Exhibit 10.2
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
STRATEGIC ASSET MANAGEMENT,
INC., derivatively and on behalf of N-VIRO
INTERNATIONAL CORPORATION, a : C.A. No.: 20360
Delaware Corporation,
Plaintiffs,
v.
J. PATRICK NICHOLSON, MICHAEL
NICHOLSON, TERRY J. LOGAN, BOBBY
B. CARROLL, PHILLIP LEVIN, DANIEL
J. HASLINGER, B.K. WESLEY
COPELAND,
Defendants,
and
N-VIRO INTERNATIONAL
CORPORATION, a Delaware Corporation,
Nominal Defendant.
NOTICE OF SETTLEMENT HEARING
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To the Shareholders of N-Viro International Corporation as of August 25, 2004:
Introduction
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You are receiving this legal notice because you are a shareholder of N-Viro
International Corporation ("N-Viro"). N-Viro and certain of its directors (at
the time of the suit) were sued by Strategic Asset Management, Inc. ("SAMI") in
the Delaware State Chancery Court (the "Court") for New Castle County (Case No.
20360) (the "Lawsuit"). SAMI brought the Lawsuit as what is called a derivative
lawsuit, which we will describe further below. The directors it sued were Bobby
Carroll, B.K. Wesley Copeland, Daniel Haslinger, Phillip Levin, Terry Logan, J.
Patrick Nicholson and Michael Nicholson. (We shall refer below to the directors
other than J. Patrick Nicholson as the "Settling Directors.")
N-Viro seeks to settle the Lawsuit. Because it is a derivative suit,
shareholders are entitled to object to the settlement terms if they wish to do
so. The judge of the Lawsuit (who is referred to as a Vice-Chancellor) has
ordered that this notice be sent to you to explain the proposed settlement terms
(the "Settlement Terms") and your rights to object to the Settlement Terms if
you wish to do so.
Last November, N-Viro sent you a summary (the "Summary") of a proposed
settlement agreement (the "Initial Proposed Settlement") that was submitted to
the Vice-Chancellor for review. The Summary also reviewed in detail the events
leading up to the Lawsuit and the Lawsuit's allegations. If you would like
another copy of the Summary, please contact James McHugh at N-Viro (419-535-6374
or jmchugh@nviro.com) to request one.
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The Vice-Chancellor indicated that he would not approve the Initial
Proposed Settlement for specific reasons. The parties then renegotiated based on
the Vice Chancellor's reasons, and reached a new proposed settlement agreement
(the "Settlement Agreement"). This document describes the renegotiated agreement
being submitted for the Vice-Chancellor's approval.
On October 14, 2004 at 10:00 a.m., at the New Castle County Courthouse, 500
North King Street, Wilmington, Delaware 19801, the Vice-Chancellor will hold a
hearing (the "Hearing") to decide whether he should approve the Settlement
Agreement as fair, reasonable and adequate, and to enter judgment based on the
Settlement Terms.
This Notice is not based in any way on the Vice-Chancellor's opinions
related to the Lawsuit. The parties prepared this notice and it should not be
understood in any way as reflecting the Vice-Chancellor's opinions as to the
merits of the claims or defenses of any party to the Lawsuit.
Proposed Settlement Agreement
-----------------------------
A copy of the Settlement Agreement is available from the Court's Lawsuit
file. We summarize its major points in this section.
N-Viro shall reimburse SAMI its direct Lawsuit attorneys fees and costs,
which it calculates as $164,000. In exchange for the payment, all parties will
execute mutual releases and SAMI will dismiss the Lawsuit with prejudice. The
Vice-Chancellor must approve the Settlement Agreement as a condition to its
becoming effective.
The Parties' Positions on the Settlement Agreement
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SAMI believes it achieved its desired result, with direct benefit to all
shareholders, by N-Viro's terminating its original consulting agreement with J.
Patrick Nicholson; J. Patrick Nicholson's releasing all claims under all prior
employment agreements; J. Patrick Nicholson's releasing all claims to an annual
pension; N-Viro's securing reimbursements from J. Patrick Nicholson; and
entering into a new, limited consulting agreement with J. Patrick Nicholson.
SAMI believes it is entitled to reimbursement of its actual attorney's fees and
costs for the benefits that N-Viro recognized as a result of SAMI's efforts.
N-Viro and the Settling Directors believe that SAMI did not need to bring
the Lawsuit, and that the Board had appointed an Independent Committee that had
been proceeding properly. They deny that they breached any fiduciary duties or
that they acted improperly in any way. Nonetheless, they believe it is in
N-Viro's best interests to settle the matter under the Settlement Agreement's
terms to avoid the expense of further litigation and to resolve the dispute
through mutual releases.
J. Patrick Nicholson, a Defendant and Non-Settling Director, believes that
SAMI brought this case to advance its own interests as opposed to N-Viro's
interests. He urges the Court to disapprove the proposed settlement and not to
approve N-Viro's paying any of SAMI's costs.
Objections
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Any N-Viro shareholder who objects to the Settlement Agreement may appear
in person or by counsel at the Hearing and present any relevant evidence or
argument. If you want to be heard, you must, no later than ten days before the
Hearing, file with the Register in Chancery, New Castle County Courthouse, 500
North King Street, Wilmington, Delaware 19801 (i) a notice of your intention to
appear the Hearing; (ii) a statement of your objections to the Settlement
Agreement; and (iii) an explanation of the reasons for your objections along
with any documents that you want the Vice-Chancellor to consider. At the same
time you file these documents with the Register in Chancery, you must also mail
them to the following attorneys, each of whom represents parties to the Lawsuit,
and to J. Patrick Nicholson:
Peter R. Silverman, Esq.
Shumaker, Loop & Kendrick, LLP
1000 Jackson
Toledo, Ohio 43624-1573
Counsel for N-Viro International Corp.
and the Settling Directors
Richard C. Fox, Esq.
Fox Law Offices, P.A.
P.O. Box 1097
Pecos, New Mexico 87552
Counsel for Strategic Asset Management, Inc.
J. Patrick Nicholson.
2025 Richmond Road
Toledo, OH 43607
Unless the Vice-Chancellor directs otherwise, no one may object to approval
of the Settlement Agreement nor may appear at the Hearing in any capacity,
unless they file their notice of intention to appear as described above. If you
fail to file such a notice, you will be deemed to have waived your objections
and you may not raise them in this or any other matter.
Effect of Non-Approval
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If the Vice-Chancellor does not approve the Settlement Agreement, or the
Vice-Chancellor approves the Settlement Agreement and such approval is reversed
or modified on appeal, the Settlement Agreement shall be treated as if it had
not been made and had not been submitted to the Court. The Lawsuit would
continue to proceed as if the parties had not entered into the Settlement
Agreement and submitted it to the Court.
Request to Brokers and Other Nominees
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Brokerage firms, banks and other persons or entities who are record holders
of shares of N-Viro common stock, but who do not hold that stock as beneficial
owners, should send this notice promptly to the beneficial holders. If you need
additional copies of this notice, you may send exact duplicate copies to
beneficial holders.
This Notice is only a Summary
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The descriptions in this notice have been a summary. You may seek further
information by reviewing the Complaint, the Initial Proposed Agreement or the
Settlement Agreement, filed with the Register in Chancery, which you may examine
during regular business hours at the offices of the Register in Chancery, New
Castle County Courthouse, 500 North King Street, Wilmington, Delaware 19801
BY ORDER OF THE COURT:
/s/ Diane Dempski
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Register in Chancery
August __ 2004