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EXHIBIT #3
SECOND AMENDMENT TO SETTLEMENT AGREEMENT
This SECOND AMENDMENT TO SETTLEMENT AGREEMENT (the "Second
Amendment") is made effective as of the 17TH day of July, 1997 by and among
Xxxxx Xxxxxxx, Xx., an individual ("Xxxxxxx"); N-Viro Energy Systems, Ltd., an
Ohio limited partnership ("NESL"); N-Viro International Corporation, a Delaware
corporation ("NVIC"); N-Viro Energy Systems, Inc., an Ohio corporation ("NESI");
and American N-Viro Resources, Inc., an Ohio corporation ("ANRN").
W I T N E S S E T H:
WHEREAS, in order to settle certain disputes that were the
subject of a lawsuit entitled XXXXX XXXXXXX, XX. V. N-VIRO ENERGY SYSTEMS, LTD.
which had been filed by Xxxxxxx in the United States District Court for the
Central District of California, Case No. CV-93-3042-ABC, the parties hereto
entered into a certain settlement agreement (the "Settlement Agreement") in
February, 1995;
WHEREAS, on April 24, 1996, the parties hereto amended the
Settlement Agreement pursuant to the terms of that certain Amendment to
Settlement Agreement (the "First Amendment") for the purpose of, among other
things, amending the sum owed to Xxxxxxx by NVIC under and pursuant to the terms
of the Settlement Agreement and altering the terms of payment thereof; and
WHEREAS, the parties hereto desire to further amend the
Settlement Agreement to alter both the sum owing Xxxxxxx by NVIC and the terms
of payment thereof, all as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. EFFECT OF AGREEMENT. This Second Amendment amends,
supplements and supersedes the Settlement Agreement and the First Amendment with
respect to all matters set forth herein. As to matters not set forth herein, the
Settlement Agreement and the First Amendment shall not be affected. In the event
and to the extent of a conflict with the terms and provisions set forth in this
Second Amendment and the terms and provisions set forth in either the Settlement
Agreement or the First Amendment, the terms and provisions set forth in this
Second Amendment shall control.
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2. CERTAIN PAYMENTS. In full satisfaction of all of NVIC's
remaining obligations under and pursuant to Paragraph 2 of the First Settlement
Agreement, as amended by the terms and provisions of the Amendment, NVIC shall
make all of the following payments and deliveries to Xxxxxxx and Xxxxxx and
Xxxxxx:
(a) on or before July 20, 1997, NVIC will pay Xxxxxxx the sum
of Thirty Thousand Dollars ($30,000.00). This payment, as well as all other
payments under and pursuant to the terms of this Second Amendment, shall be
wired to Xxxxxx and Xxxxxx'x escrow account as specified in the Settlement
Agreement.
(b) on or before July 24, 1997, NVIC will (i) issue and
deliver to Xxxxxxx 150,000 shares (the "Settlement Stock") of its voting, common
stock, with par value of $.01 per share (the "Common Stock") and (ii) issue to
Xxxxxxx but deliver to the Escrow Agent 100,000 shares of Common Stock (the
"Escrow Stock") to be held by such Escrow Agent in accordance with the terms and
provisions of Section 9 hereof. None of such Common Stock shall be registered
under the Securities Act of 1933, as amended (the "1933 Act") and shall
constitute "restricted securities" as such term is defined in Rule 144(a)
promulgated under the 1933 Act.
(c) on August 15, 1997, $100,000 (the "Escrow Funds"), shall
be delivered by NVIC to the Escrow Agent to be held by such Escrow Agent in
accordance with the terms and provisions of Section 9 hereof. Any payments
required to be made from the Escrow Funds prior to August 15, 1997 shall be made
instead by NVIC.
(d) within thirty days of the date of execution of this Second
Amendment, NVIC shall issue and deliver to Xxxxxxx an option (the "Option") to
purchase up to 100,000 additional shares (the "Option Stock") of Common Stock at
a price of $2.50 per share. Neither the Option nor the Option Stock at the time
of issuance shall be registered under the 1933 Act and both the Option and the
Option Stock shall constitute restricted securities as defined in Rule 144(a)
promulgated under the 1933 Act. Under and pursuant to the terms of the Option,
(i) Xxxxxxx'x rights with respect to the purchase of the Option Stock shall vest
immediately upon the Escrow Agent's delivery of any remaining Escrow Funds to
NVIC but in no event later than November 15, 1997 (the "Vesting Date"), (ii) the
Option shall expire 60 days after the Vesting Date, (iii) Xxxxxxx shall have the
right to resell all or a portion of the Option Stock back to NVIC at a price of
$3.00 per share at any time during the two business days immediately following
the date of exercise of the Option, provided, however, Xxxxxxx shall forfeit
this right in the event that he sells any of the Option Stock in a public
offering pursuant to an effective registration statement under the 1933 Act and
the rules and regulations promulgated thereunder, (iv) prior to exercising his
right to purchase the Option Stock, Xxxxxxx shall have the right, in his sole
and absolute discretion, to require NVIC to repurchase all or a portion of the
Option by paying Xxxxxxx an amount equal to $.50 per share of Option Stock
offered for repurchase by Xxxxxxx and (v) the Option shall be non-assignable and
non-transferable. The Option shall otherwise be in such form as Xxxxxxx and NVIC
shall mutually agree.
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(e) On November 3, 1997, Xxxxxxx shall submit to NVIC a
detailed accounting of (i) the aggregate number of shares of Settlement Stock
owned by Xxxxxxx as of such date, (ii) the aggregate amount of proceeds,
exclusive of any transaction costs, such as broker's fees and commissions, (the
"Sale Proceeds") received by Xxxxxxx from the sale of shares of Settlement Stock
prior to such date, as well as documentary evidence reasonably satisfactory to
NVIC in support of such calculation and (iii) the aggregate amount of all sums
(the "Cash Proceeds") paid by either NVIC or the Escrow Agent to Xxxxxxx
pursuant to the terms of this Second Amendment (the sum of the Sale Proceeds and
the Cash Proceeds shall be referred to herein as the "Aggregate Proceeds"). In
the event and to the extent that the Aggregate Proceeds fails to equal or exceed
$410,000, NVIC shall be obligated to redeem such number of shares of Settlement
Stock then held by Xxxxxxx at a price equal to $2.00 per share as is necessary
to increase the Aggregate Proceeds to $410,000. The funds necessary for such
redemption shall first be paid by the Escrow Agent from any remaining Escrow
Funds and then, in the event and to the extent that the Escrow Funds are
insufficient to fund any required redemption, from NVIC. All such payments shall
be made to Xxxxxxx on or before November 15, 1997. Upon completion of its
obligations pursuant to the terms of this Section 2(f), NVIC shall be entitled
to the return of the balance of the Escrow Funds. Notwithstanding any other
provision herein to the contrary, Xxxxxxx shall have no obligation to sell any
of the Settlement Stock to NVIC pursuant to the terms of this Section 2(f). In
the event that the Aggregate Proceeds do not equal or exceed $410,000, and
Xxxxxxx elects not to sell such number of shares of Settlement Stock to NVIC as
are necessary to increase the Aggregate Proceeds to $410,000, then the amount of
Aggregate Proceeds shall be deemed to be increased by the sum of $2.00 per share
of Settlement Stock retained by Xxxxxxx on and after November 3, 1997.
3. REGISTRATION OF COMMON STOCK. NVIC and Xxxxxxx agree to be
bound by the terms and conditions of Schedule I hereto, which relates to the
registration of the Settlement Stock, the Escrow Stock and the Option Stock
under applicable securities laws.
4. RESTRICTIONS ON RESALES. Xxxxxxx covenants and agrees that
he shall not sell, hypothecate, transfer or pledge any of the Settlement Stock,
the Escrow Stock or the Option Stock acquired hereunder to any U.S. person as
described in Regulation S under the 1933 Act or in the United States without an
applicable exemption from registration under the 1933 Act or upon registration
of such securities pursuant to the 1933 Act. All shares of Common Stock acquired
hereunder shall contain the following legend:
"The shares of Common Stock represented by this
certificate have not been registered pursuant to the
Securities Act of 1933 and therefore may not be transferred or
sold in the United States or to an American citizen or
resident alien without either an effective Registration
Statement pursuant to the Securities Act of 1933 or an opinion
of counsel satisfactory to the issuer that registration is not
required under such Act."
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5. ADDITIONAL RESTRICTIONS ON RESALES. Prior to July 15,
1997, Xxxxxxx covenants and agrees that he shall not sell, hypothecate, transfer
or pledge any of the shares of Common Stock acquired hereunder. On and after
July 15, 1997 but subject to the requirements set forth in Section 4 above,
Xxxxxxx shall have the right, in his sole and absolute discretion, to sell on a
monthly basis such number of shares of Common Stock issued hereunder as shall
have a fair market value at the time of sale of up to Ninety Thousand Dollars
($90,000.00), but in no event shall the number of shares sold during any given
month exceed 45,000. Notwithstanding the foregoing, in October of 1997 Xxxxxxx
may sell such number of shares of Common Stock as shall have a fair market value
at the time of sale of up to One Hundred Ten Thousand Dollars ($110,000.00), but
in no event shall the number of shares sold in October, 1997 exceed 55,000. In
calculating the fair market value of any shares sold pursuant to the terms of
the preceding sentence, brokerage fees, commissions and other transactional
expenses shall be excluded. The resale limit shall remain in effect for a period
of 18 months following the date hereof.
6. Cash Flow/Escrow Stock.
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(a) For a period commencing on the date hereof and expiring on
the earlier of (i) such date as the aggregate fair market value of all shares of
Common Stock sold by Xxxxxxx hereunder equals or exceeds Three Hundred Eighty
Thousand Dollars ($380,000.00) and (ii) November 15, 1997, NVIC shall guarantee
that the average fair market value of a share of the Common Stock sold by
Xxxxxxx during any given month shall not be less than Two Dollars ($2.00) per
share. For purposes of the preceding sentence, the average fair market value of
a share of Common Stock shall be computed by dividing the aggregate fair market
value of all shares of Common Stock sold by Xxxxxxx during any given month by
the number of such shares sold. In the event and to the extent that such average
fails to equal or exceed Two Dollars $2.00 per share, the Escrow Agent shall
distribute to Xxxxxxx from the Escrow Funds such amount as necessary so that
when such distribution is combined with the aggregate fair market value of all
of the Common Shares sold during such month and such sum is divided by 45,000
(55,000 with respect to the calculation made in connection with sales occurring
during the month of October 1997), the dividend equals Two Dollars ($2.00) per
share. Any payments required to be made by the Escrow Agent pursuant to the
terms of the preceding sentence shall be made within five (5) business days of
such date as the Escrow Agent receives from Xxxxxxx documentary evidence of the
number of shares sold by Xxxxxxx during the preceding month and the prices at
which such shares were sold. Notwithstanding the foregoing, any payment required
with respect to sales occurring in the month of October 1997 shall be made on or
before November 15, 1997. In the event and to the extent that the Escrow Funds
are insufficient to fulfill the obligation set forth above, then NVIC shall pay
Xxxxxxx such amount as is necessary to increase the dividend to Two Dollars
($2.00) per share. Notwithstanding any provision herein to the contrary, if, for
any reason whatsoever, Xxxxxxx is unable to sell the maximum number of shares
permitted to be sold hereunder, in any given month, after exercising good faith
in an attempt to do so, then NVIC shall within five (5) business days of such
date as either NVIC or the Escrow Agent receives from Xxxxxxx documentary
evidence of the inability to sell the maximum number of shares, redeem at a
price of $2.00 per share such number of shares as is necessary to increase the
total number of shares sold by Xxxxxxx with respect to the
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prior monthly period to the applicable maximum number and the total
consideration received by Xxxxxxx for such shares to the applicable maximum
amount. Notwithstanding any provision in this Second Amendment to the contrary,
except for the payment, if any, to be made by NVIC on or before November 15,
1997, the maximum amount of any monthly cash payment by NVIC to Xxxxxxx shall be
Sixty Thousand Dollars ($60,000).
(b) After the close of business on September 30, 1997 or the
next business day immediately thereafter, Xxxxxxx shall submit to the Escrow
Agent and NVIC a detailed accounting of (i) the aggregate number of shares of
Settlement Stock owned by Xxxxxxx as of such date, (ii) the aggregate amount of
Sale Proceeds from the sale of shares of Settlement Stock through September 30,
1997, as well as documentary evidence reasonably satisfactory to NVIC in support
of such calculation and (iii) the aggregate amount of all Cash Proceeds paid by
NVIC to Xxxxxxx pursuant to the terms of this Second Amendment through September
30, 1997. Within three (3) business days after receipt of such information, the
Escrow Agent shall compute the difference (the "Remaining Obligation") between
(x) $410,000.00 and (y) the Aggregate Proceeds received by Xxxxxxx through
September 30, 1997. After computing the amount of the Remaining Obligation, the
Escrow Agent shall multiply the number of shares of Settlement Stock held by
Xxxxxxx at the close of business on September 30, 1997 by the sum of $2.00 per
share and the Escrow Agent shall subtract such product from the amount of the
Remaining Obligation to calculate the "Share Deficit Amount." The Escrow Agent
shall then deliver to Xxxxxxx such number of shares of Escrow Stock as equals
the Share Deficit Amount divided by two (2), rounded up to the nearest whole
number. Any such shares of Escrow Stock delivered to Xxxxxxx shall thereafter be
classified as shares of Settlement Stock under and pursuant to the terms of this
Agreement. Following delivery of such shares of Escrow Stock to Xxxxxxx, the
Escrow Agent shall return any remaining shares of Escrow Stock to NVIC and
Xxxxxxx shall not be entitled to, nor shall he receive, any compensation in
return for the surrender of such remaining shares of Escrow Stock.
Notwithstanding any provision to the contrary, NVIC may direct the Escrow Agent
to satisfy its obligations under this section by delivery to Xxxxxxx from the
Escrow Funds of an amount equal to the Share Deficit Amount instead of the
delivery of any shares of Escrow Stock.
7. CERTAIN REPRESENTATIONS OF XXXXXXX. Xxxxxxx represents,
warrants and agrees as follows:
(a) REGISTRATION STATEMENT. None of the information regarding
Xxxxxxx supplied or to be supplied by Xxxxxxx for inclusion (i) in the
Registration Statement to be filed by NVIC with the Securities and Exchange
Commission (the "SEC") in connection with the registration of any Common Stock
transferred to Xxxxxxx hereunder or (ii) in any other documents to be filed with
the SEC or any other regulatory authority in connection with the transactions
contemplated in this Second Amendment will at the respective time such documents
are filed and, in the case of the Registration Statement, when it becomes
effective, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading.
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(b) ACCESS. Xxxxxxx understands that no aspect of the
transactions contemplated in this Second Amendment has been, prior to the date
of this Second Amendment, or will be, prior to the date of delivery of the
Settlement Stock, the Escrow Stock, the Option or the Option Stock registered
with or reviewed by the SEC under the 1933 Act, or with or by any state
securities law administrator, and no federal or state securities law
administrator has approved any disclosure or other material concerning NVIC or
the Common Stock, or made any recommendation with respect thereto. Xxxxxxx
hereby acknowledges his right to investigate the merits and risks of the
transactions contemplated under the provisions of this Second Amendment. Xxxxxxx
acknowledges that he has been advised of his rights to ask questions of the
management of NVIC relating to NVIC, the Common Stock and related matters and
his right to obtain additional information necessary to verify the accuracy of
information provided to him and to continue to evaluate the merits and risks of
the transactions contemplated by this Second Amendment.
(c) BROKERED TRANSACTION. Xxxxxxx covenants and agrees that he
shall use the brokerage services of such brokerage firm (the "Selected Broker")
as NVIC shall indicate in writing to Xxxxxxx within five (5) business days of
the date hereof in connection with all sales of Settlement Stock, if any,
occurring during the period from the date hereof until November 15, 1997.
Notwithstanding the foregoing, if the Selected Broker fails for any reason to
complete any sell order within five (5) business days, or if Xxxxxxx reasonably
determines that such brokerage firm has otherwise failed to carry out its duties
in a reasonable manner, Xxxxxxx shall be permitted to employ a broker/dealer
selected by Xxxxxx & Xxxxxx.
(d) COOPERATION. From and after the date of this Second
Amendment, Xxxxxxx, his accountants, attorneys, agents and other representatives
will cooperate fully with NVIC (i) in the preparation of all statements and
reports contemplated by this Second Amendment and required pursuant to the
registration and reporting requirements provided in the 1933 Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) to
facilitate the consummation of the transactions provided for herein, all in
accordance with federal and state regulatory requirements. NVIC shall reimburse
Xxxxxxx for all reasonable costs and expenses incurred by Xxxxxxx in connection
with the preparation of any statements and reports prepared primarily for the
benefit of NVIC in accordance with the terms of this paragraph.
(e) INFORMATION. On request of NVIC, Xxxxxxx will furnish to
NVIC all information concerning Xxxxxxx as is required to be set forth in (i)
the Registration Statement and (ii) any application or statement made by NVIC to
any governmental agency or authority in connection with the transactions
contemplated by this Second Amendment. NVIC shall reimburse Xxxxxxx for all
reasonable costs and expenses incurred by Xxxxxxx in connection with the
provision of any information required hereunder. Xxxxxxx shall advise NVIC
promptly of the happening of any event which makes untrue any statement of a
material fact contained in the Registration Statement or any amendment or
supplement thereto or that requires the making of a change in the Registration
Statement or any amendment or supplement thereto in order to make any material
statement therein not misleading.
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8. CERTAIN REPRESENTATIONS OF NVIC. As a material inducement
to Xxxxxxx entering into this Second Amendment, NVIC represents, warrants and
agrees that:
(a) REGISTRATION STATEMENT. None of the information regarding
NVIC supplied or to be supplied by NVIC for inclusion, (i) in the Registration
Statement or (ii) in any other documents to be filed with the SEC or any
regulatory authority in connection with the transactions contemplated in this
Second Amendment will at the respective time such documents are filed and, in
the case of the Registration Statement, when it becomes effective, contain an
untrue statement of a material fact required to be stated therein, or omit to
state any material fact necessary in order to make the statements therein not
misleading.
9. ESCROW. In connection with the transactions contemplated
in this Second Amendment, Xxxxxxxx, Loop & Xxxxxxxx, LLP (the "Escrow Agent")
has agreed to serve as escrow agent to hold certain funds, if any, required to
be deposited by NVIC with the Escrow Agent pursuant to the terms of Section 2(d)
hereof and the Escrow Stock to be deposited by NVIC with the Escrow Agent
pursuant to the terms of Section 2(b) hereof. The Escrow Agent shall hold the
Escrow Funds in an interest bearing account at a nationally chartered financial
institution and shall, from time to time, disburse the balance of such account
or a portion thereof to either Xxxxxxx and Xxxxxx & Xxxxxx or NVIC as required
pursuant to the terms hereof. The Escrow Agent shall hold certificates
representing the Escrow Stock in a secure location and shall, from time to time,
deliver such certificates to either Xxxxxxx or NVIC as required pursuant to the
terms hereof. The liability of the Escrow Agent hereunder shall be limited to
compliance with its obligations under this Second Amendment. In no event shall
the Escrow Agent have any liability with respect to any judgment against any
party other than to comply with any order of any court with respect to any
assets in the custody of the Escrow Agent. NVIC shall indemnify, defend and hold
the Escrow Agent harmless from and against any and all claims arising out of,
resulting from or in any way connected with the Escrow Agent's performance of
its duties hereunder, except for such acts of the Escrow Agent as shall
constitute gross negligence or willful misconduct. Xxxxxxx covenants and agrees
that he shall not assert any claims or institute any proceedings against the
Escrow Agent arising out of, resulting from or in any way connected with the
Escrow Agent's performance of its duties hereunder, except for such acts of the
Escrow Agent, if any, as constitute gross negligence or willful misconduct.
10. DISCHARGE OF OBLIGATIONS. The payment and other
obligations of NVIC set forth in this Second Amendment are intended to supersede
the payment terms set forth in the Settlement Agreement and the First Amendment.
In the event that NVIC fully performs all of its obligations hereunder, then
NVIC shall be deemed to have fulfilled all of its obligations pursuant to
Section 2 of the Settlement Agreement as amended by the First Amendment.
Notwithstanding the foregoing, this Second Amendment shall not be deemed a
waiver of any rights or remedies of any of the parties hereto under the
Settlement Agreement or the First Amendment. In the event that NVIC fails to
comply with any of the terms set forth herein, for any reason, including,
without limitation, voluntary or involuntary bankruptcy of NVIC or the failure
to effect registration of any stock as required herein, such failure shall be
deemed a Default under the Settlement Agreement
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and the First Amendment, and all of the remedies specified in the Settlement
Agreement and the First Amendment shall be available to Xxxxxxx, including,
without limitation, the acceleration of all sums due and payable to Xxxxxxx by
NVIC.
11. HEADINGS. The paragraph headings contained herein are for
convenience only and shall not, in any way, affect the interpretation or
enforceability of any provisions of this Second Amendment.
12. GOVERNING LAW. This Second Amendment shall be construed
and enforced pursuant to the laws of the State of California.
13. COUNTERPARTS. This Second Amendment may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute but one document.
14. AMENDMENTS. No amendment or variation of the terms and
conditions of this Second Amendment shall be valid unless the same is in writing
and signed by all of the parties hereto or their duly
authorized agent.
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IN WITNESS WHEREOF, the parties hereto have executed this
Second Amendment or caused this Second Amendment to be executed by them or their
duly authorized agents as of the date first written above.
/s/ Xxxxx Xxxxxxx, Xx.
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Xxxxx Xxxxxxx, Xx.
N-VIRO ENERGY SYSTEMS, INC.
By: /s/ J. Xxxxxxx Xxxxxxxxx
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J. Xxxxxxx Xxxxxxxxx
President
N-VIRO ENERGY SYSTEMS, LTD.
By: N-Viro Energy Systems, Inc.
Its General Partner
By: /s/ J. Xxxxxxx Xxxxxxxxx
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J. Xxxxxxx Xxxxxxxxx
President
N-VIRO INTERNATIONAL CORPORATION
By: /s/ J. Xxxxxxx Xxxxxxxxx
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J. Xxxxxxx Xxxxxxxxx
Chairman of the Board
AMERICAN N-VIRO RESOURCES, INC.
By: /s/ J. Xxxxxxx Xxxxxxxxx
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J. Xxxxxxx Xxxxxxxxx
President
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