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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-21802
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N-VIRO INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1741211
(STATE OR OTHER JURISDICTION OF (I.R.S. 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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock,
par value $.01 per share
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
The aggregate market value of the voting stock held by
non-affiliates of the registrant, based upon the last sale price of registrant's
Common Stock in the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq") as of April 1, 1998, was approximately $2,953,000.
The number of shares of Common Stock of the registrant
outstanding as of April 1, 1998, was 2,505,733.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [x]
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FORM 10-K/A
AMENDMENT NO. 1 TO ANNUAL REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
N-VIRO INTERNATIONAL CORPORATION
The Registrant hereby amends the following items, financial statements, or other
portions of its Annual Report on Form 10-K for the year ended December 31, 1997.
FRONT COVER AND INSIDE FRONT COVER
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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ITEM 11. EXECUTIVE COMPENSATION
REMUNERATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table presents the total compensation awarded to, earned by, or
paid to, the Chief Executive Officer of the Company during 1996 and 1997. There
were no other Executive Officers of the Company who were serving at the end of
1997 and whose total annual salary and bonus, if any, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------- Compensation All Other
Name and Principal Position Year Salary($) Bonus($) Options(#)(2) Compensation($)(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. Patrick Nicholson 1997 $ 125,600 -0- 5,000 -0-
Chairman, Chief 1996 $ 147,500 -0- -0- -0-
Executive Officer 1995 $ 149,167 -0- -0- $ 1,575
and President
<FN>
- --------------------------------
(1) Amounts shown consist of term life insurance premiums paid by the Company
for the benefit of Mr. Nicholson.
(2) The numbers shown represent the number of shares of common stock for which
options were granted to the named Executive Officer in 1997.
</TABLE>
EMPLOYMENT AGREEMENTS
On July 1, 1993, Mr. Nicholson entered into a three-year employment
agreement with the Company providing for automatic one-year renewals and minimum
annual salary of $250,000. Such agreement also provides that Mr. Nicholson shall
be entitled to (i) bonuses to be payable at the discretion of the Board of
Directors, and (ii) such medical and other benefits, including insurance and
pension plan, as are provided to other Executive Officers of the Company.
Effective March 1, 1998, Mr. Nicholson has voluntarily agreed to reduce his
minimum annual salary to $131,250 for the year ended December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
% of Total
Number of Options Potential Realizable Value
Securities Granted to at Assumed Annual Rates of
Underlying Employees Exercise or Stock Price Appreciation for
Options in Fiscal Base Price Expiration Option Term(1)
Name Granted(2) Year ($/share) Date 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. Patrick Nicholson 5,000 5.2% $1.5625 11/9/2007 $4,938 $12,438
----------------------------------------------------------------------------------------------
25,000(3) 26.1% $ 4.00 11/3/2003 $ 0 $10,723
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
- ----------
(1) The potential realizable value through the expiration date of each option
has been determined on the basis of the closing price on May 9, 1997,
compounded annually over the term of the option, net of the exercise price.
These values have been determined based upon assumed rates of appreciation
and are not intended to forecast the possible future appreciation, if any,
of the price or value of the Company's common stock.
(2) All options have been granted pursuant to the N-Viro International Stock
Option Plan. Options granted are exercisable on the date of grant and on
each succeeding anniversary thereof as to 20% of the shares of common stock
issuable with respect to such options.
(3) These options were originally granted to Mr. Nicholson in 1993 and were
repriced in 1997. See "TEN-YEAR OPTION REPRICING" below and corresponding
discussion in the paragraphs below.
</TABLE>
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On November 14, 1997, the Board of Directors of the Company adopted a
proposal conditionally granting options to purchase common stock of the Company
under the Company's 1993 Stock Option Plan (the "Plan") to certain employees(1)
of the Company who held existing options granted in 1993 under the Plan to
purchase common stock at a price of $38.00 per share (such existing options are
referred to as "Outstanding Options" and the employees and consultants holding
them are referred to as "Eligible Option Holders"). The Board conditionally
granted to each Eligible Option Holder one new option (a "new option")
corresponding to each outstanding option held by the Eligible Option Holder.
Each New Option is an option to purchase that number of shares of common stock
of the Company which is equal to the number of shares subject to the Eligible
Option Holders corresponding Outstanding Option, at a purchase price of $4.00.
Except for the change in the exercise price, each New Option is otherwise
subject to the same terms and conditions as the corresponding Outstanding
Option; that is, all of the other terms and conditions of the corresponding
Outstanding Option, such as the date or dates upon which the option holder may
exercise the option and the date upon which the option terminates, are the same
for the New Option as they were for the corresponding outstanding option. The
grant of each New Option to each Eligible Option Holder was conditioned upon
the surrender and termination of the corresponding Outstanding Option of the
Eligible Option Holder.
The stated purpose of the 1993 Stock Option Plan is "to enable (the
Company) to attract and retain qualified officers, key employees and
non-employee directors and to provide an incentive for such employees and
directors to expand and improve the profits and prosperity of (the Company)."
The Board and the compensation committee thereof approved the repricing of the
options because of a belief that the decline in the price of the common stock of
the Company that has occurred since 1993 was caused primarily by factors outside
the control of the employees of the Company and that, with the majority of the
options granted under the Plan having exercise prices in excess of $20.00 per
share, the Outstanding Options did not provide a practical incentive to the
option holders. The Board granted the New Options in order to provide what it
believes is a better incentive to current employees and consultants. The table
below sets forth additional information regarding executive officers of the
Company who received New Options.
- --------------------------------
(1) The employees and consultants who received repriced options are J. Patrick
Nicholson, Frederick Kurtz, Dr. Terry Logan, Michael Nicholson, James
McHugh and June Taylor.
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<PAGE> 5
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Length of
Number of Original Option
Securities Market Price Exercise Price New Term
Underlying of Stock at at Time of Exercise Remaining at
Options Time of Repricing Price Date of
Name, Position Date Repriced Repricing ($/share) ($/share) Repricing
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. Patrick Nicholson, 11/14/97 25,000 $2.50 $38.00 $4.00 6 yrs.
Chief Executive
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
James K. McHugh, 11/14/97 3,125 $2.50 $38.00 $4.00 6 yrs.
Chief Financial
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
Acquired Value Value of Unexercised In-The-
On Realized Number of Unexercised Money Options at Fiscal Year
Name Exercise(1) ($)(1) Options at Fiscal Year End(2) End($)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
J. Patrick Nicholson -0- $0 26,000 4,000 $0 $12,500
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
- ----------
(1) No options were exercised by the named Executive Officers in 1997.
(2) All options have been adjusted to reflect a one-for-four reverse stock
split effective October 31, 1995.
(3) Options are "in-the-money" only if the closing market price of the common
stock on December 31, 1997 exceeded the exercise price of the options.
There were 8,000 "in-the-money" options held by Executive Officers of the
Company on December 31, 1997 at $2.50 per share closing price.
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for serving as Directors. Effective April 1, 1994, non-employee
Directors no longer receive cash compensation, but receive stock options
pursuant to the Company's Stock Option Plan. Each Director currently receives a
grant of 500 shares of Common Stock of the Company per each meeting attended, as
approved by the Compensation Committee on May 9, 1997. Directors of the Company
are reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or any committees thereof.
COMPENSATION COMMITTEE INTERLOCKS
During 1997, the members of the Compensation Committee consisted of Mr.
Copeland, Mr. Carroll and Mr. Kaiser, each of whom is a non-employee Director of
the Company.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's Executive Officers is determined by
the Compensation Committee of the Board of Directors.
The Committee's compensation philosophy is to provide competitive forms
and levels of compensation compared to industrial companies of similar size and
business area. This philosophy is intended to assist the Company in attracting,
retaining and motivating executives with superior leadership and management
abilities. Consistent with this philosophy, the Committee determines a total
compensation structure for each officer, consisting primarily of salary, bonus
and stock options. The proportions of the various elements of compensation vary
among the officers depending upon their levels of responsibility.
The Committee establishes salaries at a level intended to be
competitive with the average salaries of Executive Officers in comparable
companies with adjustments made to reflect the financial health of the Company.
Bonuses are intended to provide executives with an opportunity to receive
additional cash compensation, but only if they earn it through Company and
individual performance.
Long-term incentives are provided through stock options granted under
the Company's Stock Option Plan. The stock options represent an additional
vehicle for aligning management's and stockholders' interest, specifically
motivating executives to remain focused on the market value of the Common Stock
in addition to earnings per share and return on equity goals.
The Committee, subject to any employment agreement in effect with its
Executive Officers reviews and recommends to the Board of Directors for approval
the salaries, bonuses and long-term incentives of the Company's officers,
including its most highly compensated Executive Officers. In addition, the
Committee grants stock options under the Company's Stock Option Plan to
Executive Officers and other selected employees, Directors and to consultants,
and otherwise administers the Company's Stock Option Plan.
The Committee has not formulated any policy regarding qualifying
compensation paid to the Company's Executive Officers for deductibility under
the limits of Section 162(m) of the Internal Revenue Code of 1986, as amended,
because the Committee does not anticipate that any executive officers would
receive compensation in excess of such limits in the foreseeable future.
With respect to Chief Executive Officer compensation, Mr. Nicholson's
base salary for 1997 was $125,000. Mr. Nicholson's base salary is determined by
his Employment Agreement which entitles him to a minimum annual base salary of
$250,000. See "Employment Agreements." However, Mr. Nicholson has reduced his
base salary in each of the four preceding years, but will be paid an annual
minimum base salary of $131,250 for 1998. Mr. Nicholson will continue to accept
a reduced base salary until such time as the Company's profitability permits
payment of the $250,000 annual minimum base salary provided for in his
Employment Agreement.
The Committee is also responsible for recommending to the Board of
Directors bonus amounts payable to Mr. Nicholson, the Chief Executive Officer.
Any bonuses payable will be determined by the Committee, based on the same
elements and factors relating to the other Executive Officers of the Company. No
bonuses were paid to Mr. Nicholson or any other Executive Officer in 1997. As
the founder and the largest beneficial owner (47.00% of total shares of common
stock outstanding) of the Company, Mr. Nicholson has a significant portion of
his wealth invested in the Company's stock. Mr. Nicholson's level of stock
ownership continues to provide a strong link between Company performance and the
resulting rewards.
Compensation Committee of the Board of Directors
N-Viro International Corporation
Bobby B. Carroll
B.K. Wesley Copeland
Frederick H. Kurtz
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STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change
and the cumulative total shareholder return on the Company's shares against the
cumulative total return of the NASDAQ Stock Market (U.S. Companies) Index and an
index comprised of Peer Group companies selected by the Company. The Peer Group
consists of six companies considered to be either competitors or similar to the
Company. Upon written request to the Secretary/Treasurer, N-Viro International
Corporation, 3450 West Central Avenue, Suite 328, Toledo, Ohio 43606, the
Company shall provide stockholders with the names of the component issuers. The
data is for the period beginning October 12, 1993, the date of the Company's
initial public offering, and ending December 31, 1997. The calculation assumes
that $100 was invested at the close of business on October 12, 1993 and all
dividends are assumed to be reinvested.
[GRAPH]
<TABLE>
<CAPTION>
==================================================================================================================
10/12/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NASDAQ Index 100.00 100.7 98.4 139.2 171.2 210.2
- ------------------------------------------------------------------------------------------------------------------
Company 100.00 65.8 18.4 5.3 5.9 6.6
- ------------------------------------------------------------------------------------------------------------------
Peer Group 100.00 94.2 57.7 84.3 50.8 53.9
==================================================================================================================
</TABLE>
Except to the extent the Company specifically incorporates this
information by reference, the foregoing Report of the Compensation Committee and
Stock Price Performance Graph shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). This information shall
not otherwise be deemed filed under such Acts.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and
Executive Officers, and persons who own beneficially more than ten percent (10%)
of the shares of common stock of the Company, to file reports of ownership and
changes of ownership with the Securities and Exchange Commission. Copies of all
filed reports are required to be furnished to the Company pursuant to Section
16(a). Based solely on the reports received by the Company and on written
representations from reporting persons, the Company believes that the Directors
and Executive Officers complied with all applicable filing requirements during
the fiscal year ended December 31, 1997.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
VOTING SECURITIES OUTSTANDING
AND PRINCIPAL HOLDERS THEREOF
The Company had outstanding 2,505,733 shares of common stock, $.01 par
value per share (the "shares of common stock"), on April 1, 1998. These shares
of common stock constitute the only class of outstanding voting securities of
the Company. Stockholders of record at the close of business on April 1, 1998
are entitled to notice of, and to vote at, the Annual Meeting and any
adjournments thereof. Each share of common stock is entitled to one vote on all
matters to come before the Annual Meeting. Stockholders are not permitted to
cumulate votes for the purpose of electing directors or otherwise.
At April 1, 1998, the following were the only persons known to the
Company to own beneficially more than 5% of the outstanding shares of common
stock:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Shares of Common Stock Percentage of Outstanding Shares of
Name and Address of Beneficial Owner Beneficially Owned Common Stock as of April 1, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
N-Viro Energy Systems, Ltd.(1) 1,018,357(2) 40.64%
3450 West Central Avenue, Suite 328
Toledo, Ohio 43606
- ----------------------------------------------------------------------------------------------------------------------
Heartland Advisors, Inc. 250,000(3) 9.98%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
- ----------------------------------------------------------------------------------------------------------------------
<FN>
- --------
(1) N-Viro Energy Systems, Ltd. (the "Partnership") is a limited partnership
and was one of the predecessor entities that combined to form the Company
in October 1993. The general partners of the Partnership are J. Patrick
Nicholson, Chairman, Chief Executive Officer and President of the Company,
N-Viro Energy Systems, Inc., a corporation of which Mr. Nicholson is the
controlling stockholder, and four trusts established for the benefit of Mr.
Nicholson's children. Under the limited partnership agreement for the
Partnership, Mr. Nicholson, as general partner, has the voting and
dispositive power over the shares of common stock held by the Partnership.
(2) Includes 4,216 shares of common stock to be distributed to certain persons
by the Partnership pursuant to the N-Viro International Stock Bonus Plan
dated October 1, 1993. These shares of common stock became vested in such
participants on January 1, 1997.
(3) Information derived from a Schedule 13G filed on January 29, 1998 by
Heartland Advisors, Inc., an investment advisor registered under Section
203 of the Investment Advisors Act of 1940. Such firm has both sole power
to vote (or to direct the vote) and sole power to dispose of (or to direct
the disposition of) 250,000 shares of common stock.
</TABLE>
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SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth as of April 1, 1998, unless otherwise
specified, certain information with respect to the beneficial ownership of the
Company's shares of common stock by each person who is a Director of the
Company, a nominee for the Board, each of the named Executive Officers, and by
the Directors and Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
Beneficial Ownership of
Name of Beneficial Owner Common Stock as of April 1, 1998 Percent of Class
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Bobby B. Carroll 96,100(1)(2) 3.84%
- ---------------------------------------------------------------------------------------------------
B.K. Wesley Copeland 6,000(2) .24%
- ---------------------------------------------------------------------------------------------------
Wallace G. Irmscher 7,525(2) .30%
- ---------------------------------------------------------------------------------------------------
Charles B. Kaiser, Jr. 7,650(2) .31%
- ---------------------------------------------------------------------------------------------------
Frederick H. Kurtz 80,200(2) 3.20%
- ---------------------------------------------------------------------------------------------------
Terry L. Logan 21,987(2)(3) .88%
- ---------------------------------------------------------------------------------------------------
James K. McHugh 9,351(2)(3) .37%
- ---------------------------------------------------------------------------------------------------
J. Patrick Nicholson 1,177,737(2)(4) 47.00%
- ---------------------------------------------------------------------------------------------------
Michael G. Nicholson 15,942(2)(3) .64%
- ---------------------------------------------------------------------------------------------------
James D. O'Neil 9,425(2) .38%
===================================================================================================
All Directors and Executive Officers as a group
(10 persons) 1,431,917(5)(6) 57.15%
- ---------------------------------------------------------------------------------------------------
<FN>
- ----------
(1) Includes 44,600 Shares actually owned by Pozzolanic Contracting & Supply
Co., a company of which Mr. Carroll is the controlling shareholder.
(2) Includes shares not actually owned by such individuals as of April 1, 1998,
but of which beneficial ownership could be acquired currently by such
individuals upon the exercise of outstanding options.
(3) Includes shares vested January 1, 1997 to be received from the Partnership
as part of the Company's Stock Bonus Plan dated October 1, 1993.
(4) Includes 1,018,357 shares owned by the Partnership, of which Mr. Nicholson
is a general partner, and 69,748 shares owned by N-Viro Energy Systems,
Inc., a corporation of which Mr. Nicholson is the controlling shareholder.
(5) Includes an aggregate of 131,325 shares not actually owned by such
Directors and Executive Officers as of April 1, 1998, but of which
beneficial ownership could be acquired currently by such Directors and
Executive Officers upon the exercise of outstanding options.
(6) Includes an aggregate of 780 shares vested in January 1, 1997 to be
received from the Partnership by such Directors and Executive Officers as
part of the Company's Stock Bonus Plan dated October 1, 1993.
</TABLE>
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
its behalf by the undersigned, thereunto duly authorized.
N-VIRO INTERNATIONAL CORPORATION
Dated: May 18, 1998
By: /s/ James K. McHugh
-----------------------------------------
James K. McHugh, Chief Financial Officer,
Secretary and Officer
(Principal Accounting Officer)
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