<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-21802
-----------
N-VIRO INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1741211
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3450 W. CENTRAL AVENUE, SUITE 328
TOLEDO, OHIO 43606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 535-6374
----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No .
--- ---
As of September 30, 1996, 2,094,250 shares of N-Viro International
Corporation $ .01 par value common stock were outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- -----------------------------
1996 1995 1996 1995
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues $ 1,421,463 $ 1,390,658 $ 3,370,738 $ 4,266,487
Cost of revenues 770,236 822,113 1,589,957 2,510,654
----------- ----------- ----------- -----------
Gross profit 651,227 568,545 1,780,781 1,755,833
Selling, general & administrative expenses 896,548 734,561 1,948,313 2,741,450
----------- ----------- ----------- -----------
Operating loss (245,321) (166,016) (167,532) (985,617)
Other income (expense):
Interest income (expense), net 9,924 1,619 14,881 13,602
Equity in gains (losses) of joint ventures (39,116) (36,116) (17,581) (60,490)
Other income (loss) 11,137 14,604 42,911 (55,187)
----------- ----------- ----------- -----------
Loss before income taxes and extraordinary gain (263,376) (185,909) (127,321) (1,087,692)
Income taxes -- -- -- 11,000
----------- ----------- ----------- -----------
Net loss before extraordinary gain (263,376) (185,909) (127,321) (1,098,692)
Extraordinary gain - sale of wholly-owned subsidiary -- 193,166 -- 193,166
----------- ----------- ----------- -----------
Net income (loss) $ (263,376) $ 7,257 $ (127,321) $ (905,526)
=========== =========== =========== ===========
Net income (loss) per share:
Net income (loss) per share before extraordinary gain $ (0.13) $ (0.09) $ (0.06) $ (0.54)
Extraordinary gain -- 0.09 -- 0.09
----------- ----------- ----------- -----------
Net income (loss) $ (0.13) $ 0.00 $ (0.06) $ (0.44)
=========== =========== =========== ===========
Weighted average common shares outstanding 2,037,000 2,037,000 2,037,000 2,037,000
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
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N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
ASSETS (Unaudited) (Audited)
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 88,535 $ 223,942
Securities available-for-sale 1,401 1,401
Trade receivables 1,025,165 961,681
Other receivables 242,187 254,718
Assets held for sale 664,909 1,095,024
Prepaid expenses and other assets 221,738 189,669
------------ ------------
Total Current assets 2,243,935 2,726,435
Property and equipment 695,356 703,495
Investment in Joint Ventures 883,299 1,244,213
Long-Term Note Receivable, less current maturities 352,500 0
Intangibles and Other assets 398,148 388,168
------------ ------------
TOTAL ASSETS $ 4,573,238 $ 5,062,311
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,180,600 $ 819,990
Accounts payable 1,511,261 1,396,793
Accrued expenses 236,880 543,403
------------ ------------
Total Current liabilities 2,928,741 2,760,186
Long-Term Debt, less current maturities 181,082 720,000
Stockholders' Equity
Common stock, $.01 par value; authorized 45,000,000
shares; issued 1996 and 1995 2,094,250 shares 20,943 20,943
Additional paid-in capital 12,030,518 12,024,060
Retained earnings (deficit) (9,970,069) (9,844,901)
------------ ------------
2,081,392 2,200,102
Less treasury stock, at cost, 57,250 shares 617,977 617,977
------------ ------------
1,463,415 1,582,125
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,573,238 $ 5,062,311
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------------ -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 63,557 $ 127,287
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from joint venture 250,000 --
Investment in joint venture -- 60,490
Proceeds from sale of property and equipment 67,511 100
Expenditures for intangibles and other assets (31,653) (97,346)
Expenditures for property and equipment (110,648) (2,010,015)
Proceeds from sales of investments in available-for-sale securities -- 1,973,672
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 175,210 (73,099)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (652,674) (252,897)
Repayments on notes receivable 23,500 --
Issuance of notes payable 255,000 --
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (374,174) (252,897)
NET DECREASE IN CASH (135,407) (198,709)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 223,942 474,841
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 88,535 $ 276,132
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
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N-VIRO INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements of N-Viro International
Corporation (the Company) are unaudited but, in management's opinion, reflect
all adjustments (including only normal recurring accruals) necessary to present
fairly such information for the period and at the dates indicated. The results
of operations for the nine months ended September 30, 1996 may not be indicative
of the results of operations for the year ended December 31, 1996. Since the
accompanying consolidated financial statements have been prepared in accordance
with Article 10 of Regulation S-X, they do not contain all information and
footnotes normally contained in annual consolidated financial statements;
accordingly, they should be read in conjunction with the consolidated and
combined financial statements and notes thereto appearing in the Company's Form
10-K for the period ending December 31, 1995.
N-Viro International Corporation was incorporated in April 1993 and is the
successor to N-Viro Energy Systems, Ltd. (the Partnership) and five Company
Agents. The Company Agents together with the Partnership are the Company
Entities.
On October 19, 1993, the Partnership contributed to the Company all of its
assets (except certain marketable securities and accounts receivable from
certain related parties), subject to all liabilities (except certain retained
liabilities), and the shareholders of the Company Agents contributed to the
Company all of the outstanding capital stock of such entities in exchange for a
total of six million shares of common stock of the Company and organization
notes totaling $5,221,709 (such transactions are collectively referred to as the
Organization). The Organization notes were repaid out of the proceeds from an
initial public offering (the IPO) of two million shares of N-Viro International
Corporation common stock. A total of 2,112,000 new shares were issued in the
IPO, including shares issued in the partial exercise by the Underwriters of an
over-allotment option.
On October 30, 1995, at a Special Meeting of the Shareholders, the
shareholders approved a one for four reverse stock split which reduced the
number of issued and outstanding shares of the Common Stock. Earnings (loss) per
share have been restated for the nine month period and quarter ended September
30, 1995.
The financial statements are consolidated as of September 30, 1996,
December 31, 1995 and September 30, 1995 for the Company. Adjustments have been
made to eliminate all intercompany transactions.
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N-VIRO INTERNATIONAL CORPORATION COMPANY ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
NVIC's consolidated financial statements have been presented on the basis
that it is a going concern. Such basis assumes the realization of assets and the
satisfaction of liabilities, each in the normal course of business. NVIC has
generated positive cash flows from operating activities. The amount of cash
and investments available at September 30, 1996 are not sufficient to finance
the current level of operations and satisfy other cash requirements through
1996 and into 1997. Consequently, NVIC's ability to meet its current and future
obligations is primarily dependent upon its ability to increase revenues and
obtain working capital financing. NVIC is currently negotiating with third
parties to pay for use of its patented processes, which, when finalized will
increase its gross revenue and provide additional cash flow. With most of
management's cost containment programs implemented, NVIC's operating results
reflect improved operating profits, which should aid management's efforts to
successfully obtain commitments for working capital financing of NVIC's cash
requirements. The satisfactory completion of these negotiations is essential as
these avenues are NVIC's principal means of providing sufficient cash flows to
meet future requirements. Because the negotiations are still in progress, there
can be no assurance that the Company will have sufficient funds to finance its
operations.
2. RELATED PARTY TRANSACTIONS
The Company recognized an expense to the former shareholder of
Tennessee-Carolina N-Viro, Inc. of $15,000 for the three months and $45,000 for
the nine months ended September 30, 1996, and $30,000 for the three months and
$65,000 for the nine months ended September 30, 1995 under a contract
arrangement for consulting services. The Company granted this former shareholder
of Tennessee-Carolina a security interest in all present and future receivables
and contract rights from licenses in the states of Tennessee, North Carolina and
South Carolina pursuant to the contract agreement.
3. CONTINGENCIES
In 1993, the Company entered into an agreement with a licensee under which
it has paid the licensee $100,000 for research and development costs associated
with developing and testing a new drying process. Under the agreement, the
Company will be the sole owner of the resulting technology. However, the Company
has agreed to reimburse the licensee up to an additional $200,000 by remitting
25% of gross receipts generated by the technology, including licensing fees,
royalty payments and commissions. Such amounts are not due until the process
begins generating gross revenue.
In May 1993, a complaint was filed alleging that the N-Viro process
infringes a patent relating to the treatment of sludge. The complaint sought
damages and an injunction enjoining NVIC from further infringement of the
plaintiff's patent. In early 1995, NVIC agreed to settle the claim and the loss
has been provided for in the 1995 financial statements.
In August, 1996, the Company signed an exclusive license agreement with
Rockland Power (M) Sdn. Bhd. of Kuala Lumpur Malaysia for rights to all N-Viro
technologies for Malaysia. On November 9, 1996, N-Viro notified Rockland that
they were in default on its payment terms. By contract, Rockland has thirty days
from that date to remedy the default. As the Malaysian license revenue and cost
of revenue are recorded in the Company's third quarter results, failure of
Rockland to remedy their default will adversely
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<PAGE> 7
affect N-Viro's cash flow management capabilities. Accordingly, a reserve for
the possible uncollectible receivable has been established in case of default,
resulting in no net income or loss being recorded for this contract.
From time to time, NVIC is involved in legal proceedings and subject to
claims which have arisen in the ordinary course of its business. There are no
legal proceedings involving NVIC during this reporting period.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
N-Viro International Corporation was incorporated in April, 1993, and
became a public company on October 12, 1993. The Company's business strategy is
to market the N-Viro Process that produces an "exceptional quality" sludge
product, as defined in the Section 503 Sludge Regulations under the Clean Water
Act of 1987, with multiple commercial uses. To date, the Company's revenues
primarily have been derived from the licensing of the N-Viro Process to treat
and recycle wastewater sludge generated by municipal wastewater treatment plants
and from the sale to licensees of the alkaline admixture used in the N-Viro
Process. The Company has also operated N-Viro facilities for third parties on a
start-up basis and currently operates one N-Viro facility on a contract
management basis. The Company has granted 45 licenses to use the N-Viro Process.
There are currently 36 N-Viro facilities operating throughout the world using
the N-Viro Process. The Company estimates that these operating N-Viro facilities
are treating and recycling sludge at an annualized rate of approximately 140,000
dry tons per year.
Total revenues of about $1,421,000 for the quarter ended September 30,
1996 compared to about $1,391,000 for the same period of 1995. The increase in
revenue is due primarily to a territory fee. As a result of the implementation
of both a change in business strategy and cost containment programs in late
1995, the Company decreased its cost of revenues substantially from the same
period of 1995. All selling, general and administrative costs except bad debts
have also decreased substantially from the same period of 1995, except for an
increase of $400,000 to bad debt reserve for the possible uncollectibility of a
territory fee. These changes resulted in a loss of about $263,000 for the three
months ended September 30, 1996 compared to a net profit of about $7,000 for the
three months ended September 30, 1995.
The Company believes that it's development of a network of marketing
representatives and regional partnerships will more than offset the Company's
reduced staffing in generating new sales revenue. In the third quarter of 1996,
the Company entered in to a written agreement to licensing the rights for the
N-Viro process in Malaysia.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
Overall revenue increased about $30,000, or about 2% to about $1,421,000
for the three months ended September 30, 1996 from about $1,391,000 for the
three months ended September 30, 1995. The increase in revenue was due primarily
to:
a) licensing the N-Viro process in Malaysia for $600,000;
b) elimination in 1996 of about $176,000 from N-Viro Worldwide, which was
sold in July 1995;
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c) elimination in 1996 of about $168,000 from the Fort Meade, Florida
facility, which opened in February 1995, and later contributed to a joint
venture in December 1995;
d) a reduction of $130,000 from site license income.
Also, in April, 1996, Laboratory Resources, Inc. purchased the operations
of the company's wholly owned subsidiary, BioCheck Laboratories, Inc.
Gross profit increased about $82,500, or 15% to about $651,000 for the
three months ended September 30, 1996 from about $568,500 for the three months
ended September 30, 1995 primarily from the combined elimination of revenues and
direct costs associated with N-Viro Worldwide, the Fort Meade, Florida facility
and BioCheck Laboratories. The gross profit margin increased to 46% from 41% for
the same three month comparison.
Selling, general and administrative increased about $162,000, or 22%, to
about $897,000 for the three months ended September 30, 1996 from about $735,000
for the three months ended September 30, 1995. The increase was primarily from a
charge of $400,000 for reserving the possible uncollectibility of a territory
fee. All other selling, general and administrative expenses have been reduced
substantially through closure of regional sales offices, reduced staffing, and
lower consulting expenses.
As a result of the foregoing factors, the Company recorded an operating
loss of about $245,000 for the three months ended September 30, 1996 compared to
an operating loss of about $166,000 for the three months ended September 30,
1995.
The Company has not recognized the tax benefit of the losses incurred in
prior periods and accordingly, the effective tax rate for the period was zero.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
Gross revenues for the nine month period ending September 30, 1996 were
about $895,000 less than for the same period in 1995. The decline in revenue was
due primarily to elimination in 1996 of revenues from N-Viro Worldwide, which
was sold in July 1995 and from the Fort Meade, Florida facility, which opened in
February 1995, and later contributed to a joint venture in December 1995. The
net loss for the nine months ended September 30, 1996 decreased to about
$127,000 compared to a net loss of about $906,000 for the same period in 1995.
The gross margin improved to about 53% for the first nine months of 1996 from
about 41% for the first nine months of 1995. Through September 30, 1996,
operational losses were about $168,000 compared to operational losses of about
$986,000 for the first three quarters of 1995. These improvements were a result
of implementing a change in business strategy and through a concerted effort to
reduce direct, selling, general and administrative costs as more fully described
in the three month comparative section of this report.
LIQUIDITY AND CAPITAL RESOURCES
The Company had negative working capital of $684,800 at September 30, 1996
compared to a negative working capital of $1,270,800 at September 30, 1995 and
negative working capital of $34,000 at December 31, 1995. The reduction in
working capital at September 30, 1996 from December 31, 1995 was caused
primarily from:
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<PAGE> 9
a) a change in the agreement with VFL Technologies (see below) resulting
in the reclassification of $156,000 from current assets to a long-term asset,
investment in joint venture.
b) the reduction in long-term debt, paid from the liquidation of current
assets.
c) the inclusion of a $280,000 balloon payment in current liabilities,
moving from long-term liabilities.
d) the inclusion of a $400,000 charge to bad debt reserve as explained
previously in this report.
The Company's business strategy has changed from the development and
operation of a number of N-Viro facilities that may be owned either by the
Company or by joint ventures between the Company and third parties, which
requires substantial capital expenditures, to marketing the N-Viro process which
will require minimal, if any, capital expenditures.
During 1994, the Company began construction of a new Company-owned
facility in Fort Meade, Florida. The new facility started producing N-Viro Soil
from wastewater solids in February 1995. The Company paid for the facility out
of the proceeds of the initial public offering. In December 1995, the Company
entered in to a Memorandum of Understanding with VFL Technologies, Inc. ("VFL")
and agreed to contribute the Fort Meade facility to a equally owned joint
venture, to be known as N-Viro Florida, LLP. This joint venture commenced
operations on January 1, 1996. At July 1, 1996, VFL and the Company renegotiated
the contract, receiving a $470,000 interest-bearing five year promissory note in
exchange for forgiving the final $250,000 installment due the Company, thereby
providing a $220,000 adjustment to the investment in the joint venture. The
Company is continuing the engineering work for a facility in Honolulu and is
awaiting final permits for this project The facility was planned to be sold
during 1996, but unanticipated delays have deferred this until 1997.
At September 30, 1996, the Company had a non-interest bearing
contractual obligation with an outstanding balance of $880,000 requiring monthly
payments of $60,000, and a balloon payment of $280,000 in July 1997; and, an
interest bearing long-term note payable to a bank with an outstanding balance of
$33,324 and matures in June 1997.
The Company considers improvement of its working capital position as a
top priority. It has received $183,000 in working capital loans from N-Viro
Energy Systems, Ltd., the majority stockholder in the Company, through the third
quarter of 1996 and is actively negotiating a private placement. The following
options are also under active consideration: traditional bank debt; project
financing; selection of a partner to develop a specific project, a group of
projects or a geographic territory; and venture capital. The Company believes
that its working capital together with any internally generated funds and
externally generated funds, will provide sufficient cash to meet the Company's
capital and other cash requirements through the first half of 1997.
PART II - OTHER INFORMATION
Item 5. Other Information.
(a) On November 1, 1996, the Company's Chief Financial Officer, John R.
Kolpien, resigned from employment by the Company. Mr. Kolpien will continue as a
consultant to the Company on certain matters. James K. McHugh has been appointed
Acting Chief Financial Officer.
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(b) (Malaysia contract)
(c) (Press release dated November 14, 1996)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) One report on form 8-K was filed August 28, 1996.
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N-VIRO INTERNATIONAL CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
N-VIRO INTERNATIONAL CORPORATION
Date: November 14, 1996 /S/J. Patrick Nicholson
--------------------- -------------------------------------------
J. Patrick Nicholson
Chairman , President and Chief Executive
Officer
(Principal Executive Officer)
Date: November 14, 1996 /S/James K. McHugh
--------------------- -------------------------------------------
James K. McHugh
Acting Chief Financial Officer
(Principal Financial & Accounting Officer)
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THIS AGREEMENT is made this Fourteenth day of August, 1996,
BETWEEN
N-VIRO INTERNATIONAL CORPORATION, whose registered office is at 3450 W. Central
Avenue, Suite 328, Toledo, OH 43606, USA, ("LICENSOR"), and ROCKLAND POWER Sdn.
Bhd., whose registered office is at No. 22 Jalan Indrahana, 1 Taman Indrahana
off Jalan Kuchai Lama. 58100, Kuala Lumpur, Malaysia ("LICENSEE").
WHEREAS
(A) The LICENSOR is the owner of all technology rights relating to the PROCESS
and PRODUCT and is empowered to grant licenses.
(B) The LICENSEE wishes to have the right to exploit the PROCESS and PRODUCT in
the TERRITORY in accordance with this AGREEMENT.
IT IS HEREBY AGREED:
1. GRANT
-----
(1) Subject to the terms and conditions of this Agreement, the LICENSOR
grants to the LICENSEE, and the LICENSEE accepts this Agreement and the
exclusive right to exploit the PROCESS and sell the PRODUCT in the
TERRITORY, and the LICENSOR hereby grants to the LICENSEE such licenses
under the PATENTS listed in Part 2 of the Schedule and the Know-How,
Trade Marks and Trade Names in Part 6 of the Schedule.
(2) The LICENSOR undertakes that it will not, within the TERRITORY, grant
any further licenses in respect of the PROCESS. It is expressly agreed
that the sale or disposal within the TERRITORY of PRODUCT generated by
the LICENSOR or other Licensees of the LICENSOR is not required by this
Agreement.
(3) In respect of any PATENTS or other rights (including without limitation
Trade Marks and Trade Names with or without the prefix "N-VIRO") which
are or become licenses under this Agreement, the LICENSEE may require
the LICENSOR at the expense of the LICENSEE to execute and complete a
formal license(s) or registered user agreement(s) for the purpose of
registration. The LICENSOR warrants to the LICENSEE that it has the
right to use the PATENTS or other rights and will make reasonable
efforts to register all trade marks including the name N-VIRO SOIL so
as to be the registered proprietor of such trade marks.
2. SERVICES BY THE LICENSOR
------------------------
(a) The LICENSOR shall provide free of charge training for two of the
LICENSEE'S technical staff in exploitation of the PROCESS, marketing of
the PRODUCT, and the use of EQUIPMENT for a period not exceeding one
man-month/installed plant at times to be agreed by the parties. The
LICENSOR shall extend the training at the LICENSEE'S reasonable
request, and at the rate specified in Part 5. Sub-Section 2. of the
Schedule. This training shall include all laboratory techniques,
specialized equipment selection, as are available to the LICENSOR at
the time, and such advice as the LICENSOR believes to be necessary to
enable the LICENSEE to use the DATA.
8/12/96
<PAGE> 13
(b) The LICENSOR shall within sixty days after this date supply free of
charge to the LICENSEE one reproducible copy of such DATA as the
LICENSOR considers necessary for the efficient exploitation by the
LICENSEE of the rights granted under this Agreement and shall from time
to time during this Agreement as and when it freely acquires additional
DATA relating to the PROCESS, PRODUCT and/or EQUIPMENT, supply such
DATA to the LICENSEE.
(c) In order to ensure the quality assurance of the PROCESS and for the
LICENSOR to provide the guarantee in Part 7 of the Schedule, the
LICENSOR shall have the opportunity to participate in either, all or
any combination of the design, build, operation or ownership phases of
any privatized FACILITY including PROCESS PLANT developed within the
TERRITORY, the degree of participation by the LICENSOR to be agreed on
a case by case basis dependent upon local circumstances and the needs
and desires of the LICENSEE.
(d) The LICENSEE shall be responsible for obtaining any necessary
permissions, consents or licenses, including those required by any
Government or statutory or regulatory body including those imposed by
any Environmental Protection Act and/or Code of Practice prepared and
issued by and Government or State under such Act so as to enable the
LICENSEE to discharge his obligations under this Agreement within the
TERRITORY. The LICENSOR undertakes to provide support if requested by
the LICENSEE in its efforts to obtain such necessary permissions,
consents or licenses.
(e) The LICENSEE may withhold 10% of all Initial/Up-Front Technical Fees
payable until services required by LICENSOR in paragraphs 3(a) and 3(b)
above are accomplished. The balance of fees due shall be payable as
provided in Schedule Part 1 - Fees.
3. FEES
----
(a) The LICENSEE shall pay the LICENSOR the FEE of US$600,000.00 in Part
1.1. of the Schedule in respect of the Exclusive Territorial Technology
Fee upon execution of the Agreement within 14 days. In relation to
Facility Technology Fees, the LICENSEE shall pay the LICENSOR the Fees
specified in Part 1, Sub-Sections 2.(a) and 2.(b) of the Schedule,
proceeding the execution of this Agreement.
(b) The Fees shall be paid free of all taxes and duties. In the event that
the Government or any other competent body having jurisdiction in the
TERRITORY imposes any tax or duty, the Fees shall be increased to such
sum which after deduction of any such tax or duty is equivalent to the
sum that would have been payable had there been no deduction or
liability to tax or duty.
(c) The LICENSEE shall deliver in writing to the LICENSOR full particulars
of the original design and annual production of PRODUCT of all plants
and other information as the LICENSOR may require to calculate the Fees
payable.
(d) The LICENSEE shall keep accounts and records of all matters connected
with design and throughput of each FACILITY and shall permit the
LICENSOR'S authorized representatives at all reasonable times to
inspect and take copies or extracts.
4. IMPROVEMENTS
-----------
8/12/96 2
<PAGE> 14
(a) Each party shall communicate to the other any improvement,
modification, discovery or invention relating to the PROCESS, PRODUCT
and/or EQUIPMENT it may make or acquire, whether such improvement is
patentable or not, and shall fully disclose to the other the nature and
manner of performing the improvement.
(b) As to any improvement made or acquired by the LICENSOR:
(1) The LICENSEE shall have the right to exploit the improvement under
the terms of this Agreement.
(2) The LICENSOR shall have the right to apply for all patents
throughout the world in respect of the improvement. Where such
patents relate to the TERRITORY, they shall be deemed to be
included in the PATENTS.
(3) Where the improvements relate to the PRODUCT for which the
LICENSOR is able to obtain a new patent or patents in relation to
the TERRITORY, the LICENSEE shall have the right to exploit
this/these subject to the payment of PRODUCT ROYALTY FEES to be
agreed at the time between the parties.
(c) As to any improvement made or acquired by the LICENSEE the LICENSEE
shall have the right to apply for patents in respect of the improvement
throughout the world subject to the grant to the LICENSOR of a
non-exclusive perpetual license to use the improvement in all countries
under the said patents, with power to grant sub-licenses, subject to
the payment of ROYALTY FEES, commensurate with commercial value, to be
agreed at that time between the parties.
(d) The party generating the improvement may withhold details of
improvements for a reasonable period of time (not to exceed six months)
to enable it to file an application for a patent or other registration.
(e) The party seeking a patent or registration for an improvement (the
Applicant) shall notify the other party of the countries in which it
intends to file an application for patent or registration. The other
party may at any time within a period of nine months from the date of
such initial filing request the Applicant to file corresponding
applications in any other countries, at the expense and in the name of
the other party. The Applicant shall execute any applications in
respect of such other countries as the other party may submit to the
Applicant.
(f) Neither party shall be obliged to transmit any information or grant any
licenses under this clause where such information has been acquitted
under restriction from a third party as to licensing and/or
dissemination, or where such grant or transmission would make the
granting or transmitting party (the Acquirer) liable for payment to a
third party unless the other party agrees to accept full liability to
make such payment. The Acquirer shall, in consultation with, and if
requested by, and at the expense of the other party, endeavor to obtain
agreement of such third party to the grant and/or disclosure.
(g) Except as otherwise provided by this clause the provisions of clause 16
shall apply mutatis mutandis to information supplied hereunder.
5. UNDERTAKINGS BY THE LICENSEE
----------------------------
(a) The LICENSEE undertakes, during the continuance of this Agreement, that
it will:
8/12/96 3
<PAGE> 15
(1) not supply for use or exploit the PROCESS outside the TERRITORY
except with the prior written consent of the LICENSOR; and
LICENSEE shall indemnify the LICENSOR against all costs, claims,
demands and expenses arising from breach of such obligation. It is
expressly agreed that the sale or disposal of the PRODUCT outside
the TERRITORY is not restricted by this Agreement;
(2) when requested by the LICENSOR, supply the LICENSOR in confidence
with full details of operational results in respect of any
FACILITY;
(3) use its best endeavors to promote the sale of the PRODUCT.
(b)
(1) In exploiting the PROCESS and selling or disposing of the PRODUCT
the LICENSEE shall maintain the standards of quality prescribed by
the LICENSOR and agreed by the LICENSEE. Such quality standards
shall be prepared in consultation with the LICENSEE. In respect of
Alkaline Admixture, the LICENSEE shall comply with the Quality
Control Program Parameters as Appendix 1 hereof. In respect of
N-Viro Soil or N-Viro Aglime, the LICENSEE shall comply with
Quality Control Program Parameters attached as Appendix 2 hereof.
These Quality Control Programs may be updated by the LICENSOR from
time to time as part of the LICENSOR'S ongoing development
program.
(2) In the event that the standards of quality achieved by the
LICENSEE do not meet the reasonably required standards the
LICENSOR shall be entitled by notice in writing to the LICENSEE to
suspend the LICENSEE'S rights hereunder to sell or dispose of the
PRODUCT until such time that the LICENSEE can achieve the required
standards. In the event that the LICENSEE is unable for a period
of ninety days to achieve the required standards of quality then
the LICENSOR shall have the right to terminate this Agreement in
its entirety by thirty days notice in writing to the LICENSEE.
(3) Any proposed change by the LICENSEE involving any alteration in
the PROCESS or the structure or quality of the PRODUCTS to be sold
or disposed of by the LICENSEE shall be submitted to the LICENSOR
and shall be subject to the LICENSOR'S approval prior to use by
the LICENSEE.
(4) If and to the extent requested, the LICENSEE shall furnish quality
control reports to the LICENSOR in such form as may be reasonably
prescribed by the LICENSOR.
(5) The LICENSOR shall have the right during all reasonable business
hours to inspect the premises of, and PRODUCT available for sale
or disposal by the LICENSEE. In addition the LICENSEE shall at the
request and expense of the LICENSOR made not more than once every
three months send to the LICENSOR for inspection and test
reasonable sample quantities of the PRODUCT produced by the
LICENSEE. The LICENSOR shall be entitled to retain such samples
and/or test such samples to destruction.
(6) The LICENSEE shall furnish to the LICENSOR detailed progress
reports concerning all aspects relating to the business in the
TERRITORY within thirty days of the 30th June and 31st December
each year.
6. ASSIGNMENT
----------
8/12/96 4
<PAGE> 16
(a) The LICENSEE shall be entitled to assign to any reputable, solvent
entity its rights hereunder subject to the approval of the LICENSOR
which approval will not be unreasonably withheld.
(b) The undermentioned provisions shall apply in the event the LICENSEE
proposes to appoint or engage one or more sub-contractors for the
purposes of constructing the FACILITY on its behalf (either in whole or
in part), the LICENSEE shall, in appointing or engaging any such
sub-contractor, obtain a statement in writing from the sub-contractor
to the effect that the sub-contractor:
(1) will not, directly or indirectly, at any time during or after the
continuance of this Agreement, disclose or permit or allow to be
disclosed to any third party, or use or exploit or turn to account
except for the purposes of the sub-contract, any of the
information transmitted to it by the LICENSEE pursuant to this
Agreement except in so far as exempted under paragraph 16.(d) in
relation to such sub-contractor.
(2) acknowledges that all such information transmitted to it by the
LICENSEE pursuant to this Agreement remain the absolute property
of the LICENSEE or the LICENSOR as the case may be.
7. MARKING
-------
(a) The LICENSEE undertakes not to use any of the LICENSOR'S Trade Names or
registered Trade Marks listed in Part 6 of the Schedule hereto except
in relation to the PROCESS and PRODUCT.
(b) The LICENSEE shall affix or cause to be affixed on some conspicuous
part of every FACILITY a plate inscribed with the relevant Trade Mark
or Trade Name, with the numbers of the relevant PATENTS, with the words
"LICENSED BY N-VIRO INTERNATIONAL CORPORATION", and/or with such other
information as the LICENSOR may reasonably direct. The LICENSEE shall
be free to add its own name thereto.
(c) The exclusive property in the said Trade Names and registered Trade
Marks shall be and remain the property of the LICENSOR and upon
termination (for whatever reason) of this Agreement the LICENSEE shall
cease forthwith to make any further use of the said names or marks or
of the name N-VIRO SOIL, or of any name or marks confusingly similar
thereto.
8. PUBLICITY
---------
(a) In all publicity material (such as advertisements, sales literature and
catalogues) relating to the PROCESS, the FACILITY and/or the PRODUCT,
the LICENSEE shall incorporate in a conspicuous manner the words
"LICENSED BY N-VIRO INTERNATIONAL CORPORATION" or a similar
acknowledgment of the interests of N-VIRO INTERNATIONAL CORPORATION,
and/or such other information as the LICENSOR may reasonably direct.
(b) The LICENSEE shall, at the request of the LICENSOR, and at the
LICENSEE'S expense, execute all such documents and do all such acts or
things as may be necessary for
8/12/96 5
<PAGE> 17
the purpose of registering the LICENSEE as a permitted user of the said
Trade Names or registered Trade Marks.
9. INFRINGEMENT OF THE PATENTS
---------------------------
Each party shall forthwith notify the other of any infringement or
threatened infringement of the PATENTS or any of them that may come to its
knowledge, and the parties shall consult as to what steps, if any, should
be taken in respect thereof. If in respect of any such infringement the
LICENSOR does not wish legally to enforce any of the PATENTS, then the
LICENSEE may, so far as is permitted by law, do so, and enjoin and/or
collect damages for any infringement thereof, and the LICENSOR shall at the
expense of the LICENSEE cooperate with the LICENSEE in connection
therewith.
10. THIRD PARTY PATENTS AND VALIDITY
--------------------------------
(a) To the best of the LICENSOR'S knowledge and belief:
(1) The use of the PROCESS will not result in the infringement of the
valid patents or other proprietary rights of third parties.
(2) Part 2 and Part 3 of the Schedule list approved and pending
patents worldwide owned by the LICENSOR. The LICENSEE shall
receive copies of all the PATENTS, and LICENSOR agrees to decide
with LICENSEE the applicability of pending and new patents in the
TERRITORY.
(3) No proceedings charging it with infringement of patent or
proprietary rights of third parties have in respect of the PROCESS
and/or the EQUIPMENT have been filed or are threatened to be filed
at the date hereof.
(b) Should the LICENSEE be sued for infringement as a consequence of the
use of the PROCESS, the LICENSOR will make reasonable endeavors to
defend such action to the extent that in all circumstances it is
reasonable to do so. All costs of any such action shall be borne by the
LICENSOR, to whom shall belong all sums that may be recovered from the
third party.
(1) The LICENSOR is given full control of any proceedings or
negotiations in connection with any such claim;
(2) The LICENSEE shall give the LICENSOR all reasonable assistance for
the purposes of any such proceedings or negotiations;
(3) Except pursuant to the final award the LICENSEE shall not pay or
accept any such claim or compromise any such proceedings without
the consent of the LICENSOR (which shall not be reasonably
withheld);
(4) The LICENSEE shall do nothing which would or might vitiate any
policy of insurance or insurance cover which the LICENSOR may have
in relation to such infringement and this indemnity shall not
apply to the extent that the LICENSOR recovers any sums under any
such policy or cover (which the LICENSEE shall use its best
endeavors to do);
(5) The LICENSOR shall be entitled to the benefit of, and the LICENSEE
shall accordingly account to the LICENSOR for, all damages and
costs (if any) awarded in
8/12/96 6
<PAGE> 18
favor of the LICENSEE which are payable by or agreed with the
consent of the LICENSEE (which consent shall not be unreasonably
withheld) to be paid in respect of any such claim; and
(6) Without prejudice to any duty of the LICENSEE at common law the
LICENSOR shall be entitled to require the LICENSEE to take such
steps as the LICENSOR may reasonably require and at the expense of
the LICENSOR may mitigate or reduce any such loss, damages, costs
or expenses for which the LICENSOR is liable to indemnify the
LICENSEE under this Clause.
11. THE PATENTS - ADMINISTRATION
----------------------------
The administration and supervision of the PATENTS is required under the
terms of this Agreement to be carried out by N-VIRO INTERNATIONAL
CORPORATION.
"PATENT EXPENSES" means official expenses (such as, without limiting the
generality of the foregoing: application, prosecution, and issuing
expenses; renewal fees, patent agents' fees) which relate to the PATENTS,
and which are disbursed or incurred by or on behalf of N-VIRO INTERNATIONAL
CORPORATION.
8/12/96 7
<PAGE> 19
12. DURATION
--------
This Agreement shall, unless previously terminated under the provisions
hereof, remain in effect until 30th December, 2010, and shall then be
automatically renewed for two-year periods thereafter unless and until
terminated by not less than twelve months notice given by either party to
the other expiring on 30th December, 2012, or on the last day of any
subsequent two-year period. Moreover, the Agreement will continue as long
as any FACILITY is paying a per unit Technical and Operating Support Fee
(Part 1, Sub-Section 2.(b) of the Schedule).
13. ARBITRATION
-----------
In the case of any dispute arising under or in connection with this
Agreement the parties shall endeavor to settle such dispute first of all in
an amiable way. Failing this, the dispute shall be finally settled under
the Rules of the American Arbitration Association by one or more
arbitrators in accordance with the Rules. The arbitration shall be held in
Honolulu, Hawaii, unless otherwise agreed to in writing by the parties.
14. GOVERNING LAW
-------------
This Agreement shall be interpreted and the rights of the parties
determined in accordance with the laws of the State of Ohio, USA.
15. TERMINATION
-----------
(a) If any Fees payable by the LICENSEE are not paid at or within the time
stipulated by Paragraph A., and remain unpaid for thirty days after the
LICENSOR gives notice thereof to the LICENSEE requiring payment to be
made, the LICENSOR shall be at liberty to terminate the Agreement by
giving to the LICENSEE notice to that effect, as long as the LICENSOR
is not in breach of this Agreement.
(b) If either party shall commit a breach of this Agreement and shall fail
to remedy such breach within sixty days (or thirty days in the case of
non-payment of any Fees or other sums payable to the LICENSOR) after
receiving a notice specifying the breach and requiring it to be
remedied, the other party shall be at liberty in every such case to
terminate this Agreement by giving notice to that effect, provided that
in the event of any dispute over the existence or otherwise of a breach
of this Agreement, such question shall be referred to arbitration under
Paragraph 13.
(c) The termination of this Agreement shall be without prejudice to any of
its provisions which expressly or by implication survive such
termination, or to the remedy of the LICENSOR to recover any fees which
at the date of termination have accrued due, or to the remedy of either
party in respect of any breach of this Agreement. Upon termination of
this Agreement under sub-paragraphs 15.(a) or 15.(b), the LICENSEE
shall execute any documents submitted by the LICENSOR to revert or
confirm the reversion to the LICENSOR of any rights granted hereunder
by the LICENSOR.
(d) Upon termination of the Agreement by the LICENSOR under the provision
of sub-paragraph 15.(a) above, the provisions of this Agreement shall
continue to apply only so far as is necessary to enable the LICENSOR to
exercise its rights under Paragraph 5.
8/12/96 8
<PAGE> 20
16. CONFIDENTIALITY
---------------
(a) The LICENSEE hereby undertakes on behalf of itself and of LICENSEE
ASSOCIATES:
(1) to treat as secret and confidential all DATA and KNOW-HOW which is
disclosed to the LICENSEE by the LICENSOR arising out of this
Agreement;
(2) not at any time to disclose or permit or allow to be disclosed the
DATA and KNOW-HOW or any part thereof to any third party, except
any necessary disclosures to clients and sub-contractors of the
LICENSEE;
(3) not to use, exploit or turn to account the DATA and KNOW-HOW or
any part thereof other than for the purposes and under the terms
of this Agreement.
(b) The DATA and all drawings, specifications, lists, schedules, and other
documents, which contain any of the KNOW-HOW, shall be and remain the
property of the LICENSOR, and the copyright therein shall belong to and
remain vested in the LICENSOR.
(c) The provisions of this clause shall not apply to information (to which
the LICENSEE can produce written evidence) which:
(1) is already known to the LICENSEE or LICENSEE ASSOCIATE prior to
its disclosure by the LICENSOR, or
(2) is at the time of its disclosure in the public domain or
subsequently comes into the public domain (other than by reason of
default by the LICENSEE or a LICENSEE ASSOCIATE) in observing its
obligations under sub-clause (2), or
(3) is received by the LICENSEE or a LICENSEE ASSOCIATE from a third
party without restriction on use of disclosure, or
(4) is independently developed by the LICENSEE or a LICENSEE
ASSOCIATE.
17. NOTICES
-------
(a) All notices to be given by either party hereunder shall be in writing.
(b) A notice sent by registered airmail shall be deemed to be given
twenty-one days after its date of posting. A notice sent by facsimile
shall be deemed to be given on automatic confirmation of receipt.
(c) Any notice required to be given hereunder shall be validly and
effectively given to either party by being sent by facsimile, or
postage pre-paid by registered airmail to such party at its address as
shown hereinabove (or at such other address as that party shall have
specified for that purpose in a notice in writing to the other party).
In proving such notice in the case of postage it shall be sufficient to
prove that the envelope containing the notice was properly addressed
and duly handed in at a post office as a registered airmail letter.
18. HEADINGS
--------
The clause headings hereof are included for convenience only and shall not
affect the construction of this Agreement.
19. SEVERABILITY
------------
8/12/96 9
<PAGE> 21
(a) The provisions of this Agreement shall be deemed to be severable, and
any invalidity or any provision of this Agreement shall not affect the
validity of the remaining provisions of this Agreement.
(b) Neither party shall be obliged to do any act under this Agreement which
is contrary to the lawful direction of a body, department or agency
having competent jurisdiction within the TERRITORY and in the event
that either party shall fail to observe the terms and conditions of
this Agreement at such directions such failure shall not form grounds
for the termination of this Agreement; provided that if by reason of
such failure the benefits to be derived hereunder by the other party
are significantly reduced, the parties agree to make such adjustment in
the terms and conditions of this Agreement as is equitable in the
circumstances then obtaining. In the event that the parties are unable
to agree upon such adjustment, it shall be determined by reference to
arbitration as herebefore provided.
20. ENGLISH LANGUAGE
----------------
This Agreement is in the English language, executed in duplicate original
by the parties hereto. In the event that this Agreement is translated into
any other language and any inconsistency or contradiction in meaning or
interpretation results therefrom, the English language version shall
prevail and be controlling as between the parties hereto.
21. WHOLE AGREEMENT
---------------
(a) This Agreement is the entire agreement between the parties with respect
to its subject matter. It supersedes any and all promises,
representations, warranties, or other statements (written or oral) made
by or on behalf of one party to the other of any nature whatsoever or
contained in any publicity material given by one party to the other
concerning such subject matter.
(b) This Agreement cancels all prior agreements between the parties (if
any) relating to the EQUIPMENT, the PROCESS or the PRODUCT and also
cancels and modifies all rights (if any) of either party arising
against the other by virtue of all or any such prior agreements.
8/12/96 10
<PAGE> 22
SCHEDULE - PART 1 - FEES
- ------------------------
1. An Exclusive Territorial Technology Fee for the TERRITORY; includes
control of technology in the TERRITORY; review of available minerals
and organics (feed stock); review of product market options; and
optional site and process evaluations - one-time payment:
U.S.$600,000.00.
Above Fee is due within 14 days of the execution of this Agreement.
2. Facility Payment: (per Facility)
(a)* Initial Technical Up-Front Fee -- one-time fee for design
assistance, training and public outreach -- U.S.$3.00 per wet
ton of Annual plant capacity.
(b) Technical and Operations Support Fee U.S.$3.00 per wet ton of
Actual organic waste processed (life of facility); or
* Present value on a 10-year contract basis: paid 100%
up-front or set percentage up-front, at discretion of
LICENSEE. 100,000 ton facility: 50% of Technical and
Operations Support Fee paid on Present Value basis.
e.g. 100,000 tons X $1.50 ($3.00 X 50% = $1.50) =
$150,000 X 10 years = $1,500,000 X 60% (present
value) = $900,000.00
TOTAL COST OF FACILITY:
(1) Initial*
(a) Up-front
100,000 tons @ $3.00 = $300,000.00
(b) Present value 50%
Pre-pay: 10 years Contract
e.g., 100,000 X $1.50 ($3.00 X 50%)
= $150,000 X 10 years = $1,500,000
X 60% (Present value) = $900,000.00
TOTAL INITIAL (Up-front + Present value)
@ 50% = $1,200,000.00
(2) On-going (Life of Facility)
e.g., 100,000 tons X $1.50 = $150,000.00 per year
*Schedule of payments as follows:
Facility permitted 25%
Construction begins 25%
Facility on-line 25%
Facility meets performance requirements 25% (see Schedule Part 7 -
Guarantee)
3. Sub-Licenses:
8/12/96 11
<PAGE> 23
LICENSEE shall have the right in the TERRITORY to Sub-License third
parties. Sub-Licensing Fee structure shall be determined by LICENSEE,
provided Fees due to LICENSOR are consistent with Part 1, Sub-Sections
2.(a) and 2.(b) of this Schedule.
LICENSEE may offer a one-time only "Total Payment" to a Sub-Licensee,
provided the amount due to LICENSOR from such a "Total Payment"
Agreement is approved in writing by the LICENSOR.
4. All Fees stipulated in Schedule Part 1, Sub-Section 2.(b) are due and
payable hereunder within thirty days of March 31, June 30, September
30, and December 31.
5. The Fee stipulated in Schedule Part 1, Sub-Section 2.(b) shall be
subject to annual variation, in accordance with the fluctuation in the
Retail Price Index over the previous twelve months, as issued by the
Government Statistics Office in the TERRITORY or other mutually agreed
source of Retail Price Index information.
8/12/96 12
<PAGE> 24
SCHEDULE - PART 2 - PATENTS GRANTED
- -----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
United States of America 4,018,617 4,432,800
4,038,095 4,554,002
4,101,332 4,781,842
Re 30,943 4,902,431
4,341,562 5,135,664
5,275,733 5,417,861
Argentina 242940 241454
Australia 610,563
Austria 0283153
Belgium 0283153
Brazil 8900379-9
Canada 1,264,232 1,264,233
China 88101683
Denmark 169066
Egypt 18709
France 0283153
Germany P3875362.6
Greece 0283153 Greek National #3,006,689
Holland 0283153
Ireland 62802
Italy 0283153
Mexico 165202
Norway 176794
Pakistan 131,787
Spain 0283153
Sweden 0283153
Switzerland 0283153
Taiwan 43,697
United Kingdom 0283153
</TABLE>
8/12/96 13
<PAGE> 25
SCHEDULE - PART 3 - PATENT APPLICATIONS PENDING
- -----------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
United States of America 08/532,273 08/520,959
Argentina 324345
Brazil 9300654
Columbia 057.482
Denmark 0945/88
Ecuador 94-1267
EPO 93301160.3
India 80/CAL/89
Indonesia P9-940827
Ireland 530/88
Israel 111957
Japan 43268/88
South Korea 915/89
Malaysia PI9403408
Mexico 930920
Poland P306368
Russia 94044319.00
Ukraine 94129215
Venezuela 1974-94
</TABLE>
8/12/96 14
<PAGE> 26
SCHEDULE - PART 4 - PROCESS
- ---------------------------
PROCESS
The treatment of sewage or similar organic sludge derived from the
process as generally described in the PATENTS.
SCHEDULE - PART 5 - CHARGES FOR SERVICE
- ---------------------------------------
1. RATE FOR DRAWINGS, ETC.
-----------------------
The charge for requested special calculations, drawings, or analyses, or
for any requested special assistance, carried out by the LICENSOR'S
personnel at their home base, will be at the standard charge-out rate of
the LICENSOR.
2. DAILY RATE FOR SPECIAL VISITS
-----------------------------
Requested visits by the LICENSEE will be charged for the LICENSOR'S
personnel on the basis of its standard charge-out rate plus all living and
economy class travel expenses.
The daily rate charged for the entire time that an employee is away from
his home-base, including time spent in travel. In addition, all reasonable
living expenses (including accommodations, meals and laundry), and all
economy class travel expenses (including all forms of public
transportation) will be charged to the LICENSEE separately at cost.
3. INVOICING
---------
The aforesaid charges will be invoiced monthly and will be payable within
thirty days of the invoice date.
SCHEDULE - PART 6 - REGISTERED TRADEMARKS AND TRADE NAMES
- ----------------------------------------------------------
N-Viro Lime 1,730,479 N-Viro Soil 1,698,644 N-Viro AA 1,7011,483
SCHEDULE - PART 7 - GUARANTEE
- -----------------------------
Provided that the proving trials referred to below are carried out in the
presence of the LICENSOR'S personnel and in accordance with its instructions and
that the LICENSEE provides sufficient operating staff of suitable qualifications
and raw materials and utilities in sufficient quantities and of the
characteristics specified in appendix 1, then:
The LICENSOR guarantees that the PROCESS will achieve the objectives stated
below provided that the method of carrying out the PROCESS and/or utilizing the
EQUIPMENT corresponds materially closely to the LICENSOR'S specifications in the
DATA and the operating conditions provided by the LICENSEE correspond closely to
the operating conditions specified in the DATA and the PROCESS and/or EQUIPMENT
is being operated to the reasonably acceptable standards under the operating
conditions specified in the DATA.
8/12/96 15
<PAGE> 27
OBJECTIVES:
The treatment of:
(i) Sewage or similar organic sludge to render it substantially free
from pathogenic organisms, viruses and parasites/parasitic ova and
to remove offensive odor to a tolerable level and to make
insoluble substantially all of the heavy or toxic metal content of
the PRODUCT derived from the PROCESS such that the PRODUCT is
suitable to be put safely to agricultural use, or
(ii) In the case of non agricultural use the treatment of sludge to
render it suitable in all required aspects for use as landfill or
land cover or structural landfill material.
(A) The proving trial shall be conducted in accordance with the LICENSOR'S
instructions, commencing on a date requested in writing by the LICENSOR
within three months of the FACILITY going "on-line", and agreed to by the
LICENSOR and the LICENSEE. Operating of the Equipment during the proving
trial will be controlled by the LICENSEE under the LICENSOR'S instructions.
The proving trial will; be carried out over a period of ninety-six hours
during which time the performance of the Equipment will be measured by the
LICENSEE in accordance with LICENSOR'S advice.
(B) Measurement and samples shall be taken in the presence of the LICENSEE and
the LICENSOR'S personnel using the LICENSOR'S standard methods and in
determining the actual performance of the Equipment the results shall be
averaged over the entire proving trial.
(C) The performance guarantees are conditional upon the following requirements
being fulfilled from the time of start up of the Equipment until the date
of signature of the acceptance certificate.
(i) All necessary raw materials and operating supplies are provided in
ample quantities and in compliance with the specification given in
Appendix 1.
(ii)Adequate laboratory facilities and test equipment are supplied by the
LICENSEE to enable the LICENSOR'S personnel to carry out analysis in
accordance with test methods provided by the LICENSOR as part of the
technical documentation.
(iii) The Equipment is operated and maintained in good condition by the
LICENSEE in accordance with the LICENSOR'S recommendations and
instructions given in the operating manual or by the LICENSOR'S
commissioning staff and any continuous or unremedied deviation from
those instructions will render the guarantees null and void.
(iv)During the proving trial all other plant at the LICENSEE'S site shall
not be operated in any manner which could adversely affect the proving
trial.
(v) Any equipment provided by the LICENSEE operates satisfactorily and
achieves its designed performance and availability.
(D) The above guarantee shall be deemed to be fulfilled if the average output
of the Equipment over the trial period is equal to or exceeds an average of
90%.
(E) Following completion of the proving trial in which the guarantee is met, an
acceptance certificate signed by the LICENSEE will confirm that fact.
8/12/96 16
<PAGE> 28
SCHEDULE - PART 8(A) - KEY EQUIPMENT
- ------------------------------------
Dewatering Beltpress Package
----------------------------
Mixer processing Unit with Automation
-------------------------------------
Rotary or other Thermal Dryers where utilized
---------------------------------------------
SCHEDULE - PART 8(B) - RECOMMENDED EQUIPMENT
- --------------------------------------------
Pasteurization Equipment
------------------------
Trailer 13m3
Roll on/off Container
Drive Unit with Amplirol
Windrowing Equipment
--------------------
Uniloader with Auger
Scarab Unit
Tractor with Front Loader
8/12/96 17
<PAGE> 29
APPENDIX 1
Quality Assurance and Quality Control Programme
-----------------------------------------------
Parameters fro N-VIRO AA
------------------------
I. Frequency of Testing
A. All materials and blends shall be tested monthly for all trace metals
listed in Sub-Section VI.B.1.
B. Materials having concentrations of any one of the metals listed in
Sub-Section VI.B.1. which exceed the limits set therein must be blended
with other approved alkaline reagents in such a way as to reduce the
total metals content of the blend below the specified limits. In
addition the resultant blend must be tested weekly for the metals which
exceed the specifications to ensure that the blend meets the
requirements of N-Viro AA.
II. Collection
A. Sales must be from consistent location.
B. Dust should not be sold that is collected during upset in kiln unless
specifically tested.
C. Dust should not be sold that is collected within 12 hours of start-up
or shut-down unless specifically tested.
III. Testing
A. In addition to metals content the alkaline material shall be tested for
the following parameters:
1. K2O and SO3 shall be tested monthly.
2. Loss On Ignition shall be tested monthly.
3. Primary pollutants and CaO/MgO (free lime - ASTM C-25) shall be
tested semi-annually.
4. Blaine Fineness and Bulk Density shall be tested semi-annually.
B. All analysis shall be performed by N-Viro's lab or an approved
designee.
C. The qualification and subsequent testing requirements for reagents
shall be determined by the arithmetic mean of the results from the
previous three samples (as available) submitted from the source.
If testing shows standard deviation exceeding 15 % for any listed parameter
the results shall be reviewed immediately by N-Viro International
Corporation.
IV. All alkaline by-products considered for marketing as N-Viro AA must be
submitted for analysis and approval to N-Viro's laboratory or its designee.
This testing will provide proper screening for reagents and ensure:
A. N-Viro AA is capable of achieving N-Viro Soil odor reduction
requirements.
B. N-Viro AA is capable of achieving N-Viro Soil Alternative #2 with the
use of other admixtures.
C. The alkaline meets or exceeds all requirements for N-Viro AA.
8/12/96 18
<PAGE> 30
D. The characteristics of the alkaline material are consistent with all
requirements of the N-Viro AASSAD process and N-Viro Soil Product.
V. Storage
A. Watertight silos meeting normal specifications for hydrated lime should
be used.
B. Angle of repose should exceed 70 degrees.
VI. Characteristics of N-Viro AA
A. It is the policy of N-Viro that no alkaline by-products which originate
from a plant burning hazardous waste will be considered for
qualifications as N-Viro AA.
B. Pollutant Concentrations -
1. Maximum Allowable Levels of Trace Elements allowed in N-Viro AA*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Arsenic 41 ppm Mercury 17 ppm
Cadmium 21 ppm Molybdenum 18 ppm
Chromium 1200 ppm Nickel 420 ppm
Copper 1500 ppm Selenium 36 ppm
Lead 300 ppm Zinc 2800 ppm
</TABLE>
N-Viro will approve blending of material to meet specifications.
2. Maximum Allowable Levels of Trace Elements allowed in any blend
component for N-Viro AA*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Arsenic 75 ppm Mercury 57 ppm
Cadmium 85 ppm Molybdenum 75 ppm
Chromium 300 ppm Nickel 420 ppm
Copper 4300 ppm Selenium 100 ppm
Lead 840 ppm Zinc 7500 ppm
<FN>
* Dry weight basis
</TABLE>
III. Physical Characteristics
Particle Size Distribution: 60% passing 200 mesh.
Blaine Fineness: more than 3000 cm2/gram.
Exceptions may only be made by N-Viro in writing.
-------------------------------------------------
8/12/96 19
<PAGE> 31
APPENDIX 2
Quality Assurance and Quality Control Program
---------------------------------------------
Parameters for N-VIRO SOIL and N-VIRO AGLIME
--------------------------------------------
Product reliability and consistency is an important factor in maintaining the
quality of the N-Viro Soil product as well as the realization of N-Viro's goal
of creating public and customer awareness of the market value and safety of the
N-Viro Soil product.
Process and Public Health Control Specifications along with testing and
requirements are identified in Exhibit D of the Patent License Agreement which
defines the procedures for the N-Viro AASSAD process.
Product requirements for N-Viro Soil/N-Viro Aglime trademarked materials are as
follows:
1. Process must be operated in accordance with procedures as set forth in the
N-Viro Operations Manual and any future changes that may come into force
from time to time.
2. Disinfection/Stabilization criteria must meet the PFRP classifications of
the 40 CFR 257 regulations and the final class A regulations of the 40 CFR
503 regulations (when implemented).
3. The N-Viro Soil product shall contain (on a dry weight basis) less than:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Arsenic 41 ppm Mercury 17 ppm
Cadmium 21 ppm Molybdenum 18 ppm
Chromium 1200 ppm Nickel 420 ppm
Copper 1500 ppm Selenium 36 ppm
Lead 300 ppm Zinc 2800 ppm
</TABLE>
N-Viro International Corporation may provide a waiver, in writing, on a
site specific basis with additional restrictions on the distribution of the
product.
4. Utilization in the USA must be in accordance with 40 CFR 257 and 40 CFR
Part 503.
5. Organic material, as measured by volatile solids, shall exceed 200 pounds
per dry ton.
6. Nitrogen (TKN), Phosphorous (P2O3), and Potassium (K2O) shall each exceed
10 pounds per dry ton unless waived in writing by N-Viro International
Corporation.
7. Calcium carbonate equivalency (as measured by ASTM C-611) shall exceed 25%,
unless waived in writing by N-Viro International Corporation.
8. All materials shall pass a 25mm screen and 95% shall pass a 12mm screen.
9. Percent solids shall exceed 50% for bulk material and 75% for bagged
material.
10. Odor, prior to sale, shall be below a 2.0 rating (as measured by the
Environmental Testing Laboratory of BioCheck Laboratories, Inc., in Toledo,
Ohio, USA).
8/12/96 20
<PAGE> 32
APPENDIX 3
DEFINITIONS
-----------
(a) "DATA" means information in documentary or other material form within
the control of the LICENSOR relating to the exploitation, testing,
maintenance, and safe use of the PROCESS and/or EQUIPMENT.
(b) "EQUIPMENT" means any equipment used for exploitation of the PROCESS,
including KEY EQUIPMENT and improvements.
(c) "FACILITY" means a plant designed and constructed for the exploitation
of the Licensed PROCESS.
(d) "FEE(S)" means in relation to any TECHNOLOGY within the TERRITORY, the
FEE(S) for the right to use the PATENTS and the KNOW-HOW for any
FACILITY using the TECHNOLOGY, as indicated in Part 1 of the Schedule.
(e) "KNOW-HOW" means knowledge, information, experience, non-patented
inventions, or discoveries, which relate to the PROCESS, PRODUCT and/or
EQUIPMENT and which the LICENSOR, now or during the continuance of this
Agreement, is freely entitled to pass on to the LICENSEE.
(f) "LICENSEE ASSOCIATES" means any company controlled by the LICENSEE; any
company which controls the LICENSEE and any company controlled by such
a company; any successor company of the LICENSEE; and the directors,
officers and employees of the LICENSEE. (In this sub-paragraph
"company" means company, firm or corporate body.)
(g) "PATENTS" means the patents listed in Part 2 of the Schedule hereto and
such patents as are granted in respect of the PATENT APPLICATIONS (if
any) listed in Part 3 of the Schedule.
(h) "PATENT EXPENSES" means official expenses (such as, without limiting
the generality of the: application, prosecution, and issuing expenses;
renewal fees, patent agents' fees) which relate to the PATENTS.
(i) "PROCESS" means the treatment of sludges as itemized in Part 3 of the
Schedule and includes improvements.
(j) "PRODUCT" means the end product of the PROCESS which shall be known as
N-VIRO SOIL or future derivatives.
(k) "TERRITORY" means the country of Malaysia.
8/12/96 21
<PAGE> 33
SIGNED BY )
) /s/ J. Patrick Nicholson
)---------------------------------
FOR THE LICENSOR ) J. PATRICK NICHOLSON
CHIEF EXECUTIVE OFFICER
N-VIRO INTERNATIONAL CORPORATION
/s/ Kathryn Anderson
IN THE PRESENCE OF: )---------------------------------
WITNESS ) KATHRYN ANDERSON
SIGNED BY )
) /s/ En Suffian Jaafar
)---------------------------------
FOR THE LICENSEE ) EN SUFFIAN JAAFAR
MANAGING DIRECTOR
ROCKLAND POWER SDN. BHD.
/s/ Mohan Kumar Karumah
IN THE PRESENCE OF: )---------------------------------
WITNESS ) MOHAN KUMAR KARUMAH
EXECUTIVE DIRECTOR
ROCKLAND POWER SDN. BHD.
8/12/96 22
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000904896
<NAME> N-VIRO INTERNATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 88,535
<SECURITIES> 1,401
<RECEIVABLES> 1,025,165
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,243,935
<PP&E> 695,356
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,573,238
<CURRENT-LIABILITIES> 2,928,741
<BONDS> 0
<COMMON> 20,943
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,573,238
<SALES> 3,370,738
<TOTAL-REVENUES> 3,370,738
<CGS> 1,589,957
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (127,321)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (127,321)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
<PAGE> 1
EXHIBIT 99
NEWS RELEASE FOR IMMEDIATE RELEASE
For More Information Contact:
J. Patrick Nicholson
Chief Executive Officer
or
James K. McHugh
Acting Chief Financial Officer
N-VIRO INTERNATIONAL REPORTS
RESTATED THIRD QUARTER LOSS
Toledo, Ohio November 14, 1996 - N-Viro International Corporation (Nasdaq
SmallCap: NVIC) reported today it has restated its previously announced third
quarter 1996 results to a loss of $263,376, or $.13 per share, compared to a
$7,257 profit for the same period in 1995. For the nine month period ended
September 30, 1996, the Company recorded a net loss of $127,321, or $.06 per
share, compared to a net loss of $905,526, or $.44 loss per share, for the same
period in 1995. The Company had previously reported a net profit of $136,624
for the three months ended September 30, 1996 and a net profit of $272,679 for
the nine months ended September 30, 1996.
The restatement results from the Company reserving the full $400,00 net amount
due for the possible uncollectibility of its license agreement for the country
of Malaysia, signed in August 1996. The licensee, Rockland Power (M) Sdn. Bhd.
of Kuala Lumpur Malaysia, has requested extended terms but the Company has
rejected a further extension due to high interest in the N-Viro technology in
Malaysia and in other Southeast Asian countries. On November 9, 1996, the
Company notified the licensee that they were in default of the payment terms,
but have thirty days from the date of notice to remedy the default.
The N-Viro Process is a patented process for the treatment and recycling of
bio-organic wastes, utilizing certain alkaline by-products produced from the
cement, lime and other industries. N-Viro derives its revenues form domestic
and international licensing of the N-Viro Process; the sale of alkaline
admixtures used in the process; management fees from the operation of the
Toledo, Ohio facility; one-time sales of N-Viro process technology; and sale of
ancillary products and services. To date, the process has been commercially
utilized for the recycling of wastewater sludges from municipal wastewater
treatment facilities. N-Viro Soil(TM), produced according to N-Viro Process
specifications, is an "exceptional quality" sludge product under USEPA Section
503 Sludge Regulations.
