SETTLEMENT AGREEMENT



         This Agreement is made this 14th day of SEPTEMBER, 2000 ("the Effective

Date") by and between N-Viro International Corporation, a corporation organized

and existing under the laws of the State of Delaware, having its principal place

of business at 3450 W. Central Avenue, Suite 328, Toledo, Ohio ("N-VIRO"), and

The City of Warren, Ohio, a municipal corporation organized and existing under

the laws of the State of Ohio, with administrative offices at City Hall, 391

Mahoning Avenue, N.W., Warren, Ohio ("WARREN").



                              W I T N E S S E T H:



         WHEREAS, N-VIRO filed a civil action against WARREN in the United

States District Court for the Northern District of Ohio, Eastern Division,

styled N-VIRO INTERNATIONAL CORPORATION V. THE CITY OF WARREN, OHIO, Case No.

4:00 CV 531 (hereinafter, "the Lawsuit"), in which N-VIRO asserted claims for

patent infringement and inducing patent infringement as a result of WARREN's

operation of its municipal biosolids treatment facility and its Nature's

Blend(TM) Cooperative Partnership licensing program;



         WHEREAS, WARREN asserted counterclaims in the Lawsuit for declaratory

judgment of patent noninfringement and invalidity, and for tortious interference

with business and prospective business relations; and



         WHEREAS, N-VIRO and WARREN desire to amicably settle the Lawsuit

without finally adjudicating the merits of any claims or counterclaims,



         NOW, THEREFORE, in consideration of the promises, mutual covenants and

agreements set forth herein, and for other good and valuable consideration, the

receipt and sufficiency of which are hereby acknowledged, N-VIRO and WARREN

agree as follows.



1.0      DEFINITIONS



         1.1 "Patents-in-Suit" shall mean: (a) U.S. Letters Patent No. 4,554,002

titled "Beneficial Waste Sludges for Agricultural Use and Product Made Thereby,"

issued on November 19, 1985 to John P. Nicholson ("the `002 Patent"); (b) U.S.

Letters Patent No. 4,781,842 titled "Method of Treating Wastewater Sludge,"

issued on November 1, 1988 to John P. Nicholson ("the `842 Patent"); (c) U.S.

Letters Patent No. 4,902,431 titled "Method for Treating Wastewater Sludge,"

issued on February 20, 1990 to John P. Nicholson and Jeffrey C. Burnham ("the

`431 Patent"); (d) U.S. Letters Patent No. 5,417,861 titled "Process to

Stabilize Bioorganic Raw or Treated Wastewater Sludge," issued on May 23, 1995

to Jeffrey C. Burnham ("the `861 Patent"); and (e) any continuing application,

reexamination, or reissue of the above-identified patents.



         1.2 "Warren Biosolids Treatment Facility" shall mean the biosolids

treatment facility located at 2323 Main Avenue, S.W., Warren, Ohio.





{PAGE}   2





         1.3 "Nature's Blend(TM) Partner" shall mean any municipality or

municipal corporation participating in the Nature's Blend(TM) Cooperative

Partnership program.



2.0      PAYMENTS



         2.1 WARREN shall make a one-time, lump-sum payment to N-VIRO in the

amount of One Hundred Thousand Dollars ($100,000), payable upon execution of

this Agreement.



3.0      RELEASES, COVENANTS NOT TO SUE, AND OTHER AGREEMENTS



         3.1 N-VIRO releases WARREN from any and all claims for patent

infringement accruing on or before the Effective Date that N-VIRO has or may

have as a result of WARREN's operations at the Warren Biosolids Treatment

Facility. In addition, N-VIRO covenants not to sue WARREN on any future claim

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