificate of Incorporation, leaving the By-Laws to govern these
matters.
Currently, Article Five of our Certificate of Incorporation requires that:
(1) the size of the board may not fall below seven members; (2) the size of the
board may not be increased above nine members; (3) the board is divided into two
classes, one with five members and the other with four members; (4) election of
directors is by plurality of votes; (5) vacancies on the board may be filled
only by a majority vote of the whole board; and (6) vacancies resulting from
removal of a director may be filled only at the meeting at which the removal
occurs. Each of these requirements of the Board is contained in our By-Laws,
which can be amended by a majority vote of our Board. However, since these
matters are also stated in our Certificate of Incorporation, our Board cannot
change these requirements without stockholder approval, because Delaware law
requires stockholder approval for any amendments to our Certificate of
Incorporation.
Delaware law permits such provisions concerning composition and election of
the board to be either in the Certificate of Incorporation or in a company's
by-laws. Since these provisions are already in our By-Laws, we propose that
these provisions be deleted from our Certificate of Incorporation so that our
Board has the flexibility to amend these provisions without stockholder
approval, which is typical of most companies. The provisions of Article Five of
our Certificate of Incorporation will remain unchanged in our By-Laws, except
that the requirement for the election of directors will be by a majority of the
votes cast instead of by a plurality. On May 13, 2005, our Board amended the
By-Laws to change the requirement for the election of directors from a plurality
to a majority of the votes cast. This new language is included as Exhibit 99.1
to the Form 8-K filed on May 19, 2005. A copy of our By-Laws, as amended on May
13, 2005, was attached as Exhibit 3.3 to our Form 10-QSB filed May 16, 2005.
Even though Delaware law permits election of directors by plurality vote, it
also permits Delaware corporations to adopt a different standard for election of
directors. Many other States require election of directors by majority vote,
which is a more onerous standard of voting. Under a majority vote standard, a
director nominee would have to receive support from holders of a majority of the
votes cast in order to be elected (or re-elected) to our Board. Our Board
believes that this is a more democratic election system then the current
plurality vote requirement, particularly in uncontested elections where
directors who run unopposed keep their board seats even if they fail to win
majority support.
If the amendment to the Certificate of Incorporation is approved, then such
amendment will become effective upon filing such amendment to our Certificate of
Incorporation with the Delaware Secretary of State, which filing will be made
promptly after the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMEND THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO AMEND OUR CERTIFICATE OF INCORPORATION TO REPEAL ARTICLE FIVE.
PROPOSAL 2 - AMENDMENT TO CERTIFICATE OF INCORPORATION
Our Board has approved and recommends the approval by our stockholders of
an amendment to our Certificate of Incorporation to eliminate Article Ten, which
governs approval of business combinations. We believe that it is in our best
interest to approve this amendment and eliminate Article Ten from our
Certificate of Incorporation.
Currently, Article Ten of our Certificate of Incorporation requires a 75%
vote of stockholders to approve any merger or consolidation with, or proposed by
or on behalf of, an Interested Stockholder or any Affiliate or Associate of an
Interested Stockholder. Delaware law only requires a majority vote of
stockholders to approve any merger of consolidation. Since one of our most
valuable assets is our tax loss carryforwards, requiring 75% vote of
stockholders to approve a merger or consolidation would impose a great obstacle
to concluding a transaction that might be in the best interest of our
stockholders, because it could permit a small group of stockholders to block
transactions that would be beneficial to the majority of our stockholders.
Therefore, we believe it to be in the best interests of our stockholders to
repeal of Article Ten in its entirety.
If the amendment to the Certificate of Incorporation is approved, then such
amendment will become effective upon filing such amendment to our Certificate of
Incorporation with the Delaware Secretary of State, which filing will be made
promptly after the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMEND THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO AMEND OUR CERTIFICATE OF INCORPORATION TO REPEAL ARTICLE TEN.
PROPOSAL 3 - ELECTION OF DIRECTORS
Our Certificate of Incorporation and By-Laws provide that the Board 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 our entire Board 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 is currently set at nine. The directors are
elected for a two-year term or until the election of their respective successors
or until their resignation, removal from office or death. Holders of our Series
A Redeemable Preferred Stock, par value $.01 per share, or the Series A
Redeemable Preferred Stock, have the right to elect one of the Class II
Directors. Until recently, J. Patrick Nicholson was the only holder of our
Series A Redeemable Preferred Stock and he elected Brian P. Burns as a Class II
Director in May 2004, to serve until May 2006. Due to sales by Mr. Nicholson of
our common stock on September 25 and 26, 2003, he ceased to be the beneficial
owner of at least 17.50% of the our outstanding common stock as of that date, as
reflected in a report filed by Mr. Nicholson January 20, 2004 under Section 16
of the Securities and Exchange Act of 1934, and, therefore, his share of
Preferred Stock became redeemable. On May 13, 2005, our Board voted to redeem
Mr. Nicholson's share of Preferred Stock in accordance with the provisions of
the Certificate of Designation of Series A Redeemable Preferred Stock. As
provided in Section 7(F) of the Certificate of Designation, the term of office
of Brian P. Burns shall end and Mr. Burns shall be deemed to have resigned upon
the redemption of Mr. Nicholson's share of Series A Redeemable Preferred Stock.
The redemption will be effective on May 27, 2005.
It is intended by the Board that proxies received will be voted to elect
the four Class I Directors named below to serve for a two-year term and until
their respective successors are elected or until their earlier resignation,
removal from office or death.
The Board is currently composed of four Class I Directors (R. Francis
DiPrete, Daniel J. Haslinger, Joseph H. Scheib and Carl Richard) and three Class
II Directors (Terry J. Logan, Michael G. Nicholson and Phillip Levin), whose
terms will expire upon the election and qualification of directors at the annual
meetings of stockholders to be held in 2005 and 2006, 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.
As we announced in a Form 8-K filed on May 19, 2005, Christopher J.
Anderson, a Class I Director who was standing for re-election at the Annual
Meeting, resigned from our Board effective immediately. Also, due to the
Board's redemption of Mr. Nicholson's Series A Preferred Stock, Brian P. Burns
is no longer a Class II Director. Therefore, the Board currently has two
vacancies.
The Board has nominated R. Francis DiPrete, Daniel J. Haslinger, Joseph H.
Scheib and Carl Richard as Class I Directors, each to serve until the 2007
annual meeting of stockholders. THE BOARD OF DIRECTORS RECOMMENDS THAT MESSRS.
DIPRETE, HASLINGER, SCHEIB AND RICHARD BE ELECTED AT THE ANNUAL MEETING AS CLASS
I DIRECTORS.
Each of the nominees has consented to serve until his term expires if
elected at the Annual Meeting as a Class I Director. If any nominee declines or
is unable to accept such nomination to serve as a Class I 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 four Class I Directors.
The four nominees for Class I Directors receiving a plurality of the votes
of the shares of Common Stock present in person or represented by proxy and
entitled to vote will 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 our directors and
executive officers and the positions they hold, and (ii) the names and ages of
the nominees for director listed herein. Executive officers serve at the
pleasure of the Board.
Name Age Position
----------------------- --- -----------------------------------------------------------
Christopher J. Anderson 50 Class I Director (7)
Brian P. Burns 38 Class II Director (6)
R. Francis DiPrete 50 Class I Director (1)(2)(4)(5)
Phillip Levin 65 Class II Director, Chairman of the Board (2)(4)
Terry J. Logan, Ph.D. 62 Class II Director (5)
Carl Richard 78 Class I Director (1)(3)(4)
Joseph H. Scheib 48 Class I Director (1)(2)
Daniel J. Haslinger 49 President, Chief Executive Officer, Class I Director (1)(5)
Michael G. Nicholson 38 Chief Development Officer, Class II Director
James K. McHugh 46 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) Elected to Board by J. Patrick Nicholson pursuant to rights granted to Mr.
Nicholson as the holder of our Series A Redeemable Preferred Stock 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
Delaware on September 4, 2003. His term of office ended on May 27, 2005,
when we redeemed Mr. Nicholson's share of Preferred Stock. During his term
as Director, Mr. Burns served as a member of the Audit Committee,
Compensation Committee and Nominating Committee.
(7) Resigned from Board effective May 13, 2005, but during term as Director
served as a member of the Compensation Committee and Nominating Committee.
CHRISTOPHER J. ANDERSON, AGE 50. Mr. Anderson is currently the President of
Business Value Architects, LLC, and has served as President of Chris Anderson
Consulting, LLC, a general management consulting firm, since 2002. From 1999
until 2001, he was employed as Executive Vice-President of The Andersons in
Maumee, Ohio, a public agribusiness and merchandising company founded in 1947,
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
served as our Director from October 29, 2003 through May 13, 2005, and was a
member of the Board's Audit, Compensation, Nominating and Planning Committees
from November 2003 to January 2005, August 2004 to May 2005, November 2003 to
May 2005 and November 2003 to August 2004, respectively.
BRIAN P. BURNS, AGE 38. Mr. Burns is a division manager with Hammill
Manufacturing Co. Impact Cutoff Service, a tool and die company in Toledo, Ohio.
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 has a bachelor of arts degree in
economics from Harvard University. Mr. Burns served as our Director August 29,
2003, through May 27, 2005, and was a member of the Board's Audit, Compensation,
Nominating and Planning Committees from August 2004 to May 2005, November 2003
to May 2005, August 2004 to May 2005 and November 2003 to August 2004,
respectively.
R. FRANCIS DIPRETE, AGE 50. Mr. DiPrete is an attorney and is currently a
self-employed business consultant. From March 1999 until December, 2003, Mr.
DiPrete served as President and Board Chairman of Strategic Asset Management,
Inc. (formerly Worldtech Waste Management, Inc.), a Nevada corporation and
holding company that provides business and financial consulting advisory
services to, and control and operation of, businesses. 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. Mr. DiPrete is a graduate of Rutgers University and
Roger Williams University, School of Law. Mr. DiPrete has served as our
Director since May 2000, and is a member of the Board's Audit, Nominating and
Finance Committees.
PHILLIP LEVIN, AGE 65. From July through December 2004, Mr. Levin was our Chief
Executive Officer. Currently, 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 our Director of the Company since November
2002 and is a member of the Board's Audit Committee.
TERRY J. LOGAN, PH.D., AGE 62. Dr. Logan is the President of Logan
Environmental, Inc., an environmental consulting firm in Beaufort, South
Carolina, and our consultant. From July 1999 to June 2004, Dr. Logan served as
our Chief Operating Officer and President, 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 has served as our Director
since May 1993 and is a member of the Board's Finance Committee.
CARL RICHARD, AGE 78. Mr. Richard is currently an Executive Vice-President of
P.R. Transportation, a trucking company located in Toledo, Ohio. Mr. Richard
served as Vice-President of C.A. Transportation from 1988 through 2000 and as
Vice-President of R.O.S.S. Investments, a real estate holding company, from 1980
through 2000. Mr. Richard has served as our Director since December 2004 and is
a member of the Board's Compensation and Nominating Committees.
JOSEPH H. SCHEIB, AGE 48. Mr. Scheib is the Chief Financial Officer of Broad
Street Software Group, a comprehensive software technology company located in
Edenton, North Carolina. From May 2000 until February 2003, Mr. Scheib was the
Financial Operation Principal/Compliance Officer of Triangle Securities, LLC of
Raleigh, North Carolina, an asset management, brokerage and investment banking
firm. Mr. Scheib is a CPA and a graduate of East Carolina University with a
degree in accounting. Mr. Scheib has served as our Director since December 2004
and is Chairman of the Board's Audit Committee.
DANIEL J. HASLINGER, AGE 49. In 2004, Mr. Haslinger was initially employed as
our Chief Operating Officer, and then was appointed Chief Executive Officer
beginning January 1, 2005. Mr. Haslinger is also the Chief Executive Officer
and Owner of Micro Macro Integrated Technologies, a Nevada company specializing
in computer-aided process control technology. In addition, Mr. Haslinger is
Chairman and Chief Executive Officer of WJZE 97.3FM RASP Broadcast Enterprises,
Inc., a local Fox radio station. Mr. Haslinger is a member of N-Viro Filipino,
LLC, one of our international licensees, and is also a member of DJH Holdings,
LLC, an investment company. Mr. Haslinger has served as our Director since May
1999 and is a member of the Board's Finance Committee.
MICHAEL G. NICHOLSON, AGE 38. Mr. Nicholson was appointed Chief Development
Officer in September 2004, and served as Chief Operating Officer from May 2002
until that time and Vice-President of Sales and Marketing since December 1996.
Prior to December 1996, Mr. Nicholson served us and N-Viro Energy Systems Ltd.
in various sales management positions since 1990. Mr. Nicholson is the son of
J. Patrick Nicholson, and has served as our director of the Company since
February 1998.
JAMES K. MCHUGH, AGE 46. Mr. McHugh has served as our Chief Financial Officer,
Secretary and Treasurer since January 1997. Prior to that date, Mr. McHugh
served us and N-Viro Energy Systems Ltd. in various financial positions since
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 our Board, and the
holder of one share of our Series A Redeemable Preferred Stock, of which we
redeemed on May 27, 2005.
Up until March 2005, R. Francis DiPrete was co-trustee of the Cooke Family
Trust, a more than 5% beneficial reporting owner.
BOARD OF DIRECTORS
Our business, property and affairs are managed under the direction of our
Board. Our Board held 14 formal meetings during 2004, consisting of four
regular meetings and ten special meetings.
We encourage 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.
We are 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 us. The Board has determined that
Messrs. Haslinger, Logan and Nicholson are not independent directors by virtue
of their current or former positions as our executive officers.
The Board encourages all members of the Board to attend our 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 2004 Annual Meeting.
AUDIT COMMITTEE
The Audit Committee, consisting of Messrs. Scheib, Levin and DiPrete and
Burns until his term as Director ended on May 27, 2005, recommends the
appointment of the outside auditor, oversees our accounting and internal audit
functions and reviews and approves the terms of transactions between us 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
has determined that none of them has a relationship with us that may interfere
with their independence from us and our management. The Board has determined
that Messrs. Scheib and Levin qualify as a "financial expert" as defined by the
SEC. During 2004, the Audit Committee met four times. The Audit Committee has
retained UHY LLP to conduct the audit for the year ended December 31, 2005. The
audit committee is governed by a written charter, a copy of which was attached
as an exhibit to the proxy statement for the 2002 annual meeting.
We 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 Exhibit A
to this Proxy Statement and is posted on our web site.
AUDIT COMMITTEE REPORT
The following report was prepared by Joseph Scheib, Phillip Levin, R.
Francis DiPrete and Brian Burns, as members of our Audit Committee.
The Audit Committee oversees our financial reporting process on behalf of
the Board. We meet with management periodically to consider the adequacy of our
internal controls and the objectivity of our financial reporting. We discuss
these matters with our independent auditors and with appropriate 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 our financing plans and
reports recommendations to the full Board for approval and to authorize action.
Management has primary responsibility of our financial statements and the
overall reporting process, including our 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 our financial position, results of operations and cash flows in
conformity with generally accepted accounting principles and discuss with the
Audit Committee any issues they believe should be raised.
This year, the Audit Committee reviewed our audited financial statements
and met with both management and UHY LLP, our 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.
The Audit Committee has received from and discussed with UHY LLP, 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 us. The Audit Committee also discussed
with UHY LLP, any matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
Based on these reviews and discussions, the Audit Committee recommended to
the Board that our audited financial statements be included in our Annual Report
on Form 10-KSB for the year ended December 31, 2004.
Joseph H. Scheib
Phillip Levin
R. Francis DiPrete
Brian P. Burns
COMPENSATION COMMITTEE
The Compensation Committee, consisting of Mr. Anderson until his
resignation on May 13, 2005, Mr. Burns until his term as Director ended on May
27, 2005, and Mr. Richard, determines officers' salaries and bonuses and
administers the grant of stock options pursuant to our stock option plans. The
Compensation Committee met three times during 2004.
COMPENSATION COMMITTEE REPORT
The following report was prepared by Brian Burns and Carl Richard, as
members of our Compensation Committee.
The compensation of our executive officers is determined by the
Compensation Committee of the Board.
The Compensation Committee's 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 us in attracting, retaining
and motivating executives with superior leadership and management abilities.
Consistent with this philosophy, the Compensation 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 Compensation Committee establishes salary recommendations to the Board
at a level intended to be competitive with the average salaries of executive
officers in comparable companies with adjustments made to reflect our financial
health. Bonuses are intended to provide executives with an opportunity to
receive additional cash compensation, but only if they earn it through
individual performance and our performance.
Long-term incentives are provided through stock options granted under our
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 Compensation Committee, subject to any employment agreements in effect
with its executive officers, reviews and recommends to the Board for approval
the salaries, bonuses and long-term incentives of our officers, including its
most highly compensated executive officers. In addition, the Committee
recommends to the Board the granting of stock options under our Stock Option
Plan to executive officers and other selected employees, directors and to
consultants, and otherwise administers our Stock Option Plan.
With respect to Chief Executive Officer compensation, Mr. Haslinger's base
salary is determined by his memorandum of employment agreement with us dated
September 27, 2004,which entitles him to an annual base salary of $18,000. See
"Employment Agreements."
The Compensation Committee is also responsible for recommending to the
Board bonus amounts, if any, payable to Mr. Haslinger, the Chief Executive
Officer. Any bonuses payable will be determined by the Compensation Committee,
based on the same elements and factors relating to our other Executive Officers.
The Compensation Committee has not formulated any policy regarding
qualifying compensation paid to our Executive Officers for deductibility under
the limits of Section 162(m) of the Internal Revenue Code of 1986, as amended,
because the Compensation Committee does not anticipate that any executive
officers would receive compensation in excess of such limits in the foreseeable
future.
Brian P. Burns
Carl Richard
FINANCE COMMITTEE
The Finance Committee, consisting of Messrs. DiPrete, Haslinger and Logan,
assists in monitoring our cash flow requirements and approves any internal or
external financing or leasing arrangements. This committee met twice during
2004.
NOMINATING COMMITTEE
The Nominating Committee, consisting of Mr. Burns until his term as
Director ended on May 27, 2005, Mr. Anderson until his resignation on May 13,
2005, and Messrs. DiPrete and Richard, considers and recommends to the Board
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 three
times during 2004. 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 us 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 us 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.
PLANNING COMMITTEE
The Planning Committee, which consisted of Messrs. Burns, Anderson and
Haslinger, assists the Board in long-range strategic planning and budgeting.
This committee met two times during 2004 up until its disbandment in August
2004.
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
our directors and executive officers, and persons who own beneficially more than
ten percent (10%) of the shares of our Common Stock, to file reports of
ownership and changes of ownership with the Securities and Exchange Commission,
or SEC. Copies of all filed reports are required to be furnished to us pursuant
to Section 16(a). Based solely on the reports received by us and on written
representations from reporting persons, we believe that the current directors
and executive officers complied with all applicable filing requirements during
the fiscal year ended December 31, 2004, with the following exceptions:
Daniel Haslinger filed a report of beneficial ownership on January 6, 2005,
reporting late one purchase of common stock on December 31, 2004.
Joseph Scheib filed a report of beneficial ownership on January 6, 2005,
reporting late one purchase of common stock on December 31, 2004.
Carl Richard filed a report of beneficial ownership on January 6, 2005,
reporting late one purchase of common stock on December 31, 2004.
Michael Nicholson filed a report of beneficial ownership on May 3, 2005,
reporting late one acquisition of common stock on January 25, 2005.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We had outstanding 3,508,559 shares of common stock, $.01 par value per
share, or the Common Stock, on May 12, 2005, which constitute the only classes
of our outstanding voting securities.
FIVE PERCENT STOCKHOLDERS
At May 12, 2005, the following were the only persons known to us to own
beneficially more than 5% of the outstanding shares of Common Stock:
Name and Address of Amount and Nature of Percentage of Outstanding Shares
Title of Class Beneficial Owner Beneficial Ownership of Common Stock
-------------- ----------------------------------- -------------------- ---------------------------------
J. Patrick Nicholson (1)
2306 Birch Run Court
Common Stock . Sylvania, OH 43560 535,589 14.98%
N-Viro Energy Systems, Inc. (2)
3450 West Central Avenue, Suite 328
Common Stock . Toledo, Ohio 43606 310,095 8.84%
Cooke Family Trust
75 Secluded Drive
Common Stock . Narragansett, RI 02882 495,801 14.13%
Robert Cooke (3)
75 Secluded Drive
Common Stock . Narragansett, RI 02882 572,221 16.31%
_________________
1. The shares attributed to Mr. Nicholson include 107,994 shares held directly
and 310,095 shares owned beneficially by N-Viro Energy Systems, Inc,. 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 our Chief Development Officer and
Director, Timothy is our employee and Robert is our former employee. Also
included are a total of 67,500 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 our director on August 28, 2003 and is
presently a consultant to us.
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. N-Viro Energy Systems, Inc. has dispositive power over all
310,095 shares.
3. The shares attributed to Mr. Cooke include 5,500 shares held directly,
23,420 shares held by members of Mr. Cooke's immediate family and 495,801
shares owned by the Cooke Family Trust, over which Mr. Cooke exercises
dispositive power. Also attributed to Mr. Cooke are 47,500 shares owned by
Strategic Asset Management, Inc., a company of which Mr. Cooke is the
President. We have no information concerning any other of Mr. Cooke's
personal or business holdings of our common stock, if any.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of May 12, 2005, unless otherwise
specified, certain information with respect to the beneficial ownership of our
shares of Common Stock by each person who is our director, a nominee for the
Board, each of the Named Executive Officers, and by our directors and executive
officers as a group. Unless otherwise noted, each person has voting and
investment power, with respect to all such shares, based on 3,508,559 shares of
Common Stock outstanding on the Record Date. Pursuant to the rules of the SEC,
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 Amount and Nature of
Title of Class Owner Beneficial Ownership (1) Percent of Class
------------- ------------------------------------------------------------ ----------------------- -----------------
Common Stock . Christopher J. Anderson (13) 30,750 (2) 0.87%
Common Stock . Brian P. Burns (14) 32,500 (3) 0.92%
Common Stock . R. Francis DiPrete 58,440 (4) 1.65%
Common Stock . Daniel J. Haslinger 111,377 (5) 3.12%
Common Stock . Phillip Levin 42,737 (6) 1.21%
Common Stock . Terry J. Logan 117,962 (7) 3.25%
Common Stock . James K. McHugh 53,196 (8) 1.49%
Common Stock . Michael G. Nicholson 173,609 (9) 4.80%
Common Stock . Carl Richard 83,350 (10) 2.36%
Common Stock . Joseph H. Scheib 124,100 (11) 3.53%
Common Stock . All directors and executive officers as a group (10 persons) 828,021 (12) 20.57%
______________________
(1.) Except as otherwise indicated, all shares are directly owned with voting
and investment power held by the person named.
(2.) Represents -0- shares of Common Stock owned by Mr. Anderson, and a total of
30,750 shares issuable upon exercise of options which are currently
exercisable at prices ranging from $1.20 to $3.05 per share.
(3.) Represents -0- shares of Common Stock owned by Mr. Burns, and a total of
32,500 shares issuable upon exercise of options which are currently
exercisable at prices ranging from $1.20 to $3.05 per share.
(4.) Represents 18,440 shares of Common Stock owned by Mr. DiPrete, and a total
of 40,000 shares issuable upon exercise of options which are currently
exercisable at prices ranging from $1.20 to $3.05 per share.
(5.) Represents 13,727 shares of Common Stock owned by Mr. Haslinger, 35,650
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $0.91 to $5.19 per share, 32,000 shares owned by Micro
Macro Integrated Technologies, a company in which Mr. Haslinger is the
owner and Chief Executive Officer, and 30,000 unregistered shares issuable
upon exercise of warrants which are currently exercisable at $1.85 per
share.
(6.) Represents 12,487 shares of Common Stock owned by Mr. Levin, and a total of
30,250 shares issuable upon exercise of options which are currently
exercisable at prices ranging from $1.85 to $3.05 per share.
(7.) Represents 812 shares of Common Stock owned by Dr. Logan, and a total of
117,150 shares issuable upon exercise of options which are currently
exercisable at prices ranging from $0.95 to $5.00 per share.
(8.) Represents 796 shares of Common Stock owned by Mr. McHugh, and a total of
52,400 shares issuable upon exercise of options which are currently
exercisable at prices ranging from $1.50 to $5.00 per share.
(9.) Represents 4,884 shares of Common Stock owned by Mr. Nicholson, 108,600
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $0.90 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 us, Timothy is our employee
and Robert our former employee.
(10.) Represents 51,000 shares of Common Stock owned by Mr. Richard, 3,750
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $1.80 to $2.45 per share, 2,500 shares owned by members
of Mr. Richard's family and 26,100 unregistered shares issuable upon
exercise of warrants which are currently exercisable at $1.85 per share.
(11.) Represents 114,500 shares of Common Stock owned by Mr. Scheib, 5,000
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $1.80 to $2.45 per share, 600 shares owned by a family
member and 4,000 unregistered shares issuable upon exercise of warrants
which are currently exercisable at $1.85 per share.
(12.) Represents 226,771 shares of Common Stock owned by the Directors and
Officers, 85,100 shares owned indirectly, 456,050 shares issuable upon
exercise of options which are currently exercisable at prices ranging from
$0.90 to $5.19 per share and a total of 60,100 unregistered shares issuable
upon exercise of warrants which are currently exercisable at $1.85 per
share.
(13.) Mr. Anderson resigned from our Board effective May 13, 2005.
(14.) Mr. Burns' term of office ended on May 27, 2005.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
Number of securities remaining available for
to be issued Weighted-average future issuance under
upon exercise of exercise price of equity compensation
outstanding options, outstanding options, plans (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
--------------------------------------- -------------------- --------------------- ----------------------------
Equity compensation plans
approved by security holders . . . . 822,400 $ 2.38 647,475
Equity compensation plans
not approved by security holders (1) 543,351 $ 1.85 50,000
--------------------------------------- -------------------- --------------------- ----------------------------
Total. . . . . . . . . . . . . . . . . . 1,365,751 $ 2.17 697,475
1. Represents warrants to purchase our Common Stock, issued to subscribers as
part of a private placement of shares of Common Stock during 2004 and 2005,
all issued at $1.85 per share.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Our Board 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. Our Board generally has four regular meetings per calendar year. The
Directors are reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board 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 our Common Stock 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 our 1998 Amended and Restated Stock Option Plan, or 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.
In May 2004, the stockholders approved a new stock option plan 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.
Directors who are our employees 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 our Chief
Executive Officer during 2002, 2003 and 2004. There were no other executive
officers who were serving at the end of 2004 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 ($) Options(#) (1) Compensation($)
------------------------------------- ---- ----------------- ------------------ -------------- ---------------
Phillip Levin (4). . . . . . . . . . . 2004 $ 18,000 $ -0- 33,750 $15,000 (6)
President and Chief Executive Officer. 2003 $ -0- $ -0- -0- $19,000 (6)
-------------------------------------- ---- ----------------- ------------------ ------------ -----------
Terry J. Logan (2) . . . . . . . . . . 2004 $ 74,087 $ -0- 16,250 $40,962 (3)
President and Chief Executive Officer. 2003 $ 122,000 $ 300 -0- $13,584 (3)
-------------------------------------- ---- ----------------- ------------------ ------------ -----------
Michael G. Nicholson . . . . . . . . . 2004 $ 107,466 $ -0- 58,000 $20,598 (5)
Chief Development Officer. . . . . . . 2003 $ 87,017 $ 300 -0- $ 4,131 (5)
________________________
(1.) The numbers shown represent the number of shares of Common Stock for which
options were granted to the Named Executive Officers in 2003 and 2004.
(2.) Dr. Logan retired as Chief Executive Officer effective July 1, 2004, per
his employment agreement. After this time, Dr. Logan received compensation
from us in his capacity as our consultant under and pursuant to the terms
of a consulting agreement entered into by and between Dr. Logan and us in
July 2004.
(3.) Dr. Logan received term life insurance premium payment benefits in 2003 of
$1,584 and in 2004 of $792 for a $250,000 term policy with his spouse named
as beneficiary, through the ending date of his employment in June 2004. Dr.
Logan also received $12,000 in 2003 and $32,670 in 2004 for compensation
under and pursuant to the terms of an employment agreement and consulting
agreement, respectively, entered into by and between Dr. Logan and us in
1999 and July 2004, respectively. Dr. Logan also received $1,500 in
director fees in 2004.
(4.) Mr. Levin was appointed Chief Executive Officer effective July 1, 2004. He
served as CEO through December 31, 2004 at which time Mr. Daniel Haslinger
was appointed CEO.
(5.) Mr. Nicholson received term life insurance premium payment benefits in 2003
and 2004 of $1,026, for a $1,000,000 term policy with his spouse named as
beneficiary. Mr. Nicholson also received $15,947 in 2004 for the deemed
bargain-purchase element of stock options granted in May 2004 under and
pursuant to his employment agreement entered into by and between Mr.
Nicholson and the Company in June 2003 and amended in September 2004,
respectively. Mr. Nicholson also received $3,105 in 2003 and $3,625 in 2004
for interest and fees in connection with a credit facility agreement
between us and Monroe Bank + Trust, signed in February 2003.
(6.) Up to July 1, 2004, Mr. Levin was compensated in his role as our Director
and consultant.
OPTION GRANTS IN LAST FISCAL YEAR
Number of Percent of Total
Securities Options Granted
Underlying to Employees Exercise or
Name Options Granted in Fiscal Year Base Price ($/share) Market Price ($/share) Expiration Date
-------------------- ---------------- ----------------- --------------------- ----------------------- ---------------
Phillip Levin. . . . 22,500 (2) 25.0% $ 3.05 $ 3.05 5/12/2014
2,500 (2) 2.78% $ 2.50 $ 2.50 5/27/2014
1,250 (2) 1.39% $ 1.85 $ 1.85 6/8/2014
7,500 (1) 8.33% $ 2.10 $ 2.10 11/10/2014
-------------------- ---------------- ----------------- --------------------- ----------------------- ---------------
Terry J. Logan . . . 1,250 (2) 1.39% $ 1.20 $ 1.20 7/15/2014
1,000 (2) 1.11% $ 0.95 $ 0.95 8/12/2014
2,500 (2) 2.78% $ 1.95 $ 1.95 8/12/2014
1,000 (2) 1.11% $ 1.90 $ 1.90 9/10/2014
1,000 (2) 1.11% $ 1.35 $ 1.35 10/4/2014
1,250 (2) 1.39% $ 1.50 $ 1.50 10/18/2014
1,000 (2) 1.11% $ 1.75 $ 1.75 11/9/2014
2,500 (2) 2.78% $ 2.35 $ 2.35 11/11/2014
1,250 (2) 1.39% $ 2.33 $ 2.33 11/24/2014
1,000 (2) 1.11% $ 2.28 $ 2.28 12/9/2014
1,250 (2) 1.39% $ 2.00 $ 2.00 12/14/2014
1,250 (2) 1.39% $ 1.80 $ 1.80 12/21/2014
-------------------- ---------------- ----------------- --------------------- ----------------------- ---------------
Michael G. Nicholson 30,000 (3) 33.33% $ 0.90 $ 1.95 5/12/2014
20,000 (4) 22.22% $ 1.95 $ 1.95 5/12/2014
8,000 (1) 8.89% $ 1.95 $ 2.10 11/10/2014
________________________________
(1) Options vest 20% at the date of Grant, and 20% on each anniversary date of
the succeeding four years.
(2) Options vest 100% six months after the date of Grant.
(3) Options vest 100% at date of Grant.
(4) Options vest 50% on each anniversary date of the succeeding two years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options at Fiscal Options at Fiscal
Shares Year End (#) (1) Year End ($) (2)
Acquired On Value ---------------------------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
-------------------- ------------ ------------- ----------------------- --------------------- ------------ --------------
Phillip Levin. . . . -0- $ -0- 27,750 8,500 $ 2,438 $ -0-
Terry J. Logan . . . -0- $ -0- 95,900 26,750 $ 55,185 $ 22,913
Michael G. Nicholson -0- $ -0- 95,600 29,400 $ 97,500 $ 5,850
_________________
(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, 2004 exceeded the exercise price of the options.
There were 94,300 options "in-the-money" that were held by our Named
Executive Officers on December 31, 2004 based upon the $1.95 per share
closing price for the stock on that date.
EMPLOYMENT AGREEMENTS
On September 27, 2004, we executed a Memorandum of Employment with Daniel
J. Haslinger, then employed by us as a Manager, and a member of our Board. Mr.
Haslinger was subsequently appointed Chief Operating Officer in November 2004,
and then appointed Chief Executive Officer in December 2004, effective at
January 1, 2005. Mr. Haslinger agreed to enter into an employment arrangement
with us which is terminable "at will" for $1,500 per month, retroactive to
August 16, 2004. Also on September 27, 2004, we executed a Storage Site
Agreement with Micro Macro Integrated Technologies, Inc., or MMIT, Daniel J.
Haslinger and his spouse, Rebecca S. Haslinger, together referred to as the
Haslingers. Mr. Haslinger is Chief Executive Officer and owner of MMIT. We
agreed with MMIT and the Haslingers to utilize property to transfer material
produced at our Toledo Bayview wastewater treatment facility for $5,000 per
month, retroactive to August 16, 2004.
On June 6, 2003, we entered into an Amended and Restated Employment
Agreement, or the 2003 Agreement, with Michael G. Nicholson at a minimum annual
salary of $110,000. The agreement is for a four-year term, subject to periodic
review and termination for breach. The 2003 Agreement also provides that Mr.
Nicholson shall be entitled to (i) bonuses to be payable at the discretion of
the Board, (ii) other benefits, including life and health insurance, (iii) in
the case Mr. Nicholson's employment is terminated before the end of the term and
Mr. Nicholson incurs legal fees in connection with the termination, we will
reimburse him up to $10,000 for legal fees and related expenses, and (iv) stock
options to purchase 50,000 shares of our Common Stock priced as of the date of
the execution. At the date of the 2003 Agreement, Mr. Nicholson voluntarily
agreed to reduce his minimum annual salary to $90,180 until November 1, 2003, on
which date his $110,000 salary level per the employment agreement was resumed.
In May 2004, Mr. Nicholson reduced his salary by 9% to a rate of $100,100, and
in November 2004 Mr. Nicholson resumed his salary level of $110,000 per the 2003
Agreement. In September 2004, we amended the 2003 Agreement with Mr. Nicholson,
primarily to revise the grant of options to provide for an option to purchase
30,000 shares of our Common Stock at $0.90 per share, and an option to purchase
20,000 shares of our common stock at $1.95 per share. All grants were priced
below the fair market value of our stock price at the date of grant, and we are
recognizing an expense over the four-year period to reflect this.
On June 14, 1999, Dr. Terry J. Logan entered into an employment agreement
with us at a minimum annual salary of $144,000. Such agreement was for a
five-year term, subject to review annually and termination for breach. The
agreement also provided that Dr. Logan will be entitled to (i) bonuses to be
payable at the discretion of the Board, (ii) other benefits, including insurance
and pension plan, as are provided to other executive officers, and (iii) stock
options to purchase 50,000 shares of our 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. In May 2004, Dr. Logan reduced his salary by
17% to $120,000 through the ending date of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Through August of 2004, the members of the Compensation Committee consisted
of Mr. Haslinger, Mr. Burns and Mr. Levin. For the balance of the 2004 fiscal
year, the members consisted of Mr. Burns and Mr. Anderson. Mr. Levin became
Chief Executive Officer in July 2004, and Mr. Haslinger became an employee in
September 2004. From April 2003 until April 2004, Messrs. Levin and Haslinger
were paid fees of $19,500 and $14,000, respectively, for management consulting
work performed outside their duties as directors. Of these fees, $12,000 was
paid to each in unregistered shares of our common stock. Messrs. Levin and
Haslinger also received 4,200 and 5,040, respectively, in unregistered shares of
common stock for board meetings attended in 2002 and 2003 - see "Compensation of
Directors" above. Mr. Haslinger also received $1,385 for operating expenses
incurred in July 2004.
Mr. Haslinger is a member of N-Viro Filipino, our licensee for the
territory of the Philippine Islands, and N-Viro Filipino received $6,000 in May
2004 for engineering services and negotiating the termination of a lease
contract, and $26,618 for various consulting expenses incurred in 2003 through
August 2004. Mr. Haslinger is also a member of Micro Macro Integrated
Technologies, and it received $22,500 for the rental of property pursuant to an
agreement - See "Employment Agreements" above.
For May through August 2004, Mr. Anderson was paid fees of $12,125 and $459
in expenses for management consulting work performed outside his duty as a
director.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
J. Patrick Nicholson, our consultant and father of our director, Michael G.
Nicholson, received fees of $86,565 in 2004 and $109,250 in 2003 for consulting
services pursuant to the terms of two Consulting Agreements in force during 2003
and 2004, one dated December 2, 1999 and the current agreement dated August 28,
2003. Mr. Nicholson also received benefits of approximately $19,423 in 2004 and
$17,269 in 2003, including life insurance and medical benefit payments, pursuant
to the terms of the aforementioned Consulting Agreements. In addition, expenses
totaling $17,000 in 2004 and $7,606 in 2003 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 to us to $-0-. Mr.
Nicholson also received fees for attending board meetings as a member of the
Company's Board of $11,340 in 2004 and $1,500 in 2003. The fees paid in 2004
were in 5,040 unregistered shares of our common stock, and were for meetings
attended in 2002 and 2003 - see "Compensation of Directors" in the previous
section. Also, loan fees and the cost of warrants paid pursuant to the
agreement to provide additional collateral to secure the Company's bank
financing amounted to $3,625 in 2004 and $3,105 in 2003. And, Mr. Nicholson
exercised non-qualified stock options and recognized income of $8,188 in 2004.
In February 2003 we closed on an $845,000 credit facility with Monroe Bank
+ Trust, or the Bank. To secure the credit facility, we were required by the
Bank to obtain additional collateral of $100,000, or the Additional Collateral,
which was obtained via a real estate mortgage from a third party. Messrs. J.
Patrick Nicholson, our former Chairman of the Board and Consultant; Michael G.
Nicholson, our Chief Development Officer and Director; Robert F. Nicholson, our
former employee, and Timothy J. Nicholson, our employee, collectively referred
to as the Nicholsons, provided the Additional Collateral. In exchange for their
commitment, we 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 an aggregate of 50,000 shares of our voting common stock at a purchase
price of $0.90 per share, which was the closing market price of our 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, we granted to the Nicholsons a lien on our
inventory and accounts receivable, subordinated to both existing liens on our
assets and all liens granted by us in favor of the financial institution
providing the credit facility. In February, 2004, the Nicholsons exercised the
warrant and acquired 50,000 shares of our common stock at a purchase price of
$0.90 per share. In February 2005, the Bank amended the facility and released
the Additional Collateral, which terminated the security interest in the lien of
the Nicholsons.
Mr. DiPrete received 5,040 unregistered shares of our common stock for
board meetings attended in 2002 and 2003 - see "Compensation of Directors" in
the previous section.
In 2004, we issued a total of 16,100 shares of unregistered common stock to
Carl Richard, a director, in a private placement. These shares were issued at
$1.25 per share, with associated warrants to purchase additional shares at $1.85
per share.
In 2004, we issued a total of 30,000 shares of unregistered common stock to
Micro Macro Integrated Technologies, a company owned by Daniel Haslinger, a
director, in a private placement. These shares were issued at $1.25 per share,
with associated warrants to purchase additional shares at $1.85 per share.
In 2004, we issued a total of 4,000 shares of unregistered common stock to
Joseph Scheib, a director, in a private placement. These shares were issued at
$1.25 per share, with associated warrants to purchase additional shares at $1.85
per share.
In 2004, we issued a total of 100,001 shares of unregistered common stock
to the Cooke Family Trust in a private placement. These shares were issued at
$1.25 per share, with associated warrants to purchase additional shares at $1.85
per share.
In 2004 we issued 31,200 shares of unregistered common stock to Strategic
Asset Management Inc., or SAMI, in a private placement. Robert Cooke is the
President of SAMI as stated by its most recent filing of Schedule 13D, Amendment
No. 5. These shares were issued at $1.25 per share, with associated warrants to
purchase additional shares at $1.85 per share. The shares were used to pay debt
of ours for fees due SAMI for their expenses relating to the stockholder
derivative litigation initiated in 2003.
LEGAL PROCEEDINGS
In May, 2004, the Court of Chancery of the State of Delaware for New Castle
County, which we refer to as the Court, issued a response to the proposed
settlement of the pending shareholder derivative action, or the Lawsuit, in
negotiations between us, certain directors and Strategic Asset Management, Inc.,
or SAMI, as a result of a hearing with the Court on December 15, 2003. This
response was attached to the Form 10-QSB filed on August 16, 2004. The details
of this settlement were disclosed in a Form 8-K filed on August 29, 2003. As a
result of this response, we negotiated a new Settlement Agreement and Release,
or the Agreement, between us, SAMI and certain directors that was signed by all
parties by June 29, 2004. This Agreement was also attached to the Form 10-QSB
filed on August 16, 2004. Principal monetary changes to the 2003 settlement
agreement was the removal of stock warrants to SAMI. SAMI's costs for the
Lawsuit have been paid in 2004 with $125,000 of cash and by the issuance on
December 31, 2004 of 31,200 shares of unregistered common stock of the Company
valued at $39,000.
On April 21, 2005, the Court issued a final order confirming and approving
the Agreement, a copy of which was attached to the Form 8-K filed on April 29,
2005. The Court awarded $150,000 for fees and expenses to the plaintiffs.
Since we had earlier advanced the plaintiffs $164,000 in fees and expenses, the
plaintiffs have reimbursed us for the $14,000 amount advanced in excess of the
Court-approved amount.
INDEPENDENT AUDITORS
APPOINTMENT OF UHY LLP
The firm of UHY LLP, or UHY, served as our independent auditors for the
year ended December 31, 2004 and has been selected by us to serve as our
independent auditors for the year ending December 31, 2005. UHY was approved as
our independent auditors by the Board on January 23, 2004.
UHY is part of the UHY International network of accounting and consulting
firms, located internationally with over 140 offices and approximately 4,200
employees. UHY 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 our current auditor, UHY, included the audit of our
annual financial statements for 2003 and 2004, and services related to quarterly
filings with the SEC through the reporting period ended September 30, 2004.
Fees for these services totaled approximately $35,800 for 2003 and $52,000 for
2004.
Audit services of our predecessor auditor, Hausser + Taylor, LLP included
the concurring review of the previous audit of our financial statements for
2003. Fees for these services totaled approximately $8,700.
AUDIT RELATED FEES
There were no fees billed for the years ended December 31, 2004 and
December 31, 2003 for assurance and related services by UHY that are reasonably
related to the performance of the audit or review of our financial statements.
TAX FEES
There were no fees billed for the years ended December 31, 2004 and
December 31, 2003 for professional services rendered by UHY for tax compliance,
tax advice, and tax planning.
ALL OTHER FEES
UHY did not provide any consultation or assistance on accounting related
matters for the years ended December 31, 2004 and December 31, 2003.
Although the Audit Committee Charter does not explicitly require it, the
Audit Committee approves all engagements of outside auditors before any work is
begun on the engagement.
PROPOSAL 4 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The firm of UHY LLP served as independent auditors for the year ended
December 31, 2004 and has been selected by us to serve as our independent
auditors for the year ending December 31, 2005. 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 2006 because of
the difficulty and expense of making such a substitution. A representative of
UHY 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.
The audit reports of UHY on our consolidated financial statements for the
fiscal years ended December 31, 2004 and 2003 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
audit scope or accounting principles.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF UHY LLP TO SERVE AS OUR INDEPENDENT AUDITORS
FOR THE YEAR ENDING DECEMBER 31, 2005.
OTHER MATTERS
We are 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 requests that any stockholder proposals intended for inclusion in
our proxy materials for the 2006 Annual Meeting be submitted to James K. McHugh,
Chief Financial Officer, Treasurer and Corporate Secretary of the Company, in
writing no later than December 22, 2005. Unless we have been given written
notice of a stockholder proposal to be presented at the 2006 Annual Meeting,
persons named in the proxies solicited by the Board 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
Exhibit 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.
[N-Viro International Corporation logo]
c/o Corporate Election Services
P. O. Box 1150
Pittsburgh, PA 15230
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
[N-Viro International Corporation logo]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 30, 2005.
Revoking all prior proxies, the undersigned, a stockholder of N-VIRO
INTERNATIONAL CORPORATION (the "Company"), hereby appoints Daniel J. Haslinger
and James K. McHugh, and each of them, attorneys and agents of the undersigned,
with full power of substitution to vote all shares of the Common Stock, par
value $.01 per share (the "Common Stock"), of the undersigned in the Company at
the Annual Meeting of Stockholders of the Company to be held in the Garden Room
of the Toledo Club, 235 14th Street, Toledo, Ohio on June 30, 2005 at 10:00
a.m., local time, and at any adjournment thereof, as fully and effectively as
the undersigned could do if personally present and voting, hereby approving,
ratifying and confirming all that said attorneys and agents or their substitutes
may lawfully do in place of the undersigned as indicated on the reverse. In
their discretion, the proxies are authorized to vote upon any other matters
which may properly come before the meeting or any adjournment thereof.
Dated: , 2005
---------------
----------------------------------
Signature
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Signature
Please sign exactly as your name appears to the left. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in the full corporation name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Please fold and detach card at perforation before mailing.
N-VIRO INTERNATIONAL CORPORATION
PROXY
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS
ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1, FOR PROPOSAL 2, FOR THE
ELECTION OF THE LISTED NOMINEES AS CLASS I DIRECTORS AND FOR PROPOSAL 4.
1. PROPOSAL TO APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
DELETE ARTICLE FIVE OF THE CERTIFICATE IN ITS ENTIRETY.
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
DELETE ARTICLE TEN OF THE CERTIFICATE IN ITS ENTIRETY.
FOR AGAINST ABSTAIN
3. ELECTION OF CLASS I DIRECTORS
Nominees: R. Francis DiPrete FOR AGAINST WITHHOLD
Daniel J. Haslinger FOR AGAINST WITHHOLD
Carl Richard FOR AGAINST WITHHOLD
Joseph H. Scheib FOR AGAINST WITHHOLD
4. RATIFY THE APPOINTMENT OF UHY LLP AS INDEPENDENT AUDITORS
FOR AGAINST ABSTAIN
PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING
Continued and to be signed and dated on the reverse side.