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Published: Friday, 10/28/2005

Ousted chief complains to FBI about former firm

BY HOMER BRICKEY
BLADE SENIOR BUSINESS WRITER
J. Patrick Nicholson J. Patrick Nicholson
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J. Patrick Nicholson, the founder of N-Viro International Corp., of Toledo, who was forced out as chairman two years ago, is taking his dispute with his former company public.

Mr. Nicholson, 70, has sent a number of letters and documents to the FBI and other federal agencies and to shareholders, alleging mismanagement and other improprieties at N-Viro.

He filed a 19-page report this week with the U.S. Securities and Exchange Commission contending that shareholders have been shortchanged by preferential stock sales at below-market prices and that some of the firm's board members are trying to sell off much of its technology and assets to other entities they control.

He also has filed, he said, a longer document with the U.S. Department of Justice, raising a variety of issues.

The Toledo businessman has offered, according to the SEC filing, to buy up to 1.5 million shares of the wastewater-treatment company to regain control, and he threatened to start a competing firm if he doesn't get control or reach a settlement with the firm.

Daniel Haslinger, president and chief executive officer of N-Viro, Toledo's smallest publicly traded company, dismissed Mr. Nicholson's accusations. "Basically, all of the allegations are not true," he said. "We have management in place to turn this company around."

Mr. Nicholson declined to comment on the allegations in his SEC filing other than to say, "We've been in a 'battle royal' for three years."

Neither Mr. Nicholson nor Mr. Haslinger would comment on progress of arbitration over the firm's cancellation in the summer of Mr. Nicholson's consulting contract. The contract, in the second of its 10 years, paid him about $92,000 annually and included an agreement not to compete with N-Viro during that period.

John Heine, a spokesman for the SEC in Washington, said the filing will be reviewed. Filings are a valuable resource, he said.

"They let us know what's going on, and we have staff to evaluate information," he said, indicating that any regulatory action would depend on what is found.

N-Viro, which licenses wastewater-treatment technology, was founded by Mr. Nicholson in the late 1970s. It sold stock to the public in 1993. For last year, the company reported sales of $5.5 million and a loss of $72,000, after posting a loss of $1.5 million in 2003.

Mr. Nicholson was forced out as chairman two years ago after a shareholder lawsuit alleged he was using N-Viro as a "personal piggybank" and had undocumented loans and expense reimbursements totaling $264,000. His consulting contract was part of the lawsuit settlement.

In this week's SEC filing, the former executive alleged that N-Viro officials weakened the company by firing or losing key employees, including his son, Timothy Nicholson, who had been a manager until a month ago; that some private-placement stock sales were made at as much as 40 percent below the stock's market value at the time; and that investors affiliated with organized crime had tried to gain control of the firm.

Mr. Haslinger disputed all the allegations. As for the allegation of organized crime involvement, he said, "That's totally not true. I'm not that kind of person."

The filing included copies of letters to N-Viro outlining Mr. Nicholson's offer to buy more than 1 million shares at up to $3 each. The stock closed yesterday at $1.85 a share in Nasdaq Bulletin Board trading.

The report to the SEC also said the former company executive owns or controls 461,335 shares, or about 13 percent of the firm's outstanding stock, largely through N-Viro Energy Systems, a company he said is owned by him, three sons, and other Nicholson family members.

Mr. Nicholson declined to identify the source of funds for the proposed purchase of N-Viro stock. Asked about the no-compete clause in the settlement, he said, "I don't have a contract anymore."

About a third of N-Viro's revenue comes from a contract to run a wastewater-sludge treatment plant for the city of Toledo.

Contact Homer Brickey at:

homerbrickey@theblade.com

or 419-724-6129.



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