UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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Definitive Proxy Statement
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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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May 2, 2008
To all Our Stockholders:
The Board of Directors cordially invites you to attend our Annual Meeting
of Stockholders. The meeting will be held at Brandywine Country Club, 6904
Salisbury Road, Maumee, Ohio, 43537, on June 17, 2008. 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 2007 and the first quarter of
2008. Our performance for the year ended December 31, 2007 is discussed in the
enclosed 2007 Annual Report to Stockholders.
We hope you will be able to attend the meeting and look forward to seeing
you there.
Sincerely,
/s/ Timothy R. Kasmoch
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Timothy R. Kasmoch
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 17, 2008
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that our Annual Meeting of Stockholders will be held
at Brandywine Country Club, 6904 Salisbury Road, Maumee, Ohio, 43537, on June
17, 2008. 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 adopt an amendment to our 2004 Stock Option Plan to increase the
number of shares available under the plan.
3. To approve an amendment to our Amended and Restated Certificate of
Incorporation to increase the authorized shares of Common Stock.
4. To approve an amendment to our Amended and Restated Certificate of
Incorporation to authorize the Directors to make, alter and repeal by-laws of
the Company.
5. To adopt certain amendments to our Amended and Restated By-Laws.
6. To ratify the appointment of UHY LLP to serve as our independent auditors
for our year ended 2008.
7. 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 2007 Annual Report is also enclosed. Stockholders of record as of
the close of business on April 25, 2008 will be entitled to notice of, and to
vote at, the 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
May 2, 2008
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. 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 ON JUNE 17, 2008
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 (THE "COMPANY") ON OR ABOUT MAY 2, 2008, IN CONNECTION
WITH THE SOLICITATION OF PROXIES BY OUR BOARD OF DIRECTORS TO BE VOTED AT OUR
ANNUAL MEETING OF STOCKHOLDERS (THE "ANNUAL MEETING"), WHICH IS SCHEDULED TO BE
HELD ON TUESDAY, JUNE 17, 2008 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 April
25, 2008. 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 4,317,456 shares of Common Stock outstanding.
WHAT VOTE IS REQUIRED TO APPROVE EACH MATTER?
Proposal One - Election of Directors - Directors will be elected by a
majority of the votes cast, meaning that the number of votes cast "for" a
director nominee must exceed the number of votes cast "against" that director
nominee.
Proposal Two - Approval of the Amendment to our 2004 Stock Option Plan -
The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote at the meeting is needed to approve the amendment
to our 2004 Stock Option Plan.
Proposal Three - Approval of the Increase to the Authorized Common Stock -
The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote at the meeting is needed to approve an amendment
to our Amended and Restated Certificate of Incorporation to increase the number
of shares of authorized Common Stock.
Proposal Four - Approval of the Directors' Power to Adopt, Amend or Repeal
By-Laws - The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote at the meeting is needed to approve an
amendment to our Amended and Restated Certificate of Incorporation to permit the
directors to adopt, amend or repeal by-laws of the Company.
Proposal Five - Approval of Amendments to the By-Laws - The affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the meeting is needed to approve the amendments to the
Amended and Restated By-Laws.
Proposal Six - Ratification of the Selection of UHY LLP - The affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the meeting is needed to ratify the selection of UHY LLP as
our independent registered public accounting firm for the fiscal year ending
December 31, 2008.
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 all six proposals. 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.
If you hold shares through a bank, broker or other nominee, such entity
will give you separate instructions on voting your shares.
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 at the address of the company set
forth above.
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. All of the proposals 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. And, 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,
2007, INCLUDING THE FINANCIAL STATEMENTS, MAY BE OBTAINED WITHOUT CHARGE BY
WRITING TO JAMES MCHUGH, OUR CORPORATE SECRETARY, AT THE ABOVE ADDRESS. The
Annual Report is also available on our website at www.nviro.com under "Investor
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Information".
PROPOSAL 1 - ELECTION OF DIRECTORS
The Board of Directors, pursuant to our Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws, has set the number of directors
to serve for the next year at seven, three of whom are to be elected at the
Annual Meeting to serve as Class II Directors. Our By-Laws provide for a
classified Board consisting of two classes of equal or approximately equal
number based on the total number of directors fixed and determined by a vote of
a majority of our entire Board serving at the time of such vote. The number of
directors is currently set at seven. 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.
The Board is currently composed of four Class I Directors: R. Francis
DiPrete, Carl Richard, Joseph H. Scheib and Mark D. Hagans; and three Class II
Directors: James H. Hartung, Timothy R. Kasmoch and Thomas L. Kovacik (whose
terms will expire upon the election and qualification of directors at the annual
meetings of stockholders to be held in 2009 and 2008, 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.
Each of our Class II Directors - James H. Hartung, Timothy R. Kasmoch and
Thomas L. Kovacik - is presently standing for re-election to the Board. If
elected, the nominees each will serve for a term of two-years and until their
respective successors are elected or until their earlier resignation, removal
from office or death.
Each of the nominees has consented to serve until his term expires if
elected at the Annual Meeting as a Class II Director. 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 Board may designate a substitute
nominee, in which event the proxies reserve the right to vote for such
substitute nominee. The proxy solicited hereby will not be voted to elect more
than three Class II Directors.
Under our By-Laws, a nominee for Class II Director must be elected by a
majority of the votes cast, meaning that the number of votes cast "for" a
director nominee must exceed the number of votes cast "against" that director
nominee. Under Delaware law, if an incumbent nominee for director in an
uncontested election does not receive the requisite votes for reelection, the
director remains in office as a "holdover" director until a successor is elected
and qualified.
The Board has recently adopted a policy under which the Board will nominate
for election or re-election as a Director only candidates who agree to tender,
promptly following their failure to receive the required vote for election or
re-election at the next meeting at which they would face election or
re-election, an irrevocable resignation that will be effective upon acceptance
by the Board. In addition, the Board will fill Director vacancies and new
directorships only with candidates who agree to tender the same form of
resignation, promptly following their appointment to the Board, providing that
Proposal 5 passes. Each of Messrs. Hartung, Kasmoch and Kovacik has submitted
such a resignation to the Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT MESSRS. HARTUNG, KOVACIK AND KASMOCH
BE ELECTED AT THE ANNUAL MEETING AS CLASS II DIRECTORS. The Board intends to
vote proxies received from stockholders for the election of the three Class II
Directors named above.
Certain information about all of the directors and nominees for director is
furnished below.
DIRECTORS OF THE COMPANY
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.
Name Age Position
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R. Francis DiPrete 53 Class I Director
Mark D. Hagans 41 Class I Director
James H. Hartung 65 Class II Director *
Timothy R. Kasmoch 46 Class II Director, President and Chief Executive Officer *
Thomas L. Kovacik 60 Class II Director *
Carl Richard 81 Class I Director
Joseph H. Scheib 51 Class I Director
_____________
* Directors currently nominated for re-election.
R. FRANCIS DIPRETE is a self-employed attorney and business consultant in
Scituate, Rhode Island. From March 1999 until December, 2003, Mr. DiPrete
served as President and Board Chairman of Strategic Asset Management, Inc., a
Nevada corporation and holding company that provides financial consulting
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 and Compensation
Committees.
MARK D. HAGANS is an attorney and partner with the law firm of Plassman, Rupp,
Short & Hagans, of Archbold, Ohio, and his practice focuses on corporation,
taxation and banking law. Mr. Hagans serves on numerous Boards of directors,
including the Fulton County Health Center, where he is presently chair of the
Finance Committee. Mr. Hagans earned his law degree from the University of
Toledo. Mr. Hagans has served as our Director since December 2006 and is a
member of the Board's Audit, Finance and Technology Committees.
JAMES H. HARTUNG is the President and Chief Executive Officer of the
Toledo-Lucas County (Ohio) Port Authority, a position he has held since 1994.
Mr. Hartung has served as our Director since January 2006 and is a member of the
Board's Compensation and Nominating Committees. Mr. Hartung's son, Howard, was
our Chief Operating Officer until his resignation in January 2008.
TIMOTHY R. KASMOCH has been our President and Chief Executive Officer since
February 2006 and a Director since January 2006. Until April 1, 2007, Mr.
Kasmoch was also President and CEO of Tri-State Garden Supply, d/b/a
Gardenscape, a bagger and distributor of lawn and garden products, which
provides trucking services to our Company. Mr. Kasmoch is a graduate of Penn
State University. Mr. Kasmoch is a member of the Board's Finance and Technology
Committees.
THOMAS L. KOVACIK is presently employed as the Executive Director of
Transportation Advocacy Group of Northwest Ohio ("TAGNO"), a strategic planning
organization working with local and Ohio transportation and economic development
officials. Mr. Kovacik was previously employed by us from 1992 to 1995 as
President of Great Lakes N-Viro, at the time one of our divisions. Mr. Kovacik
has also held various positions with local government, utilities and
environmental companies, and earned a masters degree from Bowling Green State
University in Geochemistry. Mr. Kovacik has served as our Director since
December 2006, and is a member of the Board's Compensation and Technology
Committees.
CARL RICHARD is currently an Executive Vice-President of P.R. Transportation, a
trucking company located in Toledo, Ohio, and was a consultant to us from
January 2006 to April 2007. 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
Nominating Committee.
JOSEPH H. SCHEIB is the Chief Financial Officer of Broad Street Software Group,
a comprehensive software technology company located in Edenton, North Carolina,
a position he has held since June 2003. 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 a member of the Board's Audit, Finance and
Nomination Committees.
KEY RELATIONSHIPS
James Hartung, a member of our Board of Directors, is the father of Howard
Hartung, who was our Chief Operating Officer and one of our executive officers
until his resignation as an employee in January 2008.
CORPORATE GOVERNANCE AND BOARD MATTERS
MEETINGS OF THE BOARD OF DIRECTORS
Our business, property and affairs are managed under the direction of our
Board. The Board presently consists of seven members. Our Board held four
formal meetings during 2007, consisting of two regular meetings and two special
meetings. Each director attended at least 75% of the aggregate number of
meetings held by the Board of Directors and the Committees of the Board of
Directors on which he served. It is the policy of the Company that the members
of the Board 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 2007 Annual Meeting.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD
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.
BOARD INDEPENDENCE
Although we are not subject to the listing requirements of any stock
exchange, we are committed to a board in which a majority of our members consist
of independent directors, as defined under the NASDAQ rules. In the past, we
have looked to the NYSE listed company requirements for the determining
independence of directors, however, it is much more likely that, in the event
that we apply for listing on an exchange, we would apply for listing on NASDAQ.
The Board has reviewed the independence of its members, applying the NASDAQ
standards and considering other commercial, legal, accounting and familial
relationships between the Directors and us. The Board has determined that all
of the Directors are independent other than Mr. Kasmoch, who is not an
independent Director by virtue of his current position as our chief executive
officer. Mr. Hartung, who was not independent during 2007 by virtue of his son,
Howard Hartung, serving as one of our executive officers, is now independent as
Howard Hartung resigned as our employee in January 2008.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has the following standing committees: the Audit Committee, the
Compensation Committee, the Finance Committee, the Nominating Committee and the
Technology Committee. The composition and function of each Committee is set
forth below:
DIRECTOR AUDIT COMPENSATION NOMINATING FINANCE TECHNOLOGY
R. Francis DiPrete X X
Mark D. Hagans X X* X
James H. Hartung X X
Timothy R. Kasmoch X X*
Thomas L. Kovacik X* X
Carl Richard X
Joseph H. Scheib X* X* X
* Committee Chair
AUDIT COMMITTEE
Our Audit Committee consists of Messrs. Scheib, DiPrete and Hagans. In
accordance with our Audit Committee Charter, each of the Audit Committee members
must be "independent" as determined under the NASDAQ rules. The Audit
Committee currently is not subject to, and does not follow, the independence
criteria set forth in Section 10A of the Securities Exchange Act 1934, as
amended. The Board has determined that each of the directors who serve on the
Audit Committee are "independent" under the NASDAQ rules, meaning that none of
them has a relationship with us that may interfere with their independence from
us and our management. Further, the Board has determined that Mr. Scheib
qualifies as a "financial expert" as defined by the Securities and Exchange
Commission (the "SEC").
The Audit Committee 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. During 2007,
the Audit Committee met two times. The Audit Committee has retained UHY LLP to
conduct the audit for the year ended December 31, 2008. The Audit committee is
governed by a written charter, a copy of which was attached to the Proxy
Statement for our annual meeting held on June 8, 2007.
We have 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
14.1 to our Annual Report on Form 10-KSB for the year ended December 31, 2007,
and is posted on our web site at www.nviro.com.
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COMPENSATION COMMITTEE
The Compensation Committee determines officers' salaries and bonuses and
administers the grant of stock options pursuant to our stock option plans. The
Compensation Committee does not have a written charter. The Compensation
Committee currently consists of Messrs. Kovacik, DiPrete and Hartung. The
Compensation Committee met two times during 2007.
The Board has determined that a majority of the members of the committee
are "independent" as determined under the NASDAQ standards. During 2007, Mr.
Hartung was not "independent" due to his son, Howard Hartung, serving as one of
our executive officers. Despite his lack of "independence," the Board
determined that Mr. Hartung's exercise of independent judgment was not affected
by this relationship. In January 2008, Mr. Hartung's son resigned from
employment with us.
FINANCE COMMITTEE
The Finance Committee, consisting of Messrs. Hagans, Kasmoch and Scheib,
assists in monitoring our cash flow requirements and approves any internal or
external financing or leasing arrangements. The Finance Committee does not have
a written charter. This committee met once during 2007.
NOMINATING COMMITTEE
The Nominating Committee, consisting of Messrs. Scheib, Richard and
Hartung, 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 written
charter. The committee met one time during 2007.
The Board has determined that a majority of the members of the committee
are "independent" as determined under the NASDAQ standards. Mr. Hartung was not
"independent" during 2007; however, the Board determined that Mr. Hartung's
exercise of independent judgment was not affected by this relationship. Mr.
Hartung is now considered "independent" as of January 2008, effective with the
resignation from our employment of his son, Howard Hartung.
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. Recommended candidates must be of the highest
character and integrity, free of any conflicts of interest and possess the
ability to work collaboratively 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.
It is generally the policy of the Board to consider the stockholder
recommendations of proposed director nominees, if such recommendations are
seriously made and timely received under applicable SEC regulations. To be
considered "timely received," recommendations must be received in writing at our
principal executive offices, at N-Viro International Corporation, 3450 W.
Central Avenue, Suite 328, Toledo, Ohio 43606, Attention: Chairman, Nominating
Committee, c/o James K. McHugh, Corporate Secretary, no later than February 18,
2009.
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. In addition, any stockholder director
nominee recommendation must include, at a minimum, the following information:
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" under the NASDAQ
standards. 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; consents to serve on the
Board if elected; and acknowledges that such candidate will comply with the
Board's policy of tendering a resignation that will become effective
automatically only in the event that that candidate fails to receive a majority
of the votes cast in an election of directors subject to majority
voting-provided that Proposal 5 passes.
COMPENSATION OF DIRECTORS
Our Board of Directors 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 of Directors 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.
Under our current stock option plan, approved by the stockholders in May
2004, each non-employee Director automatically receives a 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 provided 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 any additional compensation
for serving as Directors. Directors who are our consultants do not receive any
additional cash compensation for serving as Directors, but do receive stock
options per the provisions of the 2004 Stock Option Plan.
See "Certain Relationships and Related Transactions" for additional
compensation to Directors.
DIRECTOR COMPENSATION
Fees Non-Equity Non-Qualified Non-Qualified
Earned or Incentive Incentive Deferred All
Paid in Stock Option Plan Plan Compensation Other
Name Cash Awards Awards Compensation Compensation Earnings Compensation (1) TOTAL
------------------ ---------- ------- -------- ------------- -------------- -------------- ----------------- --------
R. Francis DiPrete $ 2,000 - $ 13,690 - - - - $ 15,690
Joseph H. Scheib $ 3,000 - $ 20,812 - - - - $ 23,812
Carl Richard $ 2,000 - $ 20,812 - - - $ 4,848 $ 27,660
James H. Hartung $ 3,000 - $ 20,812 - - - - $ 23,812
Mark D. Hagans $ 3,000 - $ 20,812 - - - - $ 23,812
Thomas L. Kovacik $ 3,000 - $ 20,812 - - - - $ 23,812
Timothy R. Kasmoch - - - - - - - $ 0
---------- ------- -------- ------------- -------------- -------------- ----------------- --------
$ 16,000 $ 0 $117,750 $ 0 $ 0 $ 0 $ 4,848 $138,598
========== ======= ======== ============= ============== ============== ================= ========
(1) Represents consulting fees paid to Mr. Richard pursuant to a consulting
contract which was terminated in April 2007.
PROPOSAL 2 - ADOPTION OF THE AMENDED AND RESTATED
2004 STOCK OPTION PLAN
In April 2008, our Board of Directors voted to adopt amendments to the 2004
Stock Option Plan to increase the number of shares of Common Stock available for
issuance from 1,000,000 to 1,500,000, subject to stockholder approval at the
annual meeting, and to make other technical amendments to the plan. A copy of
the proposed Amended and Restated 2004 Stock Option Plan is attached to this
proxy statement as Appendix A.
Our stockholders originally approved the adoption of the 2004 Stock Option
Plan in June 2004. As of April 25, 2008, options to purchase 703,875 shares of
our Common Stock were outstanding under the plan, and options to purchase
162,250 shares of our Common Stock under the plan had been exercised. As a
result, we only have 133,875 shares available for future grant under the 2004
Stock Option Plan as of April 25, 2008. We have no other stock incentive plans
under which we may grant stock options or other stock-based awards.
Our Board of Directors believes that our future success depends, in large
part, upon the ability to maintain a competitive position in attracting,
retaining and motivating qualified officers, other key employees and
non-employee Directors. Accordingly, our Board of Directors believes that
increasing the number of shares available for issuance pursuant to the 2004
Stock Option Plan is in our best interest and the best interests of our
stockholders.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote at the meeting is needed to approve the
amendment to our 2004 Stock Option Plan.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO INCREASE
THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE PURSUANT TO THE 2004 STOCK OPTION
PLAN BY AN ADDITIONAL 500,000 SHARES.
DESCRIPTION OF THE 2004 STOCK OPTION PLAN
The flowing is a brief summary of the 2004 Stock Option Plan. References
to our Board of Directors throughout this summary also refer to any committee or
officer which our Board of Directors has delegated authority with respect to the
2004 Stock Option Plan
Purpose of the 2004 Stock Option Plan
The purpose of the 2004 Stock Option 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 Stock Option Plan
The 2004 Stock Option Plan is administered by our 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 (the "Code") Section 162(m) and the regulations
promulgated under such section. The administrator of the 2004 Stock Option Plan
is authorized, subject to the provisions of the 2004 Stock Option Plan, to
establish such rules and regulations as it may deem appropriate for the proper
administration of the 2004 Stock Option Plan, and to make such determinations
under, and such interpretations of, and to take such steps in connection with,
the 2004 Stock Option Plan and plan awards as it may deem necessary or
advisable.
The 2004 Stock Option Plan will have a duration of 10 years from the date
the 2004 Stock Option Plan became effective. Accordingly, the 2004 Stock Option
Plan will terminate on June 30, 2014, unless sooner terminated by the Board.
Upon such termination, the outstanding awards granted under the 2004 Stock
Option Plan will remain in effect until their exercise, expiration, or
termination. The Board may at any time terminate the 2004 Stock Option Plan, or
amend the 2004 Stock Option Plan as it deems advisable; provided that, to the
extent determined by our Board of Directors, no amendment requiring stockholder
approval under any applicable legal, regulatory or listing requirement will
become effective until such stockholder approval is obtained. 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 our Common Stock is listed.
Types of Awards
The 2004 Stock Option Plan provides for certain automatic grants to
non-employee Directors of options to purchase shares of our Common Stock, 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
Stock Option Plan.
Discretionary Awards; Option Price and Term. Stock option awards under the
2004 Stock Option Plan may be in the form of "incentive stock options," which
are options that meet the requirements of Section 422 of the Internal Revenue
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 our capital stock, the per
share exercise price of an incentive stock option granted or to be granted
pursuant to the 2004 Stock Option 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 Stock Option Plan, if the Common Stock is publicly
traded, the "fair market value" of a share of Common Stock is determined by
reference to the average 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, for the ten trading days immediately
preceding the day on which the grant is made. For periods in which no trades or
quotations have been reported for at least ten business days in the thirty
calendar days before the date of grant, 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 Stock Option 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 Stock Option 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 our Common Stock, 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 our Common Stock 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 approval of the proposed amendment, the number of shares of
Common Stock that may be issued by outstanding awards granted under the 2004
Stock Option Plan will not in the aggregate exceed 1,500,000, which may be
original issue shares, treasury shares, or a combination thereof. If the
proposed amendment is not approved, the number of shares of Common Stock that
may be issued under the 2004 Stock Option Plan will not in the aggregate exceed
1,000,000.
To the extent that awards granted under the 2004 Stock Option 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 Stock Option Plan. Provision is made under the 2004 Stock
Option Plan for appropriate adjustment in the number of shares of Common Stock
covered by the 2004 Stock Option 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 our non-employee Directors, all of our employees who are
designated by the administrator for participation in the 2004 Stock Option Plan
are eligible to receive awards under the 2004 Stock Option Plan. As of the date
hereof, there were approximately 25 individuals employed by us who were eligible
to participate in the 2004 Stock Option Plan. No incentive stock option will be
granted to any employee who, immediately after such option is granted, owns our
capital stock possessing more than 10% of the total combined voting power or
value of all classes of our capital 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 Stock Option Plan to consultants who are not our employees,
except that incentive stock options may not be granted to such non-employees. An
incentive stock option will be granted under the 2004 Stock Option 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 Stock Option Plan so that such options shall in no event
cover more than a maximum of 200,000 shares of Common Stock, unless the Board of
Directors amends the plan to increase such maximum.
Limitations on Transferability and Effect of Death or Termination of Employment
Except as otherwise provided by the administrator, awards granted under the
2004 Stock Option 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) is involuntarily
terminated, or is terminated by the participant without our 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 Stock Option 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.
Plan Benefits
As of April 25, 2008, approximately 31 persons were eligible to receive
awards under the 2004 Stock Option Plan, including our employees, executive
officers and Directors. Other than automatic grants of options to Directors
pursuant to the 2004 Stock Option Plan, the granting of awards under the 2004
Stock Option Plan is discretionary and we cannot now determine the number of
shares underlying the options to be granted in the future to any particular
person or group.
The table below sets forth information regarding options we have granted
under the 2004 Stock Option Plan since its adoption through April 25, 2008:
NUMBER OF SECURITIES WEIGHTED AVERAGE
UNDERLYING OPTIONS PER SHARE EXERCISE
NAME AND POSITION GRANTED PRICE
Timothy R. Kasmoch, President and Chief Executive Officer 252,500 $ 2.00
Robert W. Bohmer, V.P. Business Development and General Counsel 100,000 $ 2.80
James K. McHugh, Chief Financial Officer, Secretary and Treasurer 62,000 $ 2.02
All current executive officers as a group 414,500 $ 2.19
All current Directors who are not executive officers as a group 169,100 $ 2.36
All employees who are not executive officers as a group -0-
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to awards granted under the
2004 Stock Option Plan. This summary is based on the federal tax laws in effect
as of the date of this proxy statement. In addition, this summary assumes that
all awards are exempt from, or comply with, the rules under Section 409A of the
Code regarding nonqualified deferred compensation. The plan provides that no
award will provide for deferral of compensation that does not comply with
Section 409A of the Code, unless the Board, at the time of grant, specifically
provides that the award is not intended to comply with Section 409A. Changes to
these laws could alter the tax consequences described below.
Incentive Stock Options. A participant will not have income upon the grant
of an incentive stock option. Also, except as described below, a participant
will not have income upon exercise of an incentive stock option if the
participant has been our employee at all times beginning with the option grant
date and ending three months before the date the participant exercises the
option. If the participant has not been so employed during that time, then the
participant will be taxed as described below under "Non-statutory Stock
Options." The exercise of an incentive stock option may subject the participant
to the alternative minimum tax.
A participant will have income upon the sale of the stock acquired under an
incentive stock option at a profit (if sales proceeds exceed the sum of the
exercise price). The type of income will depend on when the participant sells
the stock. If a participant sells the stock more than two years after the option
was granted and more than one year after the option was exercised, then all of
the profit will be long-term capital gain. If a participant sells the stock
prior to satisfying these waiting periods, then the participant will have
engaged in a disqualifying disposition and a portion of the profit will be
ordinary income and a portion may be capital gain. This capital gain will be
long-term if the participant has held the stock for more than one year and
otherwise will be short-term. If a participant sells the stock at a loss (sales
proceeds are less than the exercise price), then the loss will be a capital
loss. This capital loss will be long-term if the participant held the stock for
more than one year and otherwise will be short-term.
Non-statutory Stock Options. A participant will not have income upon the
grant of a non-statutory stock option. A participant will have compensation
income upon the exercise of a non-statutory stock option equal to the value of
the stock on the day the participant exercised the option less the exercise
price. Upon sale of the stock, the participant will have capital gain or loss
equal to the difference between the sales proceeds and the value of the stock on
the day the option was exercised. This capital gain or loss will be long-term if
the participant has held the stock for more than one year and otherwise will be
short-term.
Tax Consequences to Us. There will be no tax consequences for us except
that we will be entitled to a deduction when a participant has compensation
income. Any such deduction will be subject to the limitations of Section 162(m)
of the Code.
PROPOSAL 3 - ADOPTION OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In April 2008, our Board approved, subject to adoption by our stockholders,
two amendments to the Amended and Restated Certificate of Incorporation (the
"Certificate") which are described in Proposal 3 and Proposal 4 in this proxy
statement. The proposed amendments are set forth in the Second Amended and
Restated Certificate of Incorporation attached to this proxy statement as
Appendix B.
This Proposal 3 sets forth a proposed amendment to Article Four of the
Certificate to increase the number of authorized shares of Common Stock from
7,000,000 to 15,000,000. As a result of the proposed increase to the number of
shares of Common Stock, the total number of authorized shares of capital stock
of the Company will be increased to 17,000,000. The additional shares of Common
Stock proposed to be authorized under the Certificate would have rights
identical to currently outstanding Common Stock.
As of April 25, 2008, there were 4,317,456 shares of Common Stock and no
shares of Preferred Stock issued and outstanding. In addition, as of the same
date, the Board of Directors had reserved an aggregate of 780,275 shares for
issuance upon exercise of outstanding options and stock awards granted under the
1998 Stock Option Plan and the 2004 Stock Option Plan, and an aggregate of
742,404 shares for issuance upon exercise of outstanding warrants to purchase
shares of Common Stock. Accordingly, as of April 25, 2008, 1,159,865 shares of
Common Stock and 2,000,000 shares of Preferred Stock remained unreserved and
available for future issuance.
Our Board of Directors believes that the authorization of the additional
shares of Common Stock is necessary to provide us with the flexibility to issue
shares of Common Stock in connection with possible future financings, joint
ventures, acquisitions, stock incentive plans and other general corporate
purposes, without the expense and delay of further stockholder approval. These
purposes may include raising funds to meet our working capital needs, providing
equity incentives to employees, officers or Directors, establishing strategic
relationships with other companies, expanding our business through acquisitions
and other investment opportunities and other purposes. For instance, in this
proxy statement, we are seeking stockholder approval for an amendment to our
2004 Stock Option Plan to increase the number of shares of Common Stock
authorized for issuance under that plan.
We do not currently have any plans, understandings, arrangements,
commitments or agreements, written or oral, for the issuance of the additional
shares of Common Stock that would be authorized if this proposal is approved. If
this Proposal 3 is adopted by the stockholders, our Board of Directors will have
authority to issue these additional shares of Common Stock without the necessity
of further stockholder action. Holders of the Common Stock have no preemptive
rights with respect to any shares that may be issued in the future.
The holders of all classes of stock are not entitled to preemptive rights
with respect to the issuance of additional stock or securities convertible into,
or exercisable for, stock. Approval of the amendment and issuance of the
additional stock would not affect the rights of the holders of our currently
outstanding stock, except for effects incidental to increasing the number of
shares of our stock outstanding, such as dilution of the earnings per share and
voting rights of current holders of stock.
Adoption of Proposal 3 requires the affirmative vote of the holders of a
majority of our outstanding shares of Common Stock entitled to vote at the
meeting. Under Delaware law, stockholders are not entitled to dissenter's
rights with respect to the proposed amendment to our Amended and Restated
Certificate of Incorporation.
If Proposal 3 and Proposal 4 are adopted by the stockholders, we intend to
file the Second Amended and Restated Certificate of Incorporation in the form
attached to this proxy statement as Appendix B, promptly following the annual
meeting. If Proposal 3 is approved but Proposal 4 is not approved, or vice
versa, we intend to file a Second Amended and Restated Certificate of
Incorporation reflecting only the proposal adopted by our stockholders.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE
AMENDMENT TO THE CERTIFICATE TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK.
PROPOSAL 4 - ADOPTION OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
AUTHORIZE THE BOARD TO MAKE, ALTER AND REPEAL BY-LAWS
As discussed in Proposal 3, our Board has approved, subject to adoption by
our stockholders, two amendments to the Certificate. This Proposal 4 relates to
a proposed amendment to Article Five of the Certificate to authorize the Board
to make, alter and repeal the Company's by-laws.
As reflected in Appendix B attached to this proxy statement, if this
Proposal 4 is approved, Article Five of will read in its entirety as follows:
"In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter and repeal the
By-Laws of the Company. Notwithstanding any provision of this Amended and
Restated Certificate of Incorporation to the contrary, unless such action has
been approved by a majority vote of the full Board of Directors of the Company
and the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%)
of the votes which all stockholders of the then outstanding shares of capital
stock of the Company would be entitled to vote thereon, voting together as a
single class, shall be required to amend or repeal this Article Five."
Section 109 of the Delaware General Corporation Law provides that in order
for a board or directors to have the power to adopt, amend or repeal by-laws of
a corporation, the Certificate of Incorporation of the corporation must include
a provision conferring such powers upon the board of directors. Absent such a
provision, the by-laws of a corporation may be adopted, amended or repealed only
by the stockholders.
The Certificate currently does not permit our Board to make, alter or
repeal the Company's by-laws. At the annual meeting of stockholders held on
June 30, 2005, the stockholders approved an amendment which removed all of the
provisions of Article Five, which provisions included, among other things, the
right of the Board to make, alter and repeal by-laws. In hindsight, the Board
has concluded that the prior amendment adopted by the stockholders was overbroad
in that it removed the right of the Board to make, alter or repeal by-laws. The
prior amendment also removed certain provisions relating to the number, term of
office and removal of directors, which were duplicative of provisions in our
By-laws.
The certificates of incorporation of many public companies authorize their
boards of directors to adopt, amend or repeal the by-laws. This authority
allows the boards of directors of these companies to make changes to and update
the by-laws in a quick and flexible manner without requiring stockholder
approval. Even with this amendment, the stockholders always have the power to
adopt, amend or repeal the by-laws. Further, under Delaware law, certain
By-laws will require the approval of the stockholders.
The proposed amendment to Article Five would reinstate the Board's ability
to make, alter or repeal the by-laws of the Company under Delaware law.
Further, any further amendment or repeal of Article Five would require a
majority vote of the Board of Directors and the affirmative vote of at least 66
2/3% of all stockholders of the then outstanding shares of capital stock.
Adoption of Proposal 4 requires the affirmative vote of the holders of a
majority of our outstanding shares of Common Stock entitled to vote at the
meeting. Under Delaware law, stockholders are not entitled to dissenter's
rights with respect to the proposed amendment to our Amended and Restated
Certificate of Incorporation.
If Proposal 3 and Proposal 4 are adopted by the stockholders, we intend to
file the Second Amended and Restated Certificate of Incorporation in the form
attached to this proxy statement as Appendix B, promptly following the annual
meeting. If Proposal 3 is approved but Proposal 4 is not approved, or vice
versa, we intend to file a Second Amended and Restated Certificate of
Incorporation reflecting only the proposal adopted by our stockholders.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE
AMENDMENT TO ARTICLE V OF THE CERTIFICATE TO AUTHORIZE THE BOARD TO MAKE, ALTER
AND REPEAL BY-LAWS.
PROPOSAL 5 - ADOPTION OF THE SECOND
AMENDED AND RESTATED BY-LAWS
In April 2008, our Board approved, subject to adoption by stockholders,
certain amendments to the By-Laws. The proposed changes are marked as changed
text to the Second Amended and Restated By-laws attached to this proxy statement
as Appendix C. The proposed amendments generally fall into one of three
categories: (i) amendment in furtherance of the majority voting standard for
election of directors, (ii) anti-takeover protections, including supermajority
voting requirements for future amendments to certain provisions, and (iii)
amendments relating to calling and quorum requirements for meetings of the
Board.
Approval of the proposed amendments contained in the Second Amended and
Restated By-laws requires the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock entitled to vote at the meeting.
AMENDMENTS IN FURTHER OF MAJORITY VOTING FOR ELECTION OF DIRECTORS
The proposed amendments to the By-laws include two modifications to Article
I of the By-Laws intended to clarify the procedures for the election of
Directors.
The first modification is to Section 7 of Article I and provides that in
the event that the number of nominees for director exceeds the number of
directors to be elected, the nominees will be elected by plurality voting,
rather than majority voting.
Generally, at each meeting of the stockholders for the election of
Directors at which a quorum is present, each nominee for a Director shall be
elected by a majority of the votes cast. However, if, as of the record date for
such meeting, the number of nominees exceeds the number of Directors to be
elected, the majority voting standard would make a "failed" election - where
there are not sufficient votes to elect the number of directors to be elected -
much more likely. Instead, as amended, Section 7 of Article I would provide for
plurality voting under such circumstances, meaning that the nominees receiving
the greatest number of votes would become the Directors for the term as set
forth in the By-Laws. No more than the authorized number of Directors to be
elected as fixed by the Board of Directors would be elected. If Directors are
to be elected by a plurality of the votes cast, stockholders will not be
permitted to vote against a nominee.
In addition to the modification of Section 7, the proposed amendments to
Article I include the adoption of a new Section 10 of the By-Laws, requiring
advance notice as to each person nominated by a stockholder for election or
re-election as a Director. Under proposed Section 10, a stockholder must
provided the following information about a stockholder nominee for director: (i)
all information relating to the nominee as would be required to be disclosed in
proxy solicitations, (ii) the nominee's written consent to serve as a Director
if elected, and (iii) a statement whether the nominee, if elected, intends to
tender an irrevocable resignation effective upon the failure to receive the
required vote for re-election at the next meeting. Similar requirements,
including the submission of a conditional resignation, apply to the incumbent
director nominees. See "Proposal 1 - Election of Directors" for a description
of the Board's resignation policy.
The Board approved these amendments to Article I in order to ensure an
orderly and modern system of electing directors, while preserving the basic
majority voting standards for the election of directors. By replacing majority
voting with plurality voting in contested elections, the Board intends to
provide stockholders a more active role in the director election process, while
avoiding the risks of "failed" elections in the event that the number of
nominees exceeds the number of directors to be elected.
Plurality voting would apply in situations where the Company's Secretary
receives notice that a stockholder has nominated a person to the Board of
Directors in compliance with the advance notice requirements for stockholder
nominees for Director and such nomination has not been withdrawn by such
stockholder by the tenth day before the Company first mails its notice for such
meeting to the stockholders. Generally, the system of plurality voting has long
been the accepted system among major U.S. companies, and the rules governing
plurality voting are well known and understood. A combination of plurality
voting and advance agreement to resign if a director nominee fails to receive
the required vote constitutes "modified plurality voting." Modified plurality
voting policies have been adopted by a number of corporations and are supported
by the American Bar Association Committee on Corporate Laws, which recently
adopted amendments to the Model Business Corporation Act that provide an
optional modified plurality voting standard for public corporations.
In combination, the Board believes that the amendments to Article I of the
By-Laws will help attract and retain the best director candidates. If neither
amendment is approved, the Board believes that there could be a risk that future
Director elections would attract organized opposition from so-called "activist
shareholders" who, in the Board's view, would likely be seeking to further their
own agendas instead of promoting the long-term best interests of the Company.
The possibility that these efforts might succeed in denying a nominee the
necessary majority vote and thereby trigger a requirement for what could be an
embarrassing public resignation poses, in the opinion of the Board, a threat to
the Company's continuing ability to attract and retain Director the best
candidates.
ANTI-TAKEOVER PROTECTIONS: SUPERMAJORITY VOTING FOR TO CHANGE THE BOARD AND
ENHANCED REQUIREMENTS FOR SPECIAL MEETINGS AND QUORUMS
The proposed amendments include modifications to Article II of the By-Laws
that may have the effect of discouraging an attempt to takeover the Company
without the prior approval of our Board of Directors. Specifically, the
proposed amendments to Article II would require the affirmative vote of at least
66 2/3% of the votes represented by outstanding shares of capital stock entitled
to vote to:
- amend or repeal Article II, Section 1, governing the number and term of
the Board of Directors;
- remove any Director and fill the resulting vacancy under Article II,
Section 2; and
- amend or repeal Article II, Section 2 governing removal, vacancies, and
additions to the Board of Directors.
These amendments may have the general effect of discouraging, or rendering
more difficult, an unfriendly takeover or acquisition attempt. Consequently,
such a provision would be beneficial to the current Board and management in an
unfriendly takeover attempt but may have an adverse effect on shareholders who
might wish to participate in such a transaction. However, the board believes
that such a provision is advantageous to shareholders in that it will require a
higher level of shareholder participation and consent than currently would be
required and therefore would increase the discussion and understanding of any
such proposal. Further, the Board believes that the Company is in a vulnerable
position, given its low stock price versus the value of its intellectual
property portfolio and future prospects - particularly with its N-Viro Fuel
product.
In addition to the foregoing modifications to Sections 1 and 2 of Article
II, the proposed amendments to Article II include the adoption of a new Section
11 to permit the Board of Directors, when evaluating any tender offer, offer of
merger or consolidation, or offer of purchase, to give due consideration to all
relevant factors, including the social, legal, environmental and economic
effects on the employees, customers, suppliers and other affected persons,
firms, and corporations and on the communities and geographical areas in which
the Company and its subsidiaries operate or are located, as well as such other
factors as the directors deem relevant. Such a clause is commonly referred to
as "constituency clause," and it gives the Directors greater flexibility in
considering offers to purchase the Company or to tender the Company's shares,
rather than simply the single consideration of offer price.
AMENDMENTS REGARDING BOARD OF DIRECTORS MEETING
The final set of proposed modifications to the By-laws are amendments to
Sections 5 and 6 of Article II. The amendment to Section 5 would require the
Chairman, the President, or any four of the Directors then in office to convene
a special meeting of the Board of Directors and the amendment to Section 6 would
define a quorum of the Board as a majority of the members of the Board of
Directors in office plus one Director (but in no case less than 1/3 of the total
number of Directors). The purpose for these amendments to insure that there is
agreement among a significant number of Directors to call special meetings and
that a significant number of Directors are present at each meeting of Directors
to conduct business. As amended and in light of the current seven member Board,
a quorum would require five Directors.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE
AMENDMENTS SET FORTH NI THE SECOND AMENDED AND RESTATED BY-LAWS.
PROPOSAL 6 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The firm of UHY LLP served as independent auditors for the year ended
December 31, 2007 and has been selected by us to serve as our independent
auditors for the year ending December 31, 2008. 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 2009 because of
the difficulty and expense of making such a substitution. A representative of
UHY is expected to attend the Annual Meeting and therefore will be available to
respond to appropriate questions at the Annual Meeting.
The audit reports of UHY on our consolidated financial statements for the
fiscal years ended December 31, 2007 and 2006 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, 2008.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We had outstanding 4,317,456 shares of Common Stock, $.01 par value per
share, or the Common Stock, on April 25, 2008, which constitutes the only class
of our outstanding voting securities.
FIVE PERCENT STOCKHOLDERS
At April 25, 2008, the following were the only persons known to us to own
beneficially more than 5% of the outstanding shares of Common Stock:
Name Amount and Percentage of
Title of and Address of Nature of Outstanding Shares
Class Beneficial Owner Beneficial Ownership of Common Stock
------------ ----------------------------------------------------- -------------------- -------------------
Cooke Family Trust (1)
90 Grande Brook Circle, #1526
Common Stock Wakefield, Rhode Island 02879 873,886 19.26%
------------ ----------------------------------------------------- -------------------- -------------------
1. The shares attributed to the Cooke Family Trust include 653,886 shares owned
beneficially and 220,000 in Common Stock warrants exercisable to purchase an equal number of
shares of Common Stock. This information was derived from the Schedule 13D Amendment #3 filed
on September 6, 2006.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of April 25, 2008, 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 4,317,456 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.
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership 1 Percent of Class
-------------- ------------------------------------- -------------------- -----------------
Common Stock R. Francis DiPrete 154,190 2 3.46%
Common Stock Mark D. Hagans 9,750 3 0.23%
Common Stock James H. Hartung 28,500 4 0.66%
Common Stock Timothy R. Kasmoch 405,000 5 8.77%
Common Stock Thomas L. Kovacik 8,750 6 0.20%
Common Stock Carl Richard 135,350 7 3.07%
Common Stock Joseph H. Scheib 170,663 8 3.89%
Common Stock Robert W. Bohmer 52,100 9 1.19%
Common Stock James K. McHugh 111,651 10 2.52%
All directors and executive officers
Common Stock as a group (9 persons) 1,075,954 11 21.05%
1. Except as otherwise indicated, all shares are directly owned with voting
and investment power held by the person named.
2. Represents 16,340 shares of Common Stock owned by Mr. DiPrete, 62,850
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $0.70 to $3.05 per share and 75,000 unregistered shares
issuable upon exercise of warrants which are currently exercisable at $2.00 per
share.
3. Represents 1,000 shares of Common Stock owned by Mr. Hagans and 8,750
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $2.00 to $3.00 per share.
4. Represents -0- shares of Common Stock owned by Mr. J. Hartung, 17,500
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $0.70 to $3.00 per share and 11,000 unregistered shares
issuable upon exercise of warrants which are currently exercisable at $2.00 per
share.
5. Represents 100,000 unregistered shares and 2,500 registered shares of
Common Stock owned by Mr. Kasmoch, 50,000 unregistered shares issuable upon
exercise of warrants which are currently exercisable at $1.85 per share and
252,500 shares issuable upon exercise of options which are currently exercisable
at prices ranging from $1.70 to $2.00 per share.
6. Represents -0- shares of Common Stock owned by Mr. Kovacik and 8,750
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $2.00 to $3.00 per share.
7. Represents 51,000 shares of Common Stock owned by Mr. Richard, 26,250
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $0.70 to $3.00 per share and 58,100 unregistered shares
issuable upon exercise of warrants which are currently exercisable at prices
ranging from $1.85 to $2.00 per share.
8. Represents 104,063 shares of Common Stock owned by Mr. Scheib, 30,000
shares issuable upon exercise of options which are currently exercisable at
prices ranging from $0.70 to $3.00 per share, 600 shares owned by a family
member over which Mr. Scheib acts as custodian and 36,000 unregistered shares
issuable upon exercise of warrants which are currently exercisable at prices
ranging from $1.85 to $2.00 per share.
9. Represents 2,100 shares of Common Stock owned by Mr. Bohmer and 50,000
shares issuable upon exercise of options which are currently exercisable at
$2.80 per share.
10. Represents 3,651 shares of Common Stock owned by Mr. McHugh and a total
of 108,000 shares issuable upon exercise of options which are currently
exercisable at prices ranging from $1.50 to $5.00 per share.
11. Represents 280,654 shares of Common Stock owned by the Directors and
Officers, 600 shares owned indirectly, 564,600 shares issuable upon exercise of
options which are currently exercisable at prices ranging from $0.70 to $5.00
per share and a total of 230,100 unregistered shares issuable upon exercise of
warrants which are currently exercisable at prices ranging from $1.85 to $2.00
per share.
EXECUTIVE OFFICERS OF THE COMPANY
Executive officers of the Company are appointed by the Board of Directors
and hold office at the pleasure of the Board. Set forth below is biographical
and other information on the current executive officers of the Company. Mr.
Kasmoch also serves as a member of the Board and his biographical information is
set forth above under the caption "Directors of the Company."
Name Age Position
------------------ --- ------------------------------------------------
Timothy R. Kasmoch 46 President and Chief Executive Officer
Robert W. Bohmer 38 V.P. Business Development and General Counsel
James K. McHugh 49 Chief Financial Officer, Secretary and Treasurer
ROBERT W. BOHMER has been our Vice-President for Business Development and
General Counsel since July 2007. Since 1996, Mr. Bohmer has been with the law
firm of Watkins, Bates and Carey, LLP, Toledo, Ohio. Since 2005, Mr. Bohmer has
served as general outside counsel to the Company.
JAMES K. MCHUGH has served as our Chief Financial Officer, Secretary and
Treasurer since January 1997. Prior to that date, Mr. McHugh served the Company
and our predecessor company in various financial positions since April 1992.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table presents the total compensation paid to our Chief
Executive Officer, V.P. Business Development, Chief Development Officer and
Chief Financial Officer during 2007. There were no other executive officers who
were serving at the end of 2007 and whose total compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
Non-Equity Nonqualified
Incentive Deferred
Name and Principal Stock Option Plan Compensation All Other
Position Year Salary Bonus Awards Awards Compensation Earnings Compensation Total
------------------------- ---- -------- ----- ------- -------- ------------ ------------ ------------- --------
Timothy R. Kasmoch 2007 $139,788 - $ 7,875 $ 0 - - $ 0 $147,663
President and Chief 2006 $ 52,500 - $55,125 $379,950 - - $ 1,000 $488,575
Executive Officer (1)
Robert W. Bohmer 2007 $ 75,000 - - $ 70,000 - - $ 0 $145,000
V.P. Business Develop. + n/a - - - - - - - n/a
General Counsel (2)
(1) Mr. Kasmoch was appointed CEO on February 14, 2006, effective with his
employment date, succeeding Mr. Daniel Haslinger. Mr. Kasmoch received $7,875
and $55,125 for the value of unregistered shares of Common Stock in 2007 and
2006, respectively, pursuant to the terms of his Employment Agreement signed
February 14, 2006. Mr. Kasmoch was granted stock options pursuant to our 2004
N-Viro International Corporation Stock Option Plan valued at $4,250 and cash of
$1,000, for one meeting as an outside director held before February 14, 2006.
Mr. Kasmoch was also granted three-year stock options under the Plan as an
employee, valued at $375,700 for 250,000 options, in December 2006.
(2) Mr. Bohmer was appointed V.P. Business Development and General Counsel
and started his employment on July 1, 2007. He was granted 100,000 stock
options pursuant to our 2004 N-Viro International Corporation Stock Option Plan,
in accordance with his Employment Agreement dated June 12, 2007. These options
were valued at $70,000 for 2007 and $280,000 over the two-year life of his
employment agreement.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS STOCK AWARDS
--------------------------------------------------------------------- --------------------------
Equity
Incentive
Plan Market
# of # of Awards: # of Value of
Securities Securities # Securities Shares or Shares or
Underlying Underlying Underlying Units of Units of
Unexercised Unexercised Unexercised Option Option Stock That Stock That
Options (#) Options (#) Unearned Exercise Expiration Have Not Have Not
Name Exercisable Unexercisable Options (#) Price (#) Date Vested (#) Vested ($)
------------------ -------------- -------------- ------------- ---------- ---------- ------------- -----------
Timothy R. Kasmoch 2,500 - - $ 1.70 2/14/16 - -
Timothy R. Kasmoch 250,000 - - $ 2.00 12/30/16 - -
Robert W. Bohmer 50,000 50,000 - 2.80 6/12/17 - -
STOCK AWARDS
-------------------------------
Equity Equity
Incentive Incentive
Plan Awards: Plan Awards:
# Unearned Market or
Shares, Payout Value
Units or of Unearned
Other Rights Shares, Units
That Have or Other Rights
Not That Have
Name Vested (#) Not Vested (#)
------------------ ------------- ----------------
Timothy R. Kasmoch - -
Timothy R. Kasmoch - -
Robert W. Bohmer - -
All options awards were made granted under the Company's current stock
option plan described under the caption "Equity Compensation Plan Information."
EMPLOYMENT AGREEMENTS
On February 13, 2007, we entered into a new employment agreement with Mr.
Timothy R. Kasmoch as our President and Chief Executive Officer. Mr. Kasmoch's
employment agreement is for a two-year term commencing on February 13, 2007 and
provides for automatic renewal of successive one-year terms unless notice is
provided ninety (90) days prior to the expiration of the then current term. The
agreement provides that Mr. Kasmoch is to receive an annual base salary of
$150,000, subject to an annual increase at the discretion of the Board. In
addition, Mr. Kasmoch is eligible for an annual cash bonus in an amount to be
determined, and otherwise subject to the discretion of, the Board. Under the
agreement, this determination is to be based upon the Board's complete review of
Mr. Kasmoch's performance, including the growth and profitability of the
Company.
Generally, Mr. Kasmoch's employment agreement may be terminated by us with
or without cause or by the Employee for any reason. If the agreement is
terminated by us without cause (other than by reason of the death or disability
of Mr. Kasmoch), Mr. Kasmoch will continue to receive his base salary then in
effect for the period between the termination date and the expiration date of
the agreement. If the agreement is terminated for any other reason by either
party, Mr. Kasmoch is entitled to receive his base salary through the effective
date of the termination plus any bonus or incentive compensation which has been
earned or payable through the termination date, as provided for in the
agreement. A copy of Mr. Kasmoch's Employment Agreement was attached to a Form
8-K as Exhibit 10.1, filed by us on March 12, 2007.
Effective April 2, 2008, we entered into a First Amendment to the
Employment Agreement (the "Amendment") with Mr. Kasmoch. The Amendment extends
the term of Mr. Kasmoch's Employment Agreement for an additional two years. As
a result, the term of Mr. Kasmoch's Employment Agreement will expire on February
12, 2011, instead of February 12, 2009 as provided for in the original
Employment Agreement. Except for the extension of the term, there were no other
changes to Mr. Kasmoch's Employment Agreement. The Amendment was approved by
our Board of Directors at a regular meeting held on April 2, 2008.
In June 2007, we executed an Employment Agreement with Robert W. Bohmer as
our Vice-President of Business Development and General Counsel, which commenced
July 1, 2007. Mr. Bohmer's agreement is for a two-year term at $150,000 per
year plus a stock option grant of 100,000 shares. In addition, Mr. Bohmer is
eligible for an annual cash bonus in an amount to be determined. Generally, the
Agreement may be terminated by us with or without cause or by the Employee for
any reason.
EQUITY COMPENSATION PLAN INFORMATION
We maintain two stock option plans for directors, executive officers and
key employees. The current plan was approved by the stockholders in May 2004.
The plan authorizes the Board of Directors or a committee thereof, to grant
awards of incentive stock options and non-qualified stock options for up to a
maximum of 1,000,000 shares of Common Stock. The total number of options
granted as of December 31, 2007 was 851,125, and the number of options available
for future issuance was 148,875. Currently, the plan is administered by the
Compensation Committee.
THE FOLLOWING REPORTS OF THE AUDIT COMMITTEE AND THE COMPENSATION COMMITTEE
SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE INCORPORATED BY REFERENCE
IN ANY PREVIOUS OR FUTURE DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934, EXCEPT TO THE EXTENT THAT THE COMPANY EXPRESSLY INCORPORATES SAID
REPORTS BY REFERENCE IN ANY SUCH DOCUMENT.
COMPENSATION COMMITTEE REPORT
The following report was prepared by Thomas L. Kovacik, R. Francis DiPrete
and James H. Hartung 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 compensation of Mr. Timothy R. Kasmoch, our President and
Chief Executive Officer, Mr. Kasmoch's 2007 base salary was determined by his
Employment Agreement with us dated February 13, 2007, which entitled him to an
annual base salary of $150,000 over a period of two years. In 2008, an
amendment dated April 2, 2008 to this Employment Agreement was agreed upon,
effectively extending the Agreement until February 2011. See "Employment
Agreements."
With respect to compensation of Mr. Robert W. Bohmer, our Vice-President of
Business Development and General Counsel, Mr. Bohmer's 2007 base salary was
determined by his Employment Agreement with us dated June 12, 2007, which
entitled him to an annual base salary of $150,000 over a period of two years.
See "Employment Agreements."
The Compensation Committee is also responsible for recommending to the
Board bonus amounts, if any, payable to Mr. Kasmoch, 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.
Thomas L. Kovacik
R. Francis DiPrete
James H. Hartung
AUDIT COMMITTEE REPORT
The following report was prepared by Joseph Scheib, R. Francis DiPrete and
Mark Hagans, as members of our Audit Committee.
The Audit Committee oversees our financial reporting process on behalf of
the Board. The Audit Committee meets with management periodically to consider
the adequacy of our internal controls and the objectivity of our financial
reporting. The Audit Committee discusses these matters with our independent
auditors and with appropriate financial personnel and internal auditors. The
Audit Committee regularly meets privately with both the independent auditors and
the internal auditors, each of whom has unrestricted access to the Audit
Committee, and recommend to the Board the appointment of the independent
auditors and review periodically their performance and independence from
management. In addition, the Audit 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 the Company's audited financial statements be included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2007.
Joseph H. Scheib
R. Francis DiPrete
Mark D. Hagans
INDEPENDENT AUDITORS
APPOINTMENT OF UHY LLP
The firm of UHY LLP ("UHY") acts as our principal independent registered
public accounting firm. Through December 31, 2007, UHY had a continuing
relationship with UHY Advisors, Inc. ("Advisors") from which it leased auditing
staff who were full time, permanent employees of Advisors and through which
UHY's partners provide non-audit services. UHY has no full-time employees and
therefore, none of the audit services performed were provided by permanent
full-time employees of UHY. UHY manages and supervises the audit services and
audit staff, and is exclusively responsible for the opinion rendered in
connection with its examination.
UHY served as our principal independent registered public accounting firm
for the years ended December 31, 2004 through 2007, and has been selected by us
to serve as our independent auditors for the year ending December 31, 2008. UHY
was approved as our independent auditors by the Board on October 19, 2004.
AUDIT FEES
Audit services of UHY included the audit of our annual financial statements
for 2007 and 2006, and services related to quarterly filings with the SEC
through the reporting period ended September 30 in each of those years. Fees
for these services totaled approximately $58,000 for 2007 and $56,600 for 2006.
AUDIT RELATED FEES
There were no fees billed for the years ended December 31, 2007 and
December 31, 2006 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, 2007 and
December 31, 2006 for professional services rendered by UHY for tax compliance,
tax advice, and tax planning.
ALL OTHER FEES
UHY provided assistance on accounting related matters totaling $9,000 for
the year ended December 31, 2007 and $1,375 for the year ended December 31,
2006.
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.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In May 2007, we retained Mr. Kasmoch's son, Nicholas Lynn, for the
development and redesign of the Company's web site, and paid him $2,500.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 2007, with the following exceptions:
Joseph R. Scheib, James H. Hartung, Carl Richard, Mark Hagans, Thomas
Kovacik and R. Francis DiPrete each were late filing a Form 4 (Statement of
Changes of Beneficial Ownership of Securities) in connection with a grant of a
Common Stock option on February 15, 2007, which was due to an administrative
error on the part of the Company. The Form 4s were filed on February 26, 2007,
reporting late one grant of a Common Stock option
James K. McHugh was late filing a Form 4 for a sale of Common Stock that
occurred on April 9, 2007. The Form 4 was filed on April 18, 2007.
Robert W. Bohmer filed late filing a Form 3 (Initial Statement of
Beneficial Ownership of Securities) and an initial Form 4 in connection with his
hiring as an executive officer of the Company and grant of Common Stock options
on June 12, 2007. The Form 3 and Form 4 were filed on April 15, 2008.
Michael G. Nicholson, a former executive officer of the Company, was late
filing the following Form 4s during 2007: (i) a Form 4 was filed on April 24,
2007, reporting late two sales and one purchase of Common Stock between April 18
and April 23, 2007, (ii) a Form 4 was filed on June 14, 2007, reporting late
three sales of Common Stock between June 5 and June 13, 2007, and (iii) a Form 4
was filed on September 10, 2007, reporting late two sales of Common Stock on
September 5 and September 6, 2007.
STOCKHOLDERS' PROPOSALS FOR NEXT ANNUAL MEETING
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, any
stockholder wishing to have a proposal considered for inclusion in our proxy
solicitation material for the Annual Meeting of Stockholders to be held in 2009
must set forth such proposal in writing and file it with James K. McHugh, Chief
Financial Officer, Treasurer and Corporate Secretary of the Company, no later
than February 18, 2009, the date that is less than 120 days before June 17,
2009. Further, pursuant to Rule 14a-4, if a stockholder fails to notify us of a
proposal before March 19, 2009, the date that is less than 45 days before May 2,
2008 (the mailing date of this proxy statement), such notice will be considered
untimely and management proxies may use their discretionary voting authority to
vote on any such 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
AMENDED AND RESTATED2004 STOCK OPTION PLAN
------------------------------------------
WHEREAS, the N-Viro International Corporation 2004 Stock Option Plan was
originally adopted and approved in the year 2004.
WHEREAS, the Stockholders of N-Viro International Corporation agree to amend and
restate the Plan to reflect the increase in the maximum number of shares of
Common Stock that may be issued or transferred or exercised pursuant to ISOs
under the Plan, and make certain other administrative revisions to the Plan.
NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended and restated as
follows:
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 original 2004 Stock Option Plan was approved by the Board of
Directors on February 12, 2004, and by the Corporation's stockholders at the
Annual Meeting of Stockholders held on May 12, 2004. This Amended and Restated
2004 Stock Option Plan was approved by the Board of Directors on April 2, 2008,
and is being submitted for approval by the Corporation's stockholders at the
Annual Meeting of Stockholders scheduled for June 17, 2008.
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 average closing price for the Common Stock, as reported on any stock
exchange or electronic quotation system on which the Common Stock is then traded
or quoted, for the previous ten (10) trading days on which trades or quotations
have been reported ending on the trading day immediately preceding the day of
determination of the Fair Market Value. For periods in which fewer than 10
trades or quotations have been reported for the 30 calendar days preceding the
day of determination of the Fair Market Value, 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 of the Common
Stock as permitted under Code.
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. Except as otherwise provided in Section 3.3, the Option Price
shall not be less than 100% of the Fair Market Value of Common Stock as of the
Date of Grant.
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 Amended
and Restated 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. Each such Option shall vest six (6) months after the date of grant and
shall expire (if not exercised or terminated at any earlier date) on the
earlier of (i) the tenth anniversary of grant and (ii) the day that is ninety
(90) days after the date of termination of the Non-Employee Director's service
as a director of the Corporation, unless such event is due to the death or total
and permanent disability of such Non-Employee Director, in which case such
options shall terminate twelve (12) months from the date of termination of the
Non-Employee Director's service as a director of the Corporation due to such
death or total and permanent disability. Notwithstanding the foregoing, for
Options granted on or after January 1, 2005, the Option Price shall be equal to
100% of the Fair Market Value of Common Stock as of 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 (except as specifically provided in
Section 3.3 above), 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 or provided pursuant to Section 3.3 above, 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
-------------------------------------------------------------------
Death.
------
(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
-------------------------------------------------------
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.
Options not otherwise designated shall be Nonstatutory Options.
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; except as otherwise provided in Section 4.3(c) below.
(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) The maximum term of any ISO shall be ten years, except that
the maximum term of any ISO granted to a Ten Percent Stockholder shall be five
years.
(e) 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.
(f) Any ISO granted under the Plan shall terminate no more than 90
days after termination of the Participant's employment as an Employee or 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.
(g) ISOs shall only be granted to Employees of the Company.
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 1,500,000 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 Plan's original
effective date, and no Options may be granted on or after such date.
Appendix B
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
N-VIRO INTERNATIONAL CORPORATION
I, James K. McHugh, Chief Financial Officer, Secretary and Treasurer, of N-Viro
International Corporation, a Delaware corporation (the "Corporation"), do hereby
certify that, in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), Title 8, Sections 103, 242 and 245 of the DGCL, the
Corporation's Certificate of Incorporation, which was originally filed on April
29, 1993, is hereby amended and restated in its entirety to read as follows:
ARTICLE ONE
The name of the Corporation is N-Viro International Corporation.
ARTICLE TWO
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of
New Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE FOUR
The total number of all classes of stock which the Corporation shall have
authority to issue is Seventeen million (17,000,000) shares, of which two
million (2,000,000) shares, designated as Preferred Stock, shall have a par
value of One Cent ($.01) per share (the "Preferred Stock"), and fifteen million
(15,000,000) shares, designated as Common Stock, shall have a par value of One
Cent ($.01) per share (the "Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
PREFERRED STOCK
----------------
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. The designations, powers,
preferences and relative, optional, conversion and other special rights, and the
qualifications, limitations and restrictions thereof, of Preferred Stock of each
class or series shall be such as are stated and expressed herein and, to the
extent not stated and expressed herein, shall be such as may be fixed by the
Board of Directors (authority so to do being hereby expressly granted) and
stated and expressed in a resolution or resolutions adopted by the Board of
Directors providing for the issue of Preferred Stock of such class or series.
Such resolution or resolutions shall (a) specify the class or series to which
such Preferred Stock shall belong, (b) fix the dividend rate therefor, (c) fix
the amount which the holders of Preferred Stock of such class or series shall be
entitled to be paid in the event of a voluntary liquidation, dissolution or
winding up of the Corporation, (d) state whether or not Preferred Stock of such
class or series shall be redeemable and at what times and under what conditions
and the amount or amounts payable thereon in the event of redemption, (e) fix
the voting powers of the holders of Preferred Stock of such class or series,
whether full or limited, or without voting powers, but in no event shall the
holders of Preferred Stock of such class or series be entitled to more than one
vote for each share held at all meetings of the stockholders of the Corporation;
and may, in a manner not inconsistent with the provisions of this ARTICLE FOUR,
(i) limit the number of shares of such class or series which may be issued, (ii)
provide for a sinking or purchase fund for the redemption or purchase of shares
of such class or series and the terms and provisions governing the operation of
any such fund and the status as to reissuance of shares of Preferred Stock
purchased or otherwise reacquired or redeemed or retired through the operation
thereof, (iii) impose conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issue of additional Preferred Stock
or other capital stock ranking equally therewith or prior thereto as to
dividends or distribution of assets on liquidation, and (iv) grant such other
special rights to the holders of Preferred Stock of such class or series as the
Board of Directors may determine and which are not inconsistent with the
provisions of this ARTICLE FOUR. The term "fix for such class or series" and
similar terms shall mean stated and expressed in a resolution or resolutions
adopted by the Board of Directors providing for the issue of Preferred Stock of
the class or series referred to therein. No further action or vote of the
stockholders shall be required for any action taken by the Board of Directors
pursuant to this ARTICLE FOUR.
COMMON STOCK
------ -----
1. Dividends.
---------
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
sixty (60) days preceding the dividend payment dates, as shall be fixed for such
purpose by the Board of Directors in advance of payment of each particular
dividend.
2. Liquidation.
-----------
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
ratably in proportion to the number of shares of Common Stock held by them
respectively.
3. Voting Rights.
--------------
Except as otherwise required by law or as provided by the Board of
Directors with respect to any class or series of Preferred Stock, the entire
voting power and all voting rights shall be vested exclusively in the Common
Stock. Each holder of shares of Common Stock shall be entitled to one vote for
each share standing in his name on the books of the Corporation.
ARTICLE FIVE
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter and repeal the
By-laws of the Corporation. Notwithstanding any provision of this Second
Amended and Restated Certificate of Incorporation to the contrary, any amendment
or repeal of this Article Five shall require approval by a majority vote of the
full Board of Directors of the Corporation and the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the votes which all stockholders
of the then outstanding shares of capital stock of the Corporation would be
entitled to vote thereon, voting together as a single class.
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal any
provision in this Amended and Restated Certificate of Incorporation, in the
manner now or- hereafter prescribed by statute.
ARTICLE SEVEN
No Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law (the "DGCL") or (iv) for any
transaction from which the Director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the DGCL, as the same may be amended and supplemented, indemnify each Director
and officer of the Corporation from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said Section and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders, vote of disinterested Directors or otherwise, and shall
continue as to a person who has ceased to be a Director or officer and shall
inure to the benefit of the heirs, executors and administrators of such persons
and the Corporation may purchase and maintain insurance on behalf of any
Director or officer to the extent permitted by Section 145 of the DGCL.
ARTICLE NINE
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under Section 279 of
Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on the Corporation.
ARTICLE TEN
[REPEALED]
I, James K. McHugh, being the Chief Financial Officer, Secretary and Treasurer
of the Corporation, do hereby declare and certify that the foregoing Second
Amended and Restated Certificate of Incorporation was duly adopted in accordance
with DGCL Sections 103, 242 and 245, at the Annual Meeting of Stockholders of
the Corporation held on , 2008, and I further state that the execution
---------
of the Amended and Restated Certificate of Incorporation is my own act and deed
and that the facts herein stated are true, and accordingly I have hereunto set
my hand this day of , 2008.
----------- -------------
By:
-------------------------------------------
James K. McHugh, Chief Financial Officer,
Secretary and Treasurer
Appendix C
SECOND AMENDED AND RESTATED BY-LAWS
------
OF
N-VIRO INTERNATIONAL CORPORATION
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of the stockholders of the
---------------
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of electing Directors and for the transaction of such other
business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
-----------------
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the
President. Any special meeting of the stockholders shall be held on such date,
at such time and at such place within or without the State of Delaware as the
Board of Directors or the officer calling the meeting may designate. At a
special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting unless all of the stockholders are present in person or by proxy, in
which case any and all business may be transacted at the meeting even though the
meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
--------------------
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of a
------
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present in
-----------------
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holder of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The President or, in his absence, a Vice President
------------
shall call all meetings of the stockholders to order, and shall act as Chairman
of such meetings. In the absence of the President and all of the Vice
Presidents, the holders of a majority in number of the shares of stock of the
Corporation present in person or represented by proxy and entitled to vote at
such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint,
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten (10) days
next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate of
------
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. [start
text shown as strikethough]Except as otherwise provided by law or by the
Certificate of Incorporation, Directors shall be elected by a majority of the
votes cast at a meeting of stockholders by the stockholders entitled to vote in
the election and [end text shown as strikethrough]
AT EACH MEETING OF THE STOCKHOLDERS FOR THE ELECTION OF DIRECTORS AT WHICH
---------------------------------------------------------------------------
A QUORUM IS PRESENT, EACH NOMINEE FOR DIRECTOR SHALL BE ELECTED BY A MAJORITY OF
--------------------------------------------------------------------------------
THE VOTES CAST; PROVIDED THAT (I) IF, AS OF THE RECORD DATE FOR SUCH MEETING,
--------------------------------------------------------------------------------
THE NUMBER OF NOMINEES EXCEEDS THE NUMBER OF DIRECTORS TO BE ELECTED, THE
--------------------------------------------------------------------------------
NOMINEES RECEIVING THE GREATEST NUMBER OF VOTES OF THE STOCKHOLDERS ENTITLED TO
--------------------------------------------------------------------------------
VOTE THEREON, PRESENT IN PERSON OR BY PROXY, SHALL BE THE DIRECTORS FOR THE TERM
--------------------------------------------------------------------------------
AS SET FORTH IN THESE BY-LAWS (EVEN IF LESS THAN A MAJORITY), AND (II) NO MORE
--------------------------------------------------------------------------------
THAN THE AUTHORIZED NUMBER OF DIRECTORS TO BE ELECTED AS FIXED BY THE BOARD OF
--------------------------------------------------------------------------------
DIRECTORS SHALL BE ELECTED. PLURALITY VOTING SHALL APPLY IF THE SECRETARY OF
--------------------------------------------------------------------------------
THE CORPORATION RECEIVES A NOTICE THAT A STOCKHOLDER HAS NOMINATED A PERSON FOR
--------------------------------------------------------------------------------
ELECTION TO THE BOARD OF DIRECTORS IN COMPLIANCE WITH THE ADVANCE NOTICE
--------------------------------------------------------------------------------
REQUIREMENTS FOR STOCKHOLDER NOMINEES FOR DIRECTOR SET FORTH IN SECTION 10 OF
--------------------------------------------------------------------------------
THIS ARTICLE I AND SUCH NOMINATION HAS NOT BEEN WITHDRAWN BY SUCH STOCKHOLDER ON
--------------------------------------------------------------------------------
OR BEFORE THE TENTH DAY BEFORE THE CORPORATION FIRST MAILS ITS NOTICE FOR SUCH
--------------------------------------------------------------------------------
MEETING TO THE STOCKHOLDERS. IF DIRECTORS ARE TO BE ELECTED BY A PLURALITY OF
--------------------------------------------------------------------------------
THE VOTES CAST, STOCKHOLDERS SHALL NOT BE PERMITTED TO VOTE AGAINST A NOMINEE.
--------------------------------------------------------------------------------
FOR PURPOSES OF SECTION 7 OF THIS ARTICLE I, A MAJORITY OF THE VOTES CAST MEANS
--------------------------------------------------------------------------------
THAT THE NUMBER OF VOTES CAST "FOR" A DIRECTOR MUST EXCEED THE NUMBER OF VOTES
--------------------------------------------------------------------------------
CAST "AGAINST" THE DIRECTOR.
-------------------------------
EXCEPT AS OTHERWISE PROVIDED BY LAW, BY THE CERTIFICATE OF INCORPORATION,
---------------------------------------------------------------------------
OR BY THESE BY-LAWS, whenever any other corporate action is to be taken by the
--------------------
stockholders, it shall be authorized by a majority of the votes cast at a
meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
SECTION 8. Inspectors. When required by law or directed by the presiding
----------
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more Inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise
--------------------------------------------
provided in the Certificate of Incorporation, any action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize to take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of any such corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
SECTION 10. ADVANCE NOTICE OF STOCKHOLDER NOMINEE. SUCH STOCKHOLDER'S
---------------------------------------------------------------------------
NOTICE SHALL SET FORTH AS TO EACH PERSON WHOM THE STOCKHOLDER PROPOSES TO
----------------------------------------------------------------------------
NOMINATE FOR ELECTION OR RE-ELECTION AS A DIRECTOR (I) ALL INFORMATION RELATING
----------------------------------------------------------------------------
TO SUCH PERSON AS WOULD BE REQUIRED TO BE DISCLOSED IN SOLICITATIONS OF PROXIES
--------------------------------------------------------------------------------
FOR THE ELECTION OF SUCH NOMINEES AS DIRECTORS PURSUANT TO REGULATION 14A UNDER
--------------------------------------------------------------------------------
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, (II) SUCH PERSON'S WRITTEN
--------------------------------------------------------------------------------
CONSENT TO SERVE AS A DIRECTOR IF ELECTED, AND (III) A STATEMENT WHETHER SUCH
--------------------------------------------------------------------------------
PERSON, IF ELECTED, INTENDS TO TENDER, PROMPTLY FOLLOWING SUCH PERSON'S ELECTION
--------------------------------------------------------------------------------
OR RE-ELECTION, AN IRREVOCABLE RESIGNATION EFFECTIVE UPON SUCH PERSON'S FAILURE
--------------------------------------------------------------------------------
TO RECEIVE THE REQUIRED VOTE FOR RE-ELECTION AT THE NEXT MEETING AT WHICH SUCH
--------------------------------------------------------------------------------
PERSON WOULD FACE RE-ELECTION.
---------------------------------
ARTICLE II
Board of Directors
------------------
SECTION 1. Number and Term of Office. The business and affairs of the
-----------------------------
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need to be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall
be classified with respect to the time for which they shall severally hold
office into two (2) classes as nearly equal in number as possible. Except as
hereinafter otherwise provided for the filling of vacancies, the Class I
Directors shall hold office for an initial term expiring at the 2004 annual
meeting of stockholders and the Class II Directors shall hold office for an
initial term expiring at the 2005 annual meeting of stockholders, with the
members of each class of Directors to hold office until their respective
successors have been duly elected and qualified or until their earlier
resignation, removal, retirement or death. Thereafter at each annual meeting of
stockholders, the successors to the class of Directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the second year following the year of their
election and until their respective successors have been duly elected and
qualified or until their earlier resignation, removal, retirement or death.
ANY AMENDMENT OR REPEAL OF THIS SECTION 1 SHALL REQUIRE THE AFFIRMATIVE
---------------------------------------------------------------------------
VOTE OF AT LEAST SIXTY-SIX AND TWO-THIRDS PERCENT (66 2/3%) OF THE VOTES WHICH
-----------------------------------------------------------------------------
ALL STOCKHOLDERS OF THE THEN OUTSTANDING SHARES OF CAPITAL STOCK OF THE
-------------------------------------------------------------------------------
CORPORATION WOULD BE ENTITLED TO VOTE THEREON, VOTING TOGETHER AS A SINGLE
-------------------------------------------------------------------------------
CLASS.
-----
SECTION 2. Removal. Vacancies and Additional Directors.
[start text shown as strikethough] The [end text shown as strikethough] UPON THE
----------------------------------------------- ---------
AFFIRMATIVE VOTE OF AT LEAST SIXTY-SIX AND TWO-THIRDS PERCENT (66 2/3%) OF THE
--------------------------------------------------------------------------
VOTES WHICH ALL STOCKHOLDERS OF THE THEN OUTSTANDING SHARES OF CAPITAL STOCK OF
-------------------------------------------------------------------------------
THE CORPORATION WOULD BE ENTITLED TO VOTE THEREON, VOTING TOGETHER AS A SINGLE
--------------------------------------------------------------------------------
GROUP, THE stockholders may, at any special meeting the notice of which shall
-----------
state that it is called for that purpose, remove, with or without cause, any
Director and fill the vacancy; provided that whenever any Director shall have
been elected by the holders of any class of stock of the Corporation voting
separately as a class under the provisions of the Certificate of Incorporation,
such Director may be removed and the vacancy filled only by the holders of that
class of stock voting separately as a class. Vacancies caused by any such
removal and not filled by the stockholders at the meeting at which such removal
shall have been made, or any vacancy caused by the death or resignation of any
Director or for any other reason, and any newly created directorship resulting
from any increase in the authorized number of Directors, may be filled by the
affirmative vote of a majority of the Directors then in office, although less
than a quorum, and any Director so elected to fill any such vacancy or newly
created directorship shall hold office until his successor is elected and
qualified or until his earlier resignation or removal. The Directors chosen to
fill vacancies shall hold office for a term expiring at the end of the next
annual meeting of stockholders at which the term of the class to which they have
been elected expires. No decrease in the number of Directors constituting the
Board of Directors shall shorten the term of any incumbent Director.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
ANY AMENDMENT OR REPEAL OF THIS SECTION 2 SHALL REQUIRE THE AFFIRMATIVE
---------------------------------------------------------------------------
VOTE OF AT LEAST SIXTY-SIX AND TWO-THIRDS PERCENT (66 2/3%) OF THE VOTES WHICH
-----------------------------------------------------------------------------
ALL STOCKHOLDERS OF THE THEN OUTSTANDING SHARES OF CAPITAL STOCK OF THE
-------------------------------------------------------------------------------
CORPORATION WOULD BE ENTITLED TO VOTE THEREON, VOTING TOGETHER AS A SINGLE
-------------------------------------------------------------------------------
CLASS.
-----
SECTION 3. Place of Meeting. The Board of Directors may hold its meetings
----------------
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
-----------------
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every Director at least
five (5) days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
-----------------
shall be held whenever called by [start text shown as strikethough] direction of
[end text shown as strikethough] THE CHAIRMAN, the President or by
------------
any [start text shown as strikethough] two [end text shown as strikethough]FOUR
----
of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two (2) days before the meeting or by
causing the same to be transmitted by telegraph, cable or wireless at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-Laws
may be transacted at any special meeting, and an amendment of these By-Laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this ARTICLE
------
II, a majority of the members of the Board of Directors in office PLUS ONE
--------
DIRECTOR (but in no case less than one-third (1/3) of the total number of
--------
Directors [start text shown as strikethough] nor less than two (2) Directors
[end text shown as strikethough]) shall constitute a quorum for the transaction
of business and the vote of the majority of the Directors present at any meeting
of the Board of Directors at which a quorum is present shall be the act of the
Board of Directors. If at any meeting of the Board there is less than a quorum
present, a majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board shall preside at all
------------
meetings of the Board of Directors. In the absence of the Chairman of the Board,
an acting Chairman shall be elected from the Directors present. The Secretary of
the Corporation shall act as Secretary of all meetings of the Directors; but in
the absence of the Secretary, the Chairman of the Board or acting Chairman may
appoint any person to act as Secretary of the meeting.
SECTION 8. Committees. The Board of Directors may, by resolution passed by
----------
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided by resolution
passed by a majority of the whole Board, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and the affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these By-Laws; and unless such resolution, these By-Laws, Or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise restricted by
------------------------------
the Certificate of Incorporation or by these By-Laws, the members of the Board
of Directors or any committee designated by the Board, may participate in a
meeting of the Board of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 10. Consentof Directors or Committee in lieu of Meeting. Unless
------------------------------------------------------
otherwise restricted by the Certificate of Incorporation or by these By-Laws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
SECTION 11. CONSTITUENCY CLAUSE. THE BOARD OF DIRECTORS OF THE CORPORATION,
---------------------------------------------------------------------------
WHEN EVALUATING ANY OFFER OF ANOTHER PARTY TO (A) MAKE A TENDER OR EXCHANGE
--------------------------------------------------------------------------------
OFFER FOR ANY EQUITY SECURITY OF THE CORPORATION, (B) MERGE OR CONSOLIDATE THE
--------------------------------------------------------------------------------
CORPORATION WITH ANOTHER CORPORATION, OR (C) PURCHASE OR OTHERWISE ACQUIRE ALL
--------------------------------------------------------------------------------
OR SUBSTANTIALLY ALL OF THE PROPERTIES AND ASSETS OF THE CORPORATION, SHALL, IN
--------------------------------------------------------------------------------
CONNECTION WITH THE EXERCISE OF ITS JUDGMENT IN DETERMINING WHAT IS IN THE BEST
--------------------------------------------------------------------------------
INTEREST OF THE CORPORATION AND ITS STOCKHOLDERS, GIVE DUE CONSIDERATION TO ALL
--------------------------------------------------------------------------------
RELEVANT FACTORS, INCLUDING WITHOUT LIMITATION, THE SOCIAL, LEGAL, ENVIRONMENTAL
--------------------------------------------------------------------------------
AND ECONOMIC EFFECTS ON THE EMPLOYEES, CUSTOMERS, SUPPLIERS AND OTHER AFFECTED
--------------------------------------------------------------------------------
PERSONS, FIRMS, AND CORPORATIONS AND ON THE COMMUNITIES AND GEOGRAPHICAL AREAS
--------------------------------------------------------------------------------
IN WHICH THE CORPORATION AND ITS SUBSIDIARIES OPERATED OR ARE LOCATED AND ON ANY
--------------------------------------------------------------------------------
OF THE BUSINESSES AND PROPERTIES OF THE CORPORATION OR ANY OF ITS SUBSIDIARIES,
--------------------------------------------------------------------------------
AS WELL AS SUCH OTHER FACTORS AS THE DIRECTORS DEEM RELEVANT.
-----------------------------------------------------------------------
ARTICLE III
Officers
--------
SECTION 1. Officers. The officers of the Corporation shall be a President,
--------
one or more Vice Presidents, a Secretary and a Treasurer, and such additional
officers, if any, as shall be elected by the Board of Directors pursuant to the
provisions of Section 6 of this ARTICLE III. The President, one or more Vice
Presidents, the Secretary and the Treasurer shall be elected by the Board of
Directors at its first meeting after each annual meeting of the stockholders.
The failure to hold such election shall not of itself terminate the term of
office of any officer. All officers shall hold office at the pleasure of the
Board of Directors. Any officers may resign at any time upon written notice to
the Corporation. Officers may, but need not, be Directors. Any number of
offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these By-Laws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. Powers and Duties of the President. The President shall be the
----------------------------------
chief executive officer of the Corporation and, subject to the control of the
Board of Directors, shall have general charge and control of all its business
and affairs and shall have all powers and shall perform all duties incident to
the office of President. He shall preside at all meetings of the stockholders
and at all meetings of the Board of Directors and shall have such other powers
and perform such other duties as may from time to time be assigned to him by
these By-Laws or by the Board of Directors.
SECTION 3. Powers and Duties of the Vice Presidents. Each Vice President
-----------------------------------------
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned to him by these By-Laws or by the Board of
Directors or by the President.
SECTION 4. Powers andDuties of the Secretary. The Secretary shall keep the
---------------------------------
minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination ofany Director, upon application, at the office
of the Corporation during business hours; and he shall have all powers and shall
perform all duties incident to the office of Secretary and shall have such other
powers and shall perform such other duties as may from time to time be assigned
to him by these By-Laws or by the Board of Directors or the President.
SECTION 5. Powers andDutiesof the Treasurer. The Treasurer shall have
-----------------------------------
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors or the President shall render statements of such accounts; he
shall, at all reasonable times, exhibit his books and accounts to any Director
of the Corporation, upon application, at the office of the Corporation during
business hours; and he shall have all powers and shall perform all duties
incident of the office of Treasurer and shall also have such other powers and
shall perform such other duties as may from time to time be assigned to him by
these By-Laws or by the Board of Directors or the President.
SECTION 6. Additional Officers. The Board of Directors may from time to
--------------------
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties herein assigned to the
Secretary.
SECTION 7. Giving of Bond by Officers. All officers of the Corporation, if
--------------------------
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 8. Voting Upon Stocks. Unless otherwise ordered by the Board of
--------------------
Directors, the President or any Vice President shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meeting shall possess and may exercise, in person or by proxy, any and
all rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers upon
any other person or persons.
SECTION 9. Compensationof Officers. The officers of the Corporation shall
------------------------
be entitled to receive such compensation for their services as shall from time
to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
-----------------------------------------
SECTION 1. Nature of Indemnity. The Corporation shall indemnify any person
-------------------
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to become a Director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he is or was or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (i) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (ii) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. Successful Defense. To the extent that a Director, officer,
-------------------
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in SECTION 1
of this ARTICLE IV or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 3. Determination that Indemnification is Proper. Any
------------------------------------------------
indemnification of a Director or officer of the Corporation under SECTION 1 of
this ARTICLE IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in SECTION 1. Any indemnification of an employee
or agent of the Corporation under SECTION 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in SECTION 1. Any such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
SECTION 4. Advance Payment of Expenses. Unless the Board of Directors
------------------------------
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this ARTICLE IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 5. Survival; Preservation of Other Rights. The foregoing
------------------------------------------
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in whole
or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this ARTICLE IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys' fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expense created by this ARTICLE IV.
SECTION 6. Severability. If this ARTICLE IV or any portion hereof shall be
------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation- shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this ARTICLE IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 7. Subrogation. In the event of payment of indemnification to a
-----------
person described in SECTION 1 of this ARTICLE IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
SECTION 8. NoDuplication of Payments. The Corporation shall not be liable
--------------------------
under this ARTICLE IV to make any payment in connection with any claim made
against a person described in SECTION 1 of this ARTICLE IV to the extent such
person has otherwise received payment (under any insurance policy, By-Law or
otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE V
Stock-Seal-Fiscal Year
----------------------
SECTION 1. Certificates for Shares of Stock. The certificates for shares of
--------------------------------
stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the President or a Vice President and by the
Secretary or an Assistant Secretary of the Treasurer or an Assistant Treasurer,
and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby
with the number of such shares and the date of issue thereof shall be entered on
the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. Lost. Stolen or Destroyed Certificates. Whenever a person owning
--------------------------------------
a certificate for shares of stock of the Corporation alleges that it has been
lost, stolen or destroyed, he shall file in the office of the Corporation an
affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be
------------------
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in SECTION 2 of this ARTICLE V.
SECTION 4. Regulations. The Board of Directors shall have power and
-----------
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine the
------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting, prior to, or more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the date next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is delivered to the Corporation; and the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate of
---------
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors may provide a suitable
-------------
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by any
officer of the Corporation designated by the Board of Directors or the
President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such
------------
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
Miscellaneous Provisions
------------------------
SECTION 1. Checks, Notes, Etc.. All checks, drafts, bills of exchange,
---------------------
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be contracted
-----
on behalf of the Corporation except as authorized by the Board of Directors.
When authorized to do so, any officer or agent of the Corporation may effect
loans and advances for the Corporation from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Corporation. When authorized so to do, any
officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws or by
---------
law or as otherwise directed by the Board of Directors, the President or any
Vice President shall be authorized to execute and deliver, in the name and on
behalf of the Corporation, all agreements, bonds, contracts, deeds, mortgages,
and other instruments, either for the Corporation's own account or in a
fiduciary or other capacity, and the seal of the Corporation, if appropriate,
shall be affixed thereto by any of such officers or the Secretary or an
Assistant Secretary. The Board of Directors, the President or any Vice
President designated by the Board of Directors may authorize any other officer,
employee or agent to execute and deliver, in the name and on behalf of the
Corporation, agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and, if appropriate, to affix the seal of the Corporation thereto. The
grant of such authority by the Board of any such officer may be general or
confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is required to
---------- ------
be given by law, by the Certificate of Incorporation or by these By-Laws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise required by the
---------------------------
laws of the State of Delaware, the Corporation may have an office or offices and
keep its books, documents and papers outside of the State of Delaware at such
place or places as from time to time may be determined by the Board of Directors
or the President.
ARTICLE VII
Amendments
----------
[start text shown as strikethough] These [end text shown as strikethough]EXCEPT
------
AS OTHERWISE SET FORTH HEREIN, THESE By-Laws and any amendment
-----------------------------------------
thereof may be altered, amended or repealed, or new By-Laws may be adopted, by
the Board of Directors at any regular or special meeting by the affirmative vote
of a majority of all of the members of the Board, provided in the case of any
special meeting at which all of the members of the Board are not present, that
the notice of such meeting shall have stated that the amendment of these By-Laws
was one of the purposes of the meeting; but, EXCEPT AS PROVIDED HEREIN, these
----------------------------
By-Laws and any amendment thereof may be altered, amended or repealed or new
By-Laws may be adopted by the holders of a majority of the total outstanding
stock of the Corporation entitled to vote at any annual meeting or at any
special meeting, provided, in the case of any special meeting, that notice of
such proposed alteration, amendment, repeal or adoption is included in the
notice of the meeting.
Appendix D
[N-Viro International Corporation logo]
c/o Corporate Election Services
P. O. Box 1150
Pittsburgh, PA 15230
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VOTE BY TELEPHONE
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Have your proxy card available when you call Toll-Free 1-888-693-8683 using a
touch-tone phone and follow the simple instructions to record your vote.
--------------------------------------------------------------------------------
VOTE BY INTERNET
--------------------------------------------------------------------------------
Have your proxy card available when you access the website www.cesvote.com and
follow the simple instructions to record your vote.
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VOTE BY MAIL
--------------------------------------------------------------------------------
Please mark, sign and date your proxy card and return it in the postage-paid
envelope provided or return it to: Corporate Election Services, P.O. Box 1150,
Pittsburgh PA 15230-1150.
Vote by Telephone Vote by Internet Vote by Mail
----------------------- ---------------------- -------------------
Call Toll-Free using a Access the Website and Return your proxy
touch-tone telephone: cast your vote: in the postage-paid
1-888-693-8683 www.cesvote.com envelope provided
Vote 24 hours a day, 7 days a week!
If you vote by telephone or internet, please do not send your proxy by mail.
[Graphic Omitted]
Proxy card must be signed and dated below.
Please fold and detach card at perforation before mailing.
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[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 17, 2008.
Revoking all prior proxies, the undersigned, a stockholder of N-VIRO
INTERNATIONAL CORPORATION (the "Company"), hereby appoints Timothy R. Kasmoch
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 at Brandywine
Country Club, 6904 Salisbury Road, Maumee, Ohio, 43537, on June 17, 2008 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: , 2008
-------------------
--------------------------
Signature
--------------------------
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.
PROXY CARD MUST BE SIGNED AND DATED BELOW.
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
-
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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 THE ELECTION OF THE LISTED NOMINEES
AS CLASS II DIRECTORS AND FOR PROPOSALS 2 THROUGH 6.
1. To elect three Class II directors to serve for a term of two years and
until their successors are elected and qualified:
Nominees:
1. James H. Hartung FOR AGAINST ABSTAIN
2. Timothy R. Kasmoch FOR AGAINST ABSTAIN
3. Thomas L. Kovacik FOR AGAINST ABSTAIN
2. To adopt an amendment to our 2004 Stock Option Plan to increase the
number of shares available under the plan.
FOR AGAINST ABSTAIN
3. To approve an amendment to our Amended and Restated Certificate of
Incorporation to increase the authorized shares of Common Stock.
FOR AGAINST ABSTAIN
4. To approve an amendment to our Amended and Restated Certificate of
Incorporation to authorize the Directors to make, alter and repeal by-laws of
the Company.
FOR AGAINST ABSTAIN
5. To adopt amendments to our Amended and Restated By-Laws as set forth in
the Second Amended and Restated By-Laws.
FOR AGAINST ABSTAIN
6. To ratify the appointment of UHY LLP as independent auditors for the
Company for 2008.
FOR AGAINST ABSTAIN
7. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING
Continued and to be signed and dated on the reverse side.