-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H/hZJuS3EG0HUIZ8k2x0h3tIXJrLDLtEP52BJKDSgwmOC6nK/pNrqTpsgY8UlpwB 6SREwbLLZd9m+zxvZqrBMQ== 0000891092-00-000357.txt : 20000502 0000891092-00-000357.hdr.sgml : 20000502 ACCESSION NUMBER: 0000891092-00-000357 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000501 GROUP MEMBERS: D2 CO LLC GROUP MEMBERS: DAVID MITCHELL SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BION ENVIRONMENTAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000875729 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 841176672 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-58927 FILM NUMBER: 614145 BUSINESS ADDRESS: STREET 1: 555 17TH ST STREET 2: STE 3310 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032940750 MAIL ADDRESS: STREET 1: 555 17TH ST STREET 2: SUITE 3310 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: RSTS CORP DATE OF NAME CHANGE: 19930328 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: D2 CO LLC CENTRAL INDEX KEY: 0001111858 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: C/O MITCHELL & CO STREET 2: 681 FIFTH AVENUE 9TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124864444 MAIL ADDRESS: STREET 1: C/O MITCHELL & CO STREET 2: 681 FIFTH AVENUE 9TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13D-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13D-2(a) (Amendment No. __)(1) BION ENVIRONMENTAL TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (Name of Issuer) NO PAR VALUE COMMON STOCK - -------------------------------------------------------------------------------- (Title of Class of Securities) 09061Q109 --------- (CUSIP Number) Copy to: David Mitchell Michael J. Emont D2 Co., LLC RubinBaum LLP c/o Mitchell & Co. 30 Rockefeller Plaza 681 Fifth Avenue, 9th Floor 29th Floor New York, New York 10022 New York, New York 10112 - ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications) December 23, 1999 - ------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. NOTE: Schedules filed in paper format shall include a signed original and five copies of this schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. (1) The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). (Continued on following page(s)) - Page 1 of 10 Pages - CUSIP No. 09061Q109 13D Page 2 of 10 Pages ================================================================================ 1 NAME OF REPORTING PERSONS D2 Co., LLC I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) 13-4113345 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 5,030,000 shares 29.9% Number of ------------------------------------------------------------- Shares 8 SHARED VOTING POWER Beneficially 0 shares 0% Owned By ------------------------------------------------------------- Each 9 SOLE DISPOSITIVE POWER Reporting 5,030,000 shares 29.9% Person ------------------------------------------------------------- With 10 SHARED DISPOSITIVE POWER 0 shares 0% - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,030,000 shares - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 29.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO ================================================================================ ================================================================================ *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 09061Q10 13D Page 3 of 10 Pages ================================================================================ 1 NAME OF REPORTING PERSONS David Mitchell I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 5,030,000 shares 29.9% Number of ------------------------------------------------------------- Shares 8 SHARED VOTING POWER Beneficially 0 shares 0% Owned By ------------------------------------------------------------- Each 9 SOLE DISPOSITIVE POWER Reporting 5,030,000 shares 29.9% Person ------------------------------------------------------------- With 10 SHARED DISPOSITIVE POWER 0 shares 0% - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,030,000 shares - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 29.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN ================================================================================ ================================================================================ *SEE INSTRUCTIONS BEFORE FILLING OUT! This statement on Schedule 13D, dated April 27, 2000, relates to the beneficial ownership of D2 Co., LLC and its sole member David Mitchell, of the Common Stock of Bion Environmental Technologies, Inc. ITEM 1. Security and Issuer The title of the class of equity securities to which this statement relates is Common Stock, no par value per share (the "Common Stock"), of Bion Environmental Technologies, Inc., a Colorado corporation, which has its principal executive offices at 555 17th Street, Suite 3310 Denver, Colorado 80202 (the "Issuer"). ITEM 2. Identity and Background The information set forth on Annex 2a is given with respect to (1) D2 Co., LLC ("D2 Co."), a Delaware limited liability company and (2) David Mitchell, the sole member of D2 Co. On Annex 2a, column (a) indicates the name of each person or entity; column (b) indicates the address of the principal business and the address of the principal office of each entity or the business address of each natural person; column (c) indicates each such entity's principal business or such natural person's present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is conducted as applicable; column (d) indicates whether or not, during the last five years, such person, or any executive officer, director or controlling person of such person, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) and, if so, the dates, nature of conviction, name and location of court, and penalty imposed, or other disposition of the case; column (e) indicates whether or not, during the last five years, such person, or any executive officer, director or controlling person of such person was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgement, decree or a final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or state securities laws or finding any violation with respect to such laws, and, if so, identifies and describes such proceedings and summarizes the terms of such judgement, decree or final order; column (f) indicates, in the case of any natural person, the citizenship of such person. ITEM 3. Source and Amount of Funds or Other Consideration The funds used by D2 Co. to purchase the Bridge Note and Warrants (as defined below) described herein consisted of the capital contributions of its member, a non-recourse promissory note and its general working capital. ITEM 4. Purpose of Transaction On December 23, 1999, D2 Co. entered into a Warrant Purchase Agreement with the Issuer (the "Purchase Agreement"), pursuant to which D2 Co. purchased warrants to purchase - Page 4 of 10 Pages - 2,500,000 shares of the Issuer's Common Stock (the "Purchase Warrant") for an aggregate purchase price of $1,000,000 ($500,000 in cash and $500,000 in a non-recourse promissory note). Concurrently therewith, D2 Co. entered into a Management Agreement with the Issuer (the "Management Agreement"), pursuant to which D2 Co. will provide the Issuer with specific management and consulting services. As compensation to D2 Co. for such services, D2 Co. will receive a management fee of $240,000 per year, payable in the Issuer's Common Stock or cash. In addition, on January 1, 2000, D2 Co. was issued an additional warrant to purchase 2,500,000 shares of Common Stock (the "Management Warrant" ). The Issuer and D2Co. have agreed that, for the time being, the monthly installments of the management fee shall be added to the principal balance of the Bridge Note described below. On March 31, 2000, D2 Co. participated in a bridge financing of the Issuer and for an aggregate of $1,500 purchased a bridge warrant to purchase 30,000 shares of the Issuer's Common Stock (the "Bridge Warrant," and, together with the Purchase Warrant and the Management Warrant, the "Warrants"), as well as a bridge note for $100,000 (the "Bridge Note"). If the Issuer issues any of its capital stock or an instrument that is convertible into shares of its capital stock, for an aggregate purchase price of at least $5,000,000, pursuant to a public or private offering (an "Offering"), then, at the Issuer's option, either (i) the Issuer shall prepay the Bridge Note, without penalty or premium, no later than 30 days following the closing of the Offering, or (ii) the Bridge Note shall be converted ("Conversion") into such number of shares of the capital stock of the Issuer as is equal to the Conversion Amount (as defined below) divided by the then current Conversion Price (as defined below). The Conversion Amount shall be the aggregate principal value of the Bridge Note plus any accrued and unpaid interest. The Conversion Price shall be the price paid for one share of capital stock issued in the Offering. The Purchase Warrant issued to D2 Co. is exercisable at a price of $1.75 per share at any time before December 31, 2004. The Management Warrant is exercisable at a price of $2.50 per share at any time before June 30, 2004 and the Bridge Warrant is exercisable at a price of $2.375 per share at any time before December 31, 2004. The exercise price and number of shares of Common Stock issuable upon exercise of such Warrants are subject to adjustment as provided in such Warrants. D2 Co. purchased the Bridge Note and Warrants for the purpose of obtaining a significant investment in the Issuer. In connection with such investment and the Management Agreement, D2 Co. obtained the right to name three designees to the board of directors of the Issuer, of which it has designated two, and obtained certain other rights. See ITEM 6 below. Such designees of D2 Co. are Mr. David Mitchell and Mr. Salvatore J. Zizza, who also purchased a bridge warrant in the Offering to purchase15,000 shares of Common Stock. See Annex 2a hereto for certain information with respect to Messrs. Mitchell and Zizza. In addition, upon the successful competition of a specified funding transaction, which is estimated to be $3,000,000, D2 Co. shall have the right to nominate for election at the next annual meeting one additional director. - Page 5 of 10 Pages - ITEM 5. Interests in Securities of the Issuer. (a) The following sets forth the aggregate number and percentage (based on 11,807,660 shares of Common Stock outstanding, as set forth in the Issuer's Form 10-QSB for the quarterly period ended December 31, 2000 as filed with the Securities and Exchange Commission on February 14, 2000) of shares of Common Stock owned beneficially by D2 Co., as of April 28, 2000: Shares of Percentage of Shares Common Stock of Common Stock Name Beneficially Owned Beneficially Owned - ---- ------------------ ------------------ D2 Co. 5,030,000 shares 29.9% David Mitchell 5,030,000 shares 29.9% The 5,030,000 shares of Common Stock beneficially owned by D2 Co. consist of (i) 2,500,000 shares of Common Stock issuable upon exercise of the Purchase Warrant owned by D2 Co., (ii) 2,500,000 shares of Common Stock issuable upon exercise of the Management Warrant owned by D2 Co. and (iii) 30,000 shares of Common Stock issuable upon exercise of the Bridge Warrant purchased by D2 Co. Not included in such number are (A) the shares of capital stock issuable upon Conversion of the Bridge Note, as it is not know when or if the Bridge Note will be converted and (B) the 15,000 shares of Common Stock issuable upon exercise of Mr. Zizza's bridge warrant, as neither D2 Co. nor Mr. Mitchell could be deemed the beneficial owners thereof. Based upon 11,807,660 shares of Common Stock outstanding, as set forth in the Issuer's Form 10-QSB for the quarterly period ended December 31, 2000 as filed with the Securities and Exchange Commission on February 14, 2000, D2 Co. beneficially owns 29.9% of the Common Stock. David Mitchell is the sole member of D2 Co. and therefore beneficially owns the shares of Common Stock held by D2 Co. (b) D2 Co., through its sole Member, David Mitchell, has sole power to vote and dispose of all of the shares of Common Stock owned by D2 Co. However, D2 Co. has entered into the Shareholders' Agreement described in ITEM 6 below, which contains provisions as to the voting of such shares in respect of the election of directors. (c) Response to ITEM 4 is incorporated herein by reference. (d) Not Applicable. (e) Not Applicable. ITEM 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. - Page 6 of 10 Pages - As part of the Warrant Purchase Agreement, D2 Co. has the right to require, in certain instances, the Issuer to prepare and file (at the expense of the Issuer) a registration statement with the Securities and Exchange Commission relating to the resale of the shares of Common Stock held by, or issuable to D2 Co. upon exercise of the Warrants of the Issuer held by it. Concurrently with the execution of the Warrant Purchase Agreement and Management Agreement, D2 Co. and certain other stockholders of the Issuer entered into a Shareholders' Agreement, dated as of December 23, 1999 (the "Shareholders' Agreement"). Pursuant to the terms of the Shareholders' Agreement, the shareholders of the Issuer party to such agreement agreed to vote their shares of capital stock of the Issuer in order to elect certain individuals, including Messrs. Mitchell (the sole member of D2 Co.) and Zizza, as directors of the Issuer. ITEM 7. Material to be Filed as Exhibits. Exhibit # Description of Exhibit - --------------------------------------- 1 Joint Filing Agreement, dated as of April 28, 2000, between D2 Co. and David Mitchell. 2 Warrant Purchase Agreement, dated December 23, 1999, by and between D2 Co., LLC and Bion Environmental Technologies, Inc.* 3 Management Agreement, dated December 23, 1999, by and between D2 Co., LLC and Bion Environmental Technologies, Inc.* 4 Form of Note and Warrant Purchase Agreement, dated March 31, 2000, by and between D2 Co., LLC and Bion Environmental Technologies. 5 Form of Bridge Note, dated March 31, 2000, payable by Bion Environmental Technologies, Inc. to D2 Co., LLC. 6 Form of Bridge Warrant, dated March 31, 2000, issued by Bion Environmental Technologies, Inc. to D2 Co. LLC. 7 Shareholders' Agreement, dated December 23, 1999, by and among D2 Co., LLC, Mark A. Smith, Jere Northrop, Jon Northrop, Lotaylingkyur, Inc., LTLK Defined Benefit Plan and Dublin Holding, Ltd.* - ------------------ *Incorporated by reference to exhibits 10.2, 10.1 and 10.3, respectively, to the Form 8-K filed with the Securities and Exchange Commission on December 23, 1999 (File No. 000-19333). - Page 7 of 10 Pages - Annex 2a
(a) (b) (c) (d) (e) (f) D2 Co. LLC See Footnote 1. To purchase, manage, hold, own, No No N/A invest in, and dispose of all or any portion of securities of companies. David Mitchell Mitchell & Co.(2) Investor No No U.S. - --------------------------------------------------------------------------------------------------------------------
Notes: (1) The address of D2 Co., LLC is c/o Mitchell & Co., 681 Fifth Avenue, 9th Floor, New York, NY 10022. (2) The address of Mitchell & Co. is 681 Fifth Avenue, 9th Floor, New York, NY 10022. - Page 8 of 10 Pages - Signature After reasonable inquiry and to the best of my knowledge and belief, the undersigned hereby certifies that the information set forth in this Schedule is true, complete, and correct. Date: April 28, 2000 D2 CO., LLC By: /s/ David Mitchell ----------------------------- Name: David Mitchell Title: Sole Member ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE FEDERAL CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001). Signature After reasonable inquiry and to the best of my knowledge and belief, the undersigned hereby certifies that the information set forth in this Schedule is true, complete, and correct. Date: April 28, 2000 /s/ David Mitchell -------------------------- DAVID MITCHELL ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE FEDERAL CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001). - 9 - EX-1 2 JOINT FILING AGREEMENT Exhibit 1 Joint Filing Agreement In accordance with Rule 13d-1(f) under the Securities Exchange Act of 1934, as amended, the undersigned hereby agree to the joint filing on behalf of each of them of a statement on Schedule 13D (including amendments thereto) with respect to the no par value Common Stock of Bion Environmental Technologies, Inc. and that this agreement be included as an Exhibit to such joint filing. This agreement may be executed in any number of counterparts all of which when taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned hereby execute this agreement this 28th day of April, 2000. D2 CO., LLC By: /s/ David Mitchell ------------------------------ Name: David Mitchell Title: Sole Member /s/ David Mitchell - --------------------------------- DAVID MITCHELL EX-4 3 NOTE AND WARRANT PURCHAE AGREEMENT Exhibit 4 NOTE AND WARRANT PURCHASE AGREEMENT NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") dated as of ______________, by and between BION ENVIRONMENTAL TECHNOLOGIES, INC., a Colorado corporation (the "Company"), D2 CO., LLC, a Delaware limited liability company ("D2") and the other parties executing signature pages hereto (collectively with D2, the "Purchasers"). WHEREAS, in a series of transactions and upon and subject to the terms and conditions hereinafter set forth, the Company desires to issue and sell to the Purchasers, and the Purchasers desire to purchase from the Company, (i) a minimum of $1,000,0000 and a maximum of $5,000,000 aggregate face amount of convertible Bridge Notes (the "Bridge Notes") in the form attached hereto as Exhibit A and (ii) a minimum of an aggregate of 300,000 and a maximum of an aggregate of 1,500,000 Bridge Warrants (the "Bridge Warrants") in the form attached as Exhibit B, each of which shall entitle the holder thereof to purchase one share of the Common Stock of the Company. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the Purchasers and the Company hereby agree as follows: 1. Purchase of Company Securities. 1.1. Purchase and Sale of the Bridge Notes and the Bridge Warrants. Subject to the terms and conditions set forth herein, the Company hereby agrees to issue and sell to the Purchasers, and each Purchaser, hereby agrees to purchase from the Company, such number of Units (as defined below) at the Closing (as such term is defined in Section 2.1 hereof) as is listed on its signature page. Each "Unit" shall consist of $25,000 face amount of Bridge Notes and 7,500 Bridge Warrants. The aggregate purchase price for the Units sold pursuant to this Agreement shall be equal to the sum of $1.00 for each $1.00 principal amount of Bridge Notes and $.05 for each Bridge Warrant. 2. Closing. 2.1. Closing. The initial closing and each additional closing of the purchase and sale of the Units will take place at the offices of Bion. Such closings (each, a "Closing" and collectively, the "Closings") will take place at 10:00 A.M., local time, on such dates as may be mutually agreed upon by the Company and the Purchasers. The date of each Closing is referred to herein as a "Closing Date." The date of the first Closing shall hereafter be referred to as the "Initial Closing Date" and the date of the final Closing shall hereafter be referred to as the "Final Closing Date." At each Closing, the Company will deliver to the Purchasers the Bridge Notes and the Bridge Warrants purchased as set forth in Section 1 hereof, against payment of the Purchase Price, by wire transfer payable to the Company. The Bridge Notes and the Bridge Warrants shall be registered in each Purchaser's name or the name of its nominee(s) in such denominations as the Purchaser shall request pursuant to instructions delivered to the Company not less than two days prior to such Closing Date. 3. Conditions to the Obligations of Purchasers at the Closing. The obligation of each Purchaser to purchase and pay for the Units to be purchased by it at a Closing is subject to the satisfaction on or prior to the Closing Date of the following conditions, which may only be waived by written consent of Purchasers: 3.1. Opinion of Counsel to the Company. Purchaser shall have received from counsel for the Company, its opinion dated the Closing Date in the form of Exhibit A hereto. 3.2. Representations and Warranties. All of the representations and warranties of the Company contained in this Agreement shall be true and correct at and as of such Closing Date, except for changes caused by the transactions contemplated hereby. 3.3. Performance of Covenants. All of the covenants and agreements of the Company contained in this Agreement and required to be performed on or prior to the Closing Date shall have been performed in a manner satisfactory in all respects to Purchasers. 3.4. Legal Action. No injunction, order, investigation, claim, action or proceeding before any court or governmental body shall be pending or threatened wherein an unfavorable judgment, decree or order would restrain, impair or prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement or cause any such transaction to be rescinded. 3.5. Consents. The Company shall have obtained in writing or made all consents, waivers, approvals, orders, permits, licenses and authorizations of, and registrations, declarations, notices to and filings and applications with, any governmental authority or any other person or entity (including, without limitation, securityholders and creditors of the Company) required to be obtained or made in order to enable the Company to observe and comply with all its obligations under this Agreement and to consummate the transactions contemplated hereby. 3.6. Closing Documents. The Company shall have delivered to the Purchasers the following: (a) a certificate executed by the President or Chief Executive Officer of the Company, dated the Closing Date, stating that the conditions set forth in Sections 3.2 through 3.5 have been satisfied; (b) an incumbency certificate, dated the Closing Date, for the officers of the Company executing this Agreement, the Bridge Notes and the Bridge Warrants and any other documents or instruments delivered in connection with this Agreement at the Closing; - 2 - (c) a certificate of the Secretary or Assistant Secretary of the Company, dated the Closing Date, as to the continued and valid existence of the Company, certifying the attached copy of the By-laws of the Company, the authorization of the execution, delivery and performance of this Agreement, and the resolutions adopted by the Board of Directors of the Company authorizing the actions to be taken by the Company under this Agreement; (d) a certificate of the Secretary of State of the State of Colorado, dated a recent date, to the effect that the Company is in good standing in the State of Colorado and that all annual reports, if any, have been filed as required and that all taxes and fees have been paid in connection therewith; (e) a certified copy of the Articles of Incorporation of the Company as filed with the Secretary of State of the State of Colorado and any amendments thereto; (f) such certificates, other documents and instruments as Purchasers and their counsel may reasonably request in connection with, and to effect, the transactions contemplated by this Agreement. 4. Conditions to the Obligations of the Company at the Closing. The obligation of the Company to issue and sell the Bridge Notes and the Bridge Warrants to the Purchasers at a Closing is subject to the satisfaction on or prior to the Closing Date of the following conditions, any of which may be waived by the Company: 4.1. Representations and Warranties. The representations and warranties of the Purchasers contained in this Agreement shall be true and correct at and as of the Closing Date. 4.2. Legal Action. No injunction, order, investigation, claim, action or proceeding before any court or governmental body shall be pending or threatened wherein an unfavorable judgment, decree or order would restrain, impair or prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement or cause any such transaction to be rescinded. 5. Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchasers that except as set forth on the schedule (the "Disclosure Schedule") attached hereto: 5.1. Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado. The Company has all requisite corporate power and authority, and holds all licenses, permits and other required authorizations from governmental authorities, necessary to conduct its business as it is now being conducted or proposed to be conducted and to own or lease the properties and assets it now owns or holds under lease. Except where such failure to qualify could not reasonably be deemed to have a material adverse effect on the Company, the Company is duly qualified or licensed and in good standing as a foreign - 3 - corporation in each jurisdiction wherein the character of its properties or the nature of the activities conducted by it makes such qualification or licensing necessary. 5.2. Capitalization. The Company's authorized capitalization is set forth in the SEC Documents (as defined below). All outstanding securities of the Company are validly issued, fully paid and nonassessable. Except as set forth on the Disclosure Schedule, noshareholder of the Company is entitled to any preemptive rights with respect to the purchase or sale of any securities by the Company. Except as has been set forth in the Disclosure Schedule, there are no outstanding options, warrants or other rights, commitments or arrangements, written or oral, to purchase or otherwise acquire any authorized but unissued shares of capital stock of the Company or any security directly or indirectly convertible into or exchangeable for any capital stock of the Company or under which any such option, warrant or convertible security may be issued in the future, and there are no voting trusts or agreements, shareholders' agreements, pledge agreements, buy-sell, rights of first offer, negotiation or refusal or proxies or similar arrangements relating to any securities of the Company to which the Company is a party, and to the best knowledge of the Company after due investigation there are no such trusts, agreement, rights, proxies or similar arrangements as to which the Company is not a party. Except as set forth on the Disclosure Schedule and as contemplated herein, none of the shares of capital stock of the Company is reserved for any purpose, and the Company is neither subject to any obligation (contingent or otherwise), nor has any option to repurchase or otherwise acquire or retire any shares of its capital stock. The SEC Documents set forth (i) the number of shares of Common Stock authorized for issuance under the Company's Fiscal Year 1994 Incentive Plan and the Company's 1996 Non-employee Director Stock Plan; (ii) the number of shares of Common Stock as to which options under such plan have been (a) reserved for issuance and (b) exercised; and (iii) the exercise prices for all outstanding options under such plan. Except as set forth on the Disclosure Schedule, no antidilution adjustments with respect to the outstanding securities of the Company will be triggered by the issuance of the securities contemplated hereby. 5.3. Due Authorization, Valid Issuance, Etc.. The Bridge Notes have been duly authorized and, when issued in accordance with this Agreement upon the Closing Date, will be free and clear of all liens imposed by or through the Company. The Bridge Warrants have been duly authorized and, when issued in accordance with this Agreement upon the Closing Date, will be validly issued and free and clear of all liens imposed by or through the Company. The shares of capital stock, issuable upon conversion of the Bridge Notes, have been duly authorized and shares of Common Stock have been reserved, and upon the conversion of the Bridge Notes will be validly issued, fully paid and nonassessable and will be free and clear of all liens imposed by or through the Company. The shares of Common Stock issuable upon the exercise of the Bridge Warrants have been duly authorized and reserved, and upon the exercise of the Bridge Warrants in accordance with the terms and conditions thereof and this Agreement, will be validly issued, fully paid and nonassessable shares of Common Stock and will be free and clear of all liens imposed by or through the Company. Except as set forth on the Disclosure Schedule, the issuance, sale and clear delivery of the Bridge Notes, the Bridge Warrants and the Common Stock or other capital stock of the Company issuable upon the exercise of the Bridge Warrants and conversion of the Bridge Notes will - 4 - not be subject to any preemptive right of shareholders of the Company or to any right of first refusal or other right in favor of any person. 5.4. Authorization; No Breach. The Company has the full corporate power and authority to execute, deliver and enter into this Agreement and to perform its obligations hereunder, and the execution, delivery and performance of this Agreement, the Bridge Notes, the Bridge Warrants, and any related financing statement and all other transactions contemplated hereby have been duly authorized by the Company, and this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms except as the enforceability hereof may be limited by (a) bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally and (b) the availability of remedies under general equitable principles and (c) to the extent the indemnification provisions contained in Section 8.5 hereof may be limited by applicable federal or state securities laws. To the Company's knowledge, the execution and delivery by the Company of this Agreement, the offering, sale and issuance of the Bridge Notes and the Bridge Warrants pursuant to this Agreement, and the performance and fulfillment of the Company of its obligations under this Agreement, the Bridge Notes and the Bridge Warrants, do not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, or event which, with notice or lapse of time or both, would constitute a breach of or default under, (iii) result in the creation of any lien, security interest, adverse claim, charge or encumbrance upon the capital stock or assets of the Company pursuant to, (iv) give any third party the right to accelerate any obligation under or terminate, (v) result in a violation of, (vi) result in the loss of any license, certificate, legal privilege or legal right enjoyed or possessed by the Company under, or (vii) except for filings required to be made with the Securities and Exchange Commission, require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to or require the consent of any other person under, the Articles of Incorporation or By-Laws of the Company or any law, statute, rule or regulation to which the Company is subject or by which any of its properties are bound, or any agreement, instrument, order, judgment or decree to which the Company is subject or by which its properties are bound. 5.5. Financial Statements and SEC Documents. (a) Incorporated by reference herein are (i) the audited financial statements of the Company for the fiscal year ended June 30, 1999, including the balance sheet as at the end of such fiscal year and the related statements of operations, shareholders' equity (deficit) and cash flows for such fiscal year, certified by Ehrhardt Keefe Steiner & Hottman PC and (ii) the September 30 Financial Statements (the financial statements referred to in clauses (i) and (ii) are referred to herein collectively as the "Financial Statements"). For purposes of this Agreement, September 30, 1999, shall be hereinafter referred to as the "Balance Sheet Date." The Financial Statements have been prepared in accordance with the books and records of the Company and generally accepted accounting principles, applied consistently with the past practices of the Company (except as otherwise noted in such Financial Statements), reflect all liabilities and obligations of the Company, as of their respective dates, and present fairly the financial position of the Company and the results of its operations as of the time and for the periods indicated therein. - 5 - (b) Incorporated by referenced herein are each report, schedule, registration statement and definitive proxy statement filed by the Company with the Securities and Exchange Commission since May 15, 1996 (as such documents have since the time of their filing been amended, the "SEC Documents") which are all the documents (other than preliminary material) that the Company was required to file with the Securities and Exchange Commission since such date. As of their respective dates, the SEC Documents complied in all respects with the requirements of the Securities Act (as defined in Section 9.7) and/or the Securities Exchange Act (as defined in Section 9.8) as the case may be, and the rules and regulations of the Securities and Exchange Commission thereunder applicable to such SEC Documents and none of the SEC Documents contained any untrue statement of a material fact or omitted to statement of material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Securities and Exchange Commission with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-QSB of the Securities and Exchange Commission) and fairly present (subject, in the case of the unaudited statements, to normal, recurring audit adjustments) the financial position of the Company as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. 5.6. No Material Adverse Changes. Except as set forth on the Disclosure Schedule, since the Balance Sheet Date there has not at any time been (a) any material adverse change in the financial condition, operating results, business prospects, employee relations or customer relations of the Company, or (b) other adverse changes, which in the aggregate have been materially adverse to the Company. 5.7. Litigation. Except as set forth on the Disclosure Schedule, there are no actions, suits, proceedings, orders, claims, or, to the Company's knowledge, investigations pending or, to the Company's knowledge, threatened against or affecting the Company, at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality; there are no arbitration proceedings pending under collective bargaining agreements or otherwise; and, to the knowledge of the Company, there is no basis for any of the foregoing. 5.8. Compliance with Law. To the Company's knowledge, the Company has complied in all material respects with all applicable statutes and regulations of the United States and of all states, municipalities and applicable agencies and foreign jurisdictions or bodies in respect of the conduct of its business and operations, and the failure, if any, by the Company to have fully complied with any such statute or regulation does not and will not materially adversely affect the business or operations of the Company. - 6 - 5.9. Undisclosed Liabilities. To the Company's knowledge, the Company has no obligation or liability (whether accrued, absolute, contingent, unliquidated, or otherwise, whether due or to become due) arising out of transactions entered into at or prior to the Closing of this Agreement, or any action or inaction at or prior to the Closing of this Agreement, or any state of facts existing at or prior to the Closing of this Agreement, except (a) liabilities reflected on the Company Balance Sheet; (b) liabilities incurred in the ordinary course of business since the Balance Sheet Date (none of which is a liability for breach of contract, breach of warranty, torts, infringements, claims or lawsuits); and (c) liabilities or obligations disclosed in the SEC Documents on the schedules hereto. 5.10. Disclosure. Neither this Agreement nor any of the schedules, exhibits, written statements, documents or certificates prepared or supplied by the Company with respect to the transactions contemplated hereby contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which made. Except as disclosed in the SEC Documents and except for matters effecting the industry of the Company as a whole, there exists no fact or circumstance which, to the knowledge of the Company upon due inquiry, materially adversely affects, or which could reasonably be anticipated to have a material adverse effect on, the existing or expected financial condition, operating results, assets, customer relations, employee relations or business prospects of the Company. The Purchasers acknowledge that the industry of the Company is subject to extensive regulation by national, state and local authorities and that a change in any such regulations or the institution of any litigation effecting the industry of the Company in general, could have a material adverse effect on the Company. 5.11. Compliance with the Securities Laws. Neither the Company nor anyone acting on its behalf has directly or indirectly offered the Bridge Notes and the Bridge Warrants or any part thereof or any similar security of the Company (or any other securities convertible or exchangeable for the Bridge Notes and the Bridge Warrants or any similar security), for sale to, or solicited any offer to buy the same from, anyone other than Purchasers. Assuming the accuracy and truth of each of the Purchasers' representations set forth in Section 6 of this Agreement, all securities of the Company heretofore sold and issued by it were sold and issued, and the Bridge Notes and the Bridge Warrants were offered and will be sold and issued, in compliance with all applicable federal and state securities laws. 6. Representations and Warranties of Purchasers. Each of the Purchasers hereby severally represents and warrants to the Company as follows: 6.1. Investment Intent. Each of the Purchasers is an "accredited investor" within the meaning of Regulation D under the Securities Act. Each of the Purchasers has experience in making investments in development stage technology companies and is acquiring the Bridge Notes and the Bridge Warrants for its own account and not with a present view to, or for sale in connection with, any distribution thereof in violation of the registration requirements of the Securities Act. Each of the Purchasers consents to the placing of a legend on the certificates representing the Bridge Notes - 7 - and the Bridge Warrants to the effect that the shares of Common Stock or other Stock issuable upon exercise or conversion, as the case may be, of the Bridge Warrants and the Bridge Notes have not been registered under the Securities Act and may not be transferred except in accordance with applicable securities laws or an exception therefrom. 6.2. Authorization. Each of the Purchasers has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder, having obtained all required consents, if any, and this Agreement, when executed and delivered, will constitute a legal valid and binding obligation of such Purchaser. 6.3. Suitability. Each Purchaser acknowledges that he is a person who is able to bear the economic risk of this investment and has adequate means of providing for his current needs and possible personal contingencies with no need for liquidity of this investment. In making this statement, consideration has been given as to whether the Purchaser could afford to hold his investment in the Company for an indefinite period of time and, whether, at this time, he could afford a complete loss of his investment, without such loss affecting his ability to maintain his lifestyle. 6.4. Risks. Each Purchaser acknowledges that this investment is speculative in nature and involves a high degree of risk, that the Purchaser may not be able to liquidate this investment and that transferability is extremely limited. 6.5. Due Inquiry. Each Purchaser acknowledges receipt of all information regarding the Company which he has requested or desired to know; that all documents which could be reasonably provided have been made available for his inspection and review; and that the Purchaser has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning the Company and an investment therein, and any additional information which he has requested. 7. Covenants of the Company. Until such time as the Registration Statement (as defined below) is declared effective under the Securities Act, the Company covenants and agrees with Purchasers as follows: 7.1. Books and Accounts. The Company will make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflect its transactions, including without limitation, dispositions of its assets. 7.2. Reports. The Company will make such filings as may be required under the Securities Act. 7.3. Use of Proceeds; Restriction on Payments. The Company shall use the net proceeds from the sale of the Bridge Notes and Bridge Warrants to bridge its working capital needs through such time as it can consummate an offering of its securities. The Company covenants and - 8 - agrees that it will not directly or indirectly use any of the proceeds to redeem, repurchase or otherwise acquire any equity security of the Company. 7.4. Corporate Existence, Licenses and Permits; Maintenance of Properties; New Businesses. The Company will at all times conduct its business in the ordinary course and cause to be done all things necessary to maintain, preserve and renew its existence and will preserve and keep in force and effect, all licenses, permits and authorizations necessary to the conduct of its business. The Company will also maintain and keep its properties in good repair, working order and condition, and from time to time, to make all needful and proper repairs, renewals and replacements, so that the business carried on in connection therewith may be properly conducted at all times. 7.5. Other Material Obligations. The Company will comply with (a) all material obligations which it is subject to, or becomes subject to, pursuant to any contract or agreement, whether oral or written, as such obligations are required to be observed or performed, unless and to the extent that the same are being contested in good faith and by appropriate proceedings and the Company has set aside on its books adequate reserves with respect thereto, and (b) all applicable laws, rules, and regulations of all governmental authorities, the violation of which could have a material adverse effect upon the business of the Company. 7.6. Amendment to the Articles of Incorporation and the By-Laws. The Company will perform and be in compliance with and observe all of the provisions set forth in its Articles of Incorporation and By-Laws to the extent that the performance of such obligations is legally permissible; provided that the fact that performance is not legally permissible will not prevent such nonperformance from constituting an event of default under this Agreement. The Company will not amend its Articles of Incorporation or By-Laws so as to adversely affect the rights of the Purchasers under this Agreement, the Articles of Incorporation, the By-Laws, the Bridge Warrants or the Bridge Notes. 7.7. Dividends; Distributions; Repurchases of Common Stock; Treasury Stock. The Company shall not declare or pay any dividends on, or make any other distribution with respect to, its capital stock, whether now or hereafter outstanding, or purchase, acquire, redeem or retire any shares of its capital stock, without the prior written consent of the Purchasers, provided, however, the foregoing shall not prohibit the Company issuing shares of its capital stock in exchange for extinguishing debt owed to any person, or from repurchasing any shares of its Common Stock from any present or former officer, Director or employee of the Company, or from repurchasing any outstanding warrants. 7.8. Taxes and Liens. The Company will duly pay and discharge when payable, all taxes, assessments and governmental charges imposed upon or against the Company or its properties, or any part thereof or upon the income or profits therefrom, in each case before the same become delinquent and before penalties accrue thereon, as well as all claims for labor, materials or supplies which if unpaid might by law become a lien upon any of its property, unless and to the - 9 - extent that the same are being contested in good faith and by appropriate proceedings and the Company has set aside on its books adequate reserves with respect thereto. 7.9. Restrictive Agreement. The Company covenants and agrees that subsequent to the Closing, it will not be a party to any agreement or instrument which by its terms would restrict the Company's performance of its obligations pursuant to this Agreement, the Articles of Incorporation, By-laws, the Bridge Warrants or the Bridge Notes. 8. Registration of Common Stock. 8.1. Registration. Not later than nine months following the Final Closing Date, the Company will file a registration statement (the "Registration Statement") with respect to the resale of the Registrable Securities with the Securities and Exchange Commission. The Company will use commercially reasonable efforts to effect, no later than 12 months following the Final Closing Date, the registrations, qualifications or compliances (including, without limitation, the execution of any required undertaking to file post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with applicable securities laws, requirements or regulations) as may be reasonably requested and as would permit or facilitate the sale and distribution of all Registrable Securities until the distribution thereof is complete. In the event the Registration Statement has not been declared effective under the Securities Act within 12 months of the Final Closing Date, then, for each 90 days thereafter that the Registration Statement has not been declared effective, the Company shall pay a penalty to each of the Purchasers equal to 5% of the principal amount of the Bridge Notes held by it. This penalty, which shall be payable at the Company's option in either cash or shares of registered Common Stock, shall be paid by the Company to the Purchasers within 10 days following the effective date of the Registration Statement, or, in the event the Registration Statement has still not been declared effective or has been withdrawn by the Company, no later than the second anniversary of the Final Closing Date. 8.2. Registration Procedures. In connection with the registration of any Registrable Securities under the Securities Act as provided in this Section 8, the Company will use its best efforts, as expeditiously as possible to: (a) Prepare and file with the Securities and Exchange Commission the Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective; (b) Prepare and file with the Securities and Exchange Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective until the earlier to occur of December 31, 2004 or such time as the Bridge Warrants have been redeemed pursuant to the terms therein, and to comply with the provisions of the Securities Act (to the extent applicable to the Company) with respect thereto; - 10 - (c) Furnish to each seller of such Registrable Securities such number of copies of such Registration Statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such Registration Statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request, in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) Use its best efforts to register or qualify such Registrable Securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller, except that the Company will not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not, but for the requirements of this Section 8.2(d) be obligated to be qualified, to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; (e) Provide a transfer agent and registrar for all such Registrable Securities covered by such Registration Statement not later than the effective date of such Registration Statement; (f) Notify each seller of such Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (g) Cause all such Registrable Securities to be listed on each securities exchange or automated over-the-counter trading system on which similar securities issued by the Company are then listed; (h) Enter into such customary agreements and take all such other actions as reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; and (i) Make available for inspection by any seller of Registrable Securities, all financial and other records, pertinent corporation documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller in connection with the Registration Statement pursuant to Section 8.1. - 11 - 8.3. Registration and Selling Expenses. (a) All expenses incurred by the Company in connection with the Company's performance of or compliance with this Section 8, including, without limitation (i) all registration and filing fees (including all expenses incident to filing with the National Association of Securities Dealers, Inc.), (ii) blue sky fees and expenses, (iii) all necessary printing and duplicating expenses and (iv) all fees and disbursements of counsel and accountants for the Company (including the expenses of any audit of financial statements), retained by the Company (all such expenses being herein called "Registration Expenses"), will be paid by the Company except as otherwise expressly provided in this Section 8.3. The term "Registration Expenses" shall not include any underwriting discounts or commissions incurred by a Purchaser, which shall be the responsibility of such Purchaser. (b) The Company will, in any event, in connection with any registration statement, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal, accounting or other duties in connection therewith and expenses of audits of year-end financial statements), the expense of liability insurance and the expenses and fees for listing the securities to be registered on one or more securities exchanges or automated over-the-counter trading systems on which similar securities issued by the Company are then listed. 8.4. NASD. In the event any Purchaser is deemed to be a member or an affiliate of a member of the National Association of Securities Dealers, Inc. ("NASD") and as a result the Registrable Securities held by such Purchaser cannot be included in the Registration Statement, then such Purchaser shall no longer be entitled to the registration rights granted under this Section 8. The Company may, however, in its sole discretion, include the Purchaser's Registrable Securities in a future registration statement, to the extent permitted by the NASD or the Securities and Exchange Commission. 8.5. Indemnification. (a) The Company hereby agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, its officers and directors, if any, and each person, if any, who controls such holder within the meaning of the Securities Act, against all losses, claims, damages, liabilities and expenses (under the Securities Act or common law or otherwise) caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus (and as amended or supplemented if the Company has furnished any amendments or supplements thereto) or any preliminary prospectus, which registration statement, prospectus or preliminary prospectus shall be prepared in connection with the registration contemplated by this Section 8, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information furnished in writing by such holder to the Company in connection with the registration contemplated by this Section 8, provided the Company will not be liable pursuant to this Section 8.5 if such losses, claims, damages, liabilities or expenses have been caused by any selling security holder's failure to deliver a copy of the registration statement or prospectus, or any amendments or - 12 - supplements thereto, after the Company has furnished such holder with the number of copies required by Section 8.2(c). (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information as is reasonably requested by the Company for use in any such registration statement or prospectus and shall severally, but not jointly, indemnify, to the extent permitted by law, the Company, its directors and officers and each person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages, liabilities and expenses resulting from any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent such losses, claims, damages, liabilities or expenses are caused by an untrue statement or alleged untrue statement contained in or by an omission or alleged omission from information so furnished in writing by such holder in connection with the registration contemplated by this Section 8. If the offering pursuant to any such registration is made through underwriters, each such holder agrees to enter into an underwriting agreement in customary form with such underwriters and to indemnify such underwriters, their officers and directors, if any, and each person who controls such underwriters within the meaning of the Securities Act to the same extent as hereinabove provided with respect to indemnification by such holder of the Company. Notwithstanding the foregoing or any other provision of this Agreement, in no event shall a holder of Registrable Securities be liable for any such losses, claims, damages, liabilities or expenses in excess of the net proceeds received by such holder in the offering. (c) Promptly after receipt by an indemnified party under Section 8.5 (a) or (b) of notice of the commencement of any action or proceeding, such indemnified party will, if a claim in respect thereof is made against the indemnifying party under such Section, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under such Section. In case any such action or proceeding is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and, to the extent that it wishes, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel approved by such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under such Section for any legal or any other expenses subsequently incurred by such indemnified party in connection with the defense thereof (other than reasonable costs of investigation) unless incurred at the written request of the indemnifying party. Notwithstanding the above, the indemnified party will have the right to employ counsel of its own choice in any such action or proceeding if the indemnified party has reasonably concluded that there may be defenses available to it which are different from or additional to those of the indemnifying party, or counsel to the indemnified party is of the opinion that it would not be desirable for the same counsel to represent both the indemnifying party and the indemnified party because such representation might result in a conflict - 13 - of interest (in either of which cases the indemnifying party will not have the right to assume the defense of any such action or proceeding on behalf of the indemnified party or parties and such legal and other expenses will be borne by the indemnifying party). An indemnifying party will not be liable to any indemnified party for any settlement of any such action or proceeding effected without the consent of such indemnifying party. (d) If the indemnification provided for in Section 8.5(a) or (b) is unavailable under applicable law to an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of the holders of Registrable Securities on the other in connection with the statements or omissions which resulted in such losses, claims, damages, or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the holders of Registrable Securities on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or by the holders of Registrable Securities and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include, subject to the limitations set forth in Section 8.5(c), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. (e) Promptly after receipt by the Company or any holder of Securities of notice of the commencement of any action or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (the "contributing party"), notify the contributing party of the commencement thereof; but the omission so to notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit, or proceeding is brought against any party, and such party notifies a contributing party of the commencement thereof, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. 9. Certain Definitions. For the purposes of this Agreement the following terms have the respective meanings set forth below: 9.1. "Affiliate" means any person, corporation, firm or entity which directly or indirectly controls, is controlled by, or is under common control with the indicated person, corporation, firm or entity. 9.2. "Common Stock" means the Company's no par value Common Stock. - 14 - 9.3. "Generally Accepted Accounting Principles" means generally accepted accounting principles consistently applied. 9.4. "Officers' Certificate" means a certificate executed on behalf of the Company by its President, Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Secretary and/or one of its other Vice-Presidents. 9.5. "Registrable Securities" means (i) the Common Stock or other Stock issuable upon conversion of the Bridge Notes and exercise of the Bridge Warrants purchased pursuant to Section 1.1 or (ii) any other shares of Common Stock now owned or hereafter acquired by Purchasers (whether Common Stock owned directly or underlying convertible securities of the Company). 9.6. "Securities" means the Bridge Notes, the Bridge Warrants and any other capital stock or Common Stock underlying the foregoing whether issued at the Closing or thereafter. 9.7 "Securities Act" means, as of any given time, the Securities Act of 1933, as amended, or any similar federal law then in force. 9.8. "Securities Exchange Act" means, as of any given time, the Securities Exchange Act of 1934, as amended, or any similar federal law then in force. 9.9. "Securities and Exchange Commission" includes any governmental body or agency succeeding to the functions thereof. 9.10. "Stock" means any series of stock other than Common Stock issued upon conversion of the Bridge Notes. 9.11. "Subsidiary" means any person, corporation, firm or entity at least the majority of the equity securities (or equivalent interest) of which are, at the time as of which any determination is being made, owned of record or beneficially by the Company, directly or indirectly, through any Subsidiary or otherwise. 10. Company Indemnities. The Company agrees to indemnify, defend and hold the Purchasers and their officers, directors, partners, employees, consultants and agents (the "Purchasers' Indemnitees") harmless from and against any liability, obligation, claim, cost, loss, judgment, damage or expense (including reasonable legal fees and expenses) (collectively, "Liabilities") incurred or suffered by any of the Purchasers' Indemnitees as a result of or arising out of or in connection with the Company's breach of any representation, warranty, covenant or agreement of the Company contained herein. - 15 - 11. Miscellaneous. 11.1. Termination; Survival of Representations, Warranties and Covenants. Except as otherwise provided for in this Agreement all representations, warranties, covenants and agreements contained in this Agreement, or in any document, exhibit, schedule or certificate by any party delivered in connection herewith shall survive the execution and delivery of this Agreement and the Closing Date and the consummation of the transactions contemplated hereby, regardless of any investigation made by the Purchasers or on their behalf. 11.2. Expenses. The Company shall pay all its own expenses in connection with this Agreement and the transactions contemplated herein. The Company agrees to pay promptly and save the Purchasers harmless against liability for the payment all expenses incurred by the Company and the Purchasers in connection with the preparation and consummation of the Agreement and the transactions contemplated herein, including but not limited to: all costs and expenses under Section 8, including without limitation, the costs of preparing, printing and filing with the Securities and Exchange Commission the Registration Statement and amendments, post-effective amendments, and supplements thereto; preparing, printing and delivering exhibits thereto and copies of the preliminary, final and supplemental prospectuses; preparing, printing and delivering all selling documents, including but not limited to the stock and warrant certificates; legal fees and disbursements of RubinBaum, LLP, D2's counsel (which amount shall not exceed $13,000 and which shall be paid on the Initial Closing Date) in connection with the preparation and consummation of this Agreement and the transactions contemplated herein, including the legal fees and costs of negotiating and drafting any transaction documents, due diligence and any necessary regulatory filings (including, without limitation, the Registration Statement, Forms 3, 4 and 5 and Schedule 13-D filings) (the "Bridge Loan Costs"). The "Bridge Loan Costs" shall not include any underwriting discounts or commissions incurred by a Purchaser or costs and expenses under Section 8, including, without limitation, the Registration Costs Exchange Commission the Registration Statement and amendments, post-effective amendments, and supplements thereto and preparing, printing and delivering exhibits thereto and copies of the preliminary, final and supplemental prospectuses which such costs shall in all cases be paid by the Company. The provisions of this Section shall survive any termination of this Agreement in all instances, including without limitation, (i) if the transactions contemplated by this Agreement have not been consummated or (ii) if the transactions have been terminated by the Purchasers for any reason. 11.3. Amendments and Waivers. This Agreement and all exhibits and schedules hereto set forth the entire agreement and understanding among the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them. This Agreement may be amended only by mutual written agreement of the Company and the holders of a majority of principal amount of the Bridge Notes, and the Company may take any action herein prohibited or omit to take any action herein required to be performed by it, and any breach of any covenant, agreement, warranty or representation may be waived, only if the Company has obtained the written consent or waiver of the holders of a majority of principal value of the Bridge Notes. No course of dealing between or among any persons having - 16 - any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement. 11.4. Successors and Assigns. This Agreement may not be assigned by the Company except with the prior written consent of the holders of a majority of principal value of the Bridge Notes. This Agreement shall be binding upon and inure to the benefit of the Company and its permitted successors and assigns and Purchasers and their successors and assigns. The provisions hereof which are for Purchasers' benefit as purchasers or holders of the Bridge Notes and the Bridge Warrants are also for the benefit of, and enforceable by, any subsequent holder of such Bridge Notes and Bridge Warrants. 11.5. Notices. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given personally or when mailed by certified or registered mail, return receipt requested and postage prepaid, and addressed to the addresses of the respective parties set forth below or to such changed addresses as such parties may have fixed by notice; provided, however, that any notice of change of address shall be effective only upon receipt: If to the Company: Bion Environmental Technologies, Inc. 555 17th Street, Suite 3310 Denver, CO 80202 Attn: Jon Northrop With a Copy to: Krys Boyle Freedman & Sawyer, P.C. 600 17th Street Suite 2700 South Tower Denver, CO 80202 Attn: Stanley F. ("Ted") Freedman, Esq. If to the Purchasers: At the address specified on their signature page hereto. If to D2: D2 Co., LLC 5 East 59th Street, 3rd Floor New York, NY 10022 Attn: David Mitchell - 17 - With a Copies to: Summerwind Restructuring, Inc. 64 Village Hill Drive Dix Hills, New York 11746 and to RubinBaum, LLP 30 Rockefeller Plaza New York, NY 10112 Attn: Michael J. Emont, Esq. 11.6. Governing Law. The validity, performance, construction and effect of this Agreement shall be governed by the internal laws of the State of New York without giving effect to such State's principles of conflict of laws. 11.7. Counterparts. This Agreement may be executed in any number of counterparts and, notwithstanding that any of the parties did not execute the same counterpart, each of such counterparts shall, for all purposes, be deemed an original, and all such counterparts shall constitute one and the same instrument binding on all of the parties thereto. Any signature received by facsimile transmission shall, for all purposes, be deemed an original signature. 11.8. Headings. The headings of the Sections hereof are inserted as a matter of convenience and for reference only and in no way define, limit or describe the scope of this Agreement or the meaning of any provision hereof. 11.9. Severability. In the event that any provision of this Agreement or the application of any provision hereof is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected except to the extent necessary to delete such illegal, invalid or unenforceable provision unless the provision held invalid shall substantially impair the benefit of the remaining portion of this Agreement. 11.10. Rights of Holders Inter Se. Each Holder of securities shall have the absolute right to exercise or refrain from exercising any right or rights which such Holder may have by reason of this Agreement or any security including, without limitation, the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an agreement with the Company for the purpose of modifying this Agreement or any agreement effecting such modification, and such Holder shall not incur any liability to any other Holder or Holders of securities with respect to exercising or refraining from exercising any such right or rights. 11.11. Exculpation Among Purchasers and Holders. Each Purchaser acknowledges and agrees that it is not relying upon any other Purchaser, or any officer, director, employee partner - 18 - or affiliate of any such other Purchaser, in making its investment or decision to invest in the Company or in monitoring such investment. Each Purchaser agrees that no Purchaser nor any controlling person, officer, director, shareholder, partner, agent or employee of any Purchaser shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them relating to or in connection with the Company or the securities, or both. 11.12. Actions by Purchasers. Any actions permitted to be taken by holders or Purchasers of Bridge Notes and/or Bridge Warrants and any consents required to be obtained from the same under this Agreement, may be taken or given only by, in the case of consents or actions requiring approval of the Purchasers, by the Purchasers, and in all other cases, only by holders of a majority of (i) in the case of the Bridge Notes, the face amount of the principal and (ii) in the case of the Bridge Warrants, the number of underlying shares of Common Stock, and if such holders constituting a majority the ("Majority Holders") as set forth in (i) or (ii) above or the Purchasers take any action or grant any consent, such action or consent shall be deemed given or taken by all holders or Purchasers' who shall be bound by the decision or action taken by the Majority Holders or the Purchasers without any liability on the part of the Majority Holders or the Purchasers to any other holder of securities hereto. 11.13. Consent to Jurisdiction. The parties hereto irrevocably consent to the jurisdiction of the courts of the State of New York and of any federal court located in such State in connection with any action or proceeding arising out of or relating to this Agreement, any document or instrument delivered pursuant to, in connection with or simultaneously with this Agreement, or a breach of this Agreement or any such document or instrument. In any such action or proceeding, each party hereto waives personal service of any summons, complaint or other process and agrees that service thereof may be made in accordance with Section 11.5. Within 30 days after such service, or such other time as may be mutually agreed upon in writing by the attorneys for the parties to such action or proceeding, the party so served shall appear or answer such summons, complaint or other process. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BION ENVIRONMENTAL TECHNOLOGIES, INC. By: ----------------------------------- Name: Title: - 19 - PURCHASER SIGNATURE PAGE Units Subscribed For: ----------------------------------- PURCHASER NAME - ------------------------------ Address: ----------------------------------- ----------------------------------- Aggregate Purchase Price: ----------------------------------- By: -------------------------------- Name: - ------------------------------ Title: - 20 - EX-5 4 CONVERTIBLE BRIDGE NOTE Exhibit 5 THIS NOTE IS NOT TRANSFERABLE WITHOUT THE EXPRESS WRITTEN CONSENT OF BION ENVIRONMENTAL TECHNOLOGIES, INC. (THE "COMPANY"). THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN EXEMPTION THEREFROM. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE SECURITIES LAWS. BION ENVIRONMENTAL TECHNOLOGIES, INC. No. B-__ Convertible Bridge Note $100,000 New York, New York ------------------ Bion Environmental Technologies, Inc. a Colorado corporation (the "Company"), for value received, hereby promises to pay to D2 Co., LLC or registered assigns (the "Holder"), the principal sum of one hundred thousand dollars ($100,000.00), with interest from the date of issuance of this Convertible Bridge Note on the unpaid principal balance at a rate equal to ten percent (10%) per annum, July 1, 2001 (the "Maturity Date"). Payment shall be made at such place as designated by the Holder upon surrender of this Convertible Bridge Note, and shall be in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. This Convertible Bridge Note is one of a duly authorized issue of Bion Environmental Technologies, Inc. 10% Convertible Bridge Notes in a private offering of a minimum aggregate principal amount of $1,000,000 and a maximum aggregate principal amount of $5,000,000 (individually a "Note" and collectively the "Notes") issued pursuant to a Note and Warrant Purchase Agreement of even date herewith between the Company, the Holder and the other parties thereto (the "Purchase Agreement"). SECTION 1. Prepayment This Note (including interest accrued on the principal hereof) may be prepaid by the Company, at any time without penalty or premium. SECTION 2. Mandatory Prepayment or Conversion (a) Prepayment or Conversion. In the event the Company shall issue any capital stock (or instrument convertible into capital stock) ("Stock") of the Company subsequent to the issuance of at least $1,000,000 of Convertible Bridge Notes pursuant to the offering in which this Note was issued, for an aggregate purchase price of at least $5,000,000 (exclusive of the sale of the Notes), pursuant to a public or private offering (an "Offering"), then, at the Company's option, either (i) the Company shall prepay the Notes, without penalty or premium, no later than 30 days following the closing of the Offering or (ii) the Notes shall be converted ("Conversion") into such number of shares of the Stock of the Company as is equal to the Conversion Amount (as defined below) divided by the then current Conversion Price (as defined below). The Conversion Amount shall be the aggregate principal value of the Notes held by such Holder plus any accrued and unpaid interest. The Conversion Price shall be the price paid for one share of Stock issued in the Offering, subject to adjustment as provided below. (b) Conversion Procedures. Each Holder of Notes shall surrender the Notes at the offices of the Company, which Notes shall be accompanied by irrevocable written notice to the Company specifying the name or names (with address) in which a certificate or certificates evidencing shares of Stock are to be issued. The Company shall deliver to the holder of the Notes, or to the nominee or nominees of such person, certificates evidencing the number of full shares of Stock to which such person shall be entitled as aforesaid, together with a cash adjustment of any fraction of a share as hereinafter provided. Subject to the following provisions of this paragraph, such conversion shall be deemed to have been made as of the date of such notice and the person or persons entitled to receive Stock deliverable upon conversion of such Notes shall be treated for all purposes as the record holder or holders of such Stock on such date; provided, however, that the Company shall not be required to convert any Notes while the stock transfer books of the Company are closed for any purpose, but the giving of notice during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books as if the notice had been given on the date of such reopening, and the conversion shall be at the conversion rate in effect on such date. (c) Protection in Case of a Merger, Etc. (i) In case of any capital reorganization or reclassification, or any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another entity of the property of the Company as an entirety or substantially as a entirety, or in the case of any statutory exchange of securities with another corporation (including - 2 - any exchange effected in connection with a merger of a third corporation into the Company), the Holder of this Note shall have the right thereafter to receive on the conversion of this Note the kind and amount of securities, cash or other property which the Holder would have owned or have been entitled to receive immediately after such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance had this Note been converted into shares of Common Stock immediately prior to the effective date of such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section 2 with respect to the rights and interests thereafter of the Holder of this Note to the end that the provisions set forth in this Section 2 shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the Note. The above provisions of this Subsection (c)(i) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, statutory exchanges, sales or conveyances. The Company shall require the issuer of any shares of stock or other securities or property thereafter deliverable on the exercise of this Note to be responsible for all of the agreements and obligations of the Company hereunder. Notice of any such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance and of said provisions so proposed to be made, shall be mailed to the Holders of the Notes not less than 30 days prior to such event. A sale of all or substantially all of the assets of the Company for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes. (ii) In case any event shall occur as to which the other provision of this Section 2 is not strictly applicable but as to which the failure to make any adjustment would not fairly protect the conversion rights represented by this Note in accordance with the essential intent and principles hereof then, in each such case, the Holders of Notes may appoint a firm of independent public accountants of recognized national standing reasonably acceptable to the Company, which shall give their opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established herein, necessary to preserve the conversion rights. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holder of this Note and shall make the adjustments described therein. The fees and expenses of such independent public accountants shall be borne by the Company. (d) Reservation of Shares; Transfer Taxes; Etc. The Company shall at all times reserve and keep available, out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Notes, such number of shares of its Common Stock as shall be sufficient to effect the conversion of all Notes from time to time outstanding. The Company shall use its best efforts from time to time, in accordance with the laws of the State of Colorado, to increase the authorized number of shares of Common Stock if at any time the number of shares of Common Stock not outstanding shall not be sufficient to permit the conversion of all the then-outstanding Notes. In the event the Company intends to offer Stock other than Common Stock, the Company shall authorize the issuance of sufficient shares of such Stock to permit the conversion of all the then-outstanding Notes. - 3 - The Company shall pay any and all issue or other taxes that may be payable in respect of any issue or delivery of shares of Stock on conversion of the Notes. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of Stock (or other securities or assets) in a name other than that in which the Notes so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of such tax or has established, to the satisfaction of the Company, that such tax has been paid. SECTION 3. Fractional Shares The Company shall not be required to issue fractions of shares of Common Stock or other Stock of the Company upon the conversion of the Note. If any fraction of a share would be issuable on the Conversion of the Note, the Company shall purchase such fraction for an amount in cash equal to the same fraction of the closing price for the Common Stock on the trading date immediately preceding the date of exercise of the conversion or the fair market value of such other Stock, as determined in good faith by the Board of Directors of the Company. SECTION 4. Affirmative Covenants of the Company. The Company covenants and agrees that until the payment in full of this Note, the Company shall: (a) Existence; Business. (i) Preserve, renew and keep in full force and effect its legal existence and (ii) obtain, preserve, renew, extend and keep in full force and effect the licenses, permits, authorizations, patents, trademarks and trade names material to its business. (b) Use of Proceeds. Use the proceeds of the Notes of this issue solely as set forth in Section 7.3 of the Purchase Agreement. (c) Reports. Furnish to the Holder, at the time furnished to the Company's shareholders, reports furnished generally to the Company's shareholders, and copies of Current Reports on Form 8-K. (d) Notice of Events of Default. Furnish to the Holder prompt written notice of any Event of Default, specifying the nature and extent thereof and corrective action, if any, proposed to be taken with respect thereto. (e) Authorization of Stock Issuable Upon Conversion. Authorize and reserve a sufficient number of its shares of Stock and Common Stock for issuance upon Conversion of the Note. - 4 - SECTION 5. Negative Covenants of the Company. The Company covenants and agrees with the Holder that until the payment in full of this Note, the Company shall not: (a) Dividends and Distributions. Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value any shares of any class of its capital stock or set aside any amount for any such purpose, except as permitted by Section 7.14 of the Purchase Agreement. (b) No Impairment. By amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Note against impairment. SECTION 6. Events of Default Defined. The following shall each constitute an "Event of Default" hereunder: (a) the failure of the Company to make any payment of principal of or interest on this Note when due and payable; (b) the failure of the Company to observe or perform any covenant in this Note or in the Purchase Agreement, and such failure shall have continued unremedied for a period of five (5) days; (c) if the Company shall: (1) admit in writing its inability to pay its debts generally as they become due, (2) file a petition in bankruptcy or a petition to take advantage of any insolvency act, (3) make an assignment for the benefit of its creditors, (4) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, - 5 - (5) on a petition in bankruptcy filed against, be adjudicated a bankrupt, or (6) file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; (d) if a court of competent jurisdiction shall enter an order, judgment or decree appointing, without the consent of the Company, a receiver of the Company or of the whole or any substantial part of its property, or approving a petition filed against it seeking reorganization or arrangement of the Company under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any State thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within thirty (30) days from the date of entry thereof; (e) if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Company or the whole or any substantial part of its property and such custody or control shall not be terminated or stayed within thirty (30) days from the date of assumption of such custody or control; (f) the liquidation, dissolution or winding up of the Company; (g) the failure of the shareholders to authorize and approve the issuance of these Notes or the issuance of the Stock underlying these Notes, the Bridge Warrants (as such terms are defined in the Purchase Agreement), or any Common Stock underlying the foregoing to the extent such authorization is necessary pursuant to the rules of the Nasdaq National Market or any other applicable law, rule or regulation; or (h) A final judgment or judgments for the payment of money in excess of $100,000 in the aggregate shall be rendered by one or more courts, administrative or arbitral tribunals or other bodies having jurisdiction against the Company and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company shall not, within such 30-day period, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal. SECTION 7. Remedies upon Event of Default. (a) Upon the occurrence of an Event of Default, (i) the entire principal amount of, and all accrued and unpaid interest on, this Note shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company. In addition, the Holder may take any action available to it under the Purchase Agreement or at law or in equity or by statute or otherwise. - 6 - (b) No remedy herein conferred upon the Holder of this Note is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. SECTION 8. Note Register. (a) The Company shall keep at its principal executive office a register (herein sometimes referred to as the "Note Register"), in which, subject to such reasonable regulations as it may prescribe, but at its expense (other than transfer taxes, if any), the Company shall provide for the registration and transfer of this Note. (b) Whenever this Note shall be surrendered at the principal executive office of the Company for transfer or exchange, accompanied by a written instrument of transfer in form reasonably satisfactory to the Company duly executed by the Holder hereof or his attorney duly authorized in writing, the Company shall execute and deliver in exchange therefor a new Note or Notes, as may be requested by such Holder, in the same aggregate unpaid principal amount and payable on the same date as the principal amount of the Note or Notes so surrendered; each such new Note shall be dated as of the date to which interest has been paid on the unpaid principal amount of the Note or Notes so surrendered and shall be in such principal amount and registered in such name or names as such Holder may designate in writing. (c) Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note and of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Note (in case of mutilation) the Company will make and deliver in lieu of this Note a new Note of like tenor and unpaid principal amount and dated as of the date to which interest has been paid on the unpaid principal amount of this Note in lieu of which such new Note is made and delivered. SECTION 9. Registration Under Securities Act of 1933. The Holder of this Note shall have registration rights as provided in Section 8 of the Purchase Agreement, with respect to the Securities issuable upon conversion of the Notes. If the Holder is not a party to the Purchase Agreement, by acceptance of this Note, the Holder agrees to comply with provisions of Section 8 of the Purchase Agreement to the same extent as if it were a party thereto. - 7 - SECTION 10. Miscellaneous. (a) Amendments and Waivers. The holders of a majority in principal amount of outstanding Notes of this issue may waive or otherwise consent to the amendment of any of the provisions hereof, provided that no such waiver or amendment may reduce the principal amount of or interest on any of the Notes of this issue or change the stated maturity of the principal or reduce the percentage of holders of Notes of this issue necessary to waive or amend the provisions of this Note, without the consent of each holder of any Note affected thereby. (b) Restrictions on Transferability. In addition to the restrictions set forth in Section 9 of this Note, the securities represented by this Note have been acquired for investment and have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state or other jurisdiction. Without such registration, such securities may not be sold, pledged, hypothecated or otherwise transferred, except pursuant to exemptions from the Securities Act of 1933, and the securities laws of any state or other jurisdiction. Notwithstanding the above, the holder of this Note has been provided the registration rights contained in Section 8 of the Purchase Agreement with respect to the shares of the Company's Common Stock which may be acquired upon the Conversion of the Note. (c) Forbearance from Suit. No holder of Notes of this issue shall institute any suit or proceeding for the enforcement of the payment of principal or interest unless the holders of at least a majority in principal amount of all of the outstanding Notes of this issue join in such suit or proceeding. (d) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York, excluding the body of law relating to conflict of laws. Notwithstanding anything to the contrary contained herein, in no event may the effective rate of interest collected or received by the Holder exceed that which may be charged, collected or received by the Holder under applicable law. (e) Interpretation. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. (f) Successors and Assigns. This Note shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Holder and its successors and assigns. (g) Notices. All notices, requests, consents and demands shall be made in writing and shall be mailed postage prepaid, or delivered by hand, to the Company or to the Holder thereof at their respective addresses set forth below or to such other address as may be furnished in writing to the other party hereto: If to the Holder: At the address shown on Schedule A attached hereto. - 8 - If to the Company: Bion Environmental Technologies, Inc. 555 17th Street, Suite 3310 Denver, CO 80202 Attention: Chief Executive Officer (h) Saturdays, Sundays, Holidays. If any date that may at any time be specified in this Note as a date for the making of any payment of principal or interest under this Note shall fall on Saturday, Sunday or on a day which in New York shall be a legal holiday, then the date for the making of that payment shall be the next subsequent day which is not a Saturday, Sunday or legal holiday. (i) Purchase Agreement. This Note is subject to the terms contained in the Purchase Agreement dated the date hereof between the Company and the purchasers of the Notes and the holder of this Note is entitled to the benefits of such Purchase Agreement and may, in addition to any rights hereunder, enforce the agreements of the Company contained therein and exercise the remedies provided for thereby or otherwise available in respect thereof. IN WITNESS WHEREOF, this Note has been executed and delivered as a sealed instrument on the date first above written by the duly authorized representative of the Company. ATTEST: BION ENVIRONMENTAL TECHNOLOGIES, INC. - ----------------------- By: ------------------------------- Name: Its: (Corporate Seal) - 9 - Schedule A Holder: D2 Co., LLC 5 East 59th Street, 3rd Floor New York, NY 10022 - 10 - EX-6 5 BRIDGE WARRANT Exhibit 6 THIS BRIDGE WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS BRIDGE WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS BRIDGE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. BION ENVIRONMENTAL TECHNOLOGIES, INC. Bridge Warrant Bridge Warrant to Subscribe for 30,000 shares ------------------ Void After December 31, 2004 THIS CERTIFIES that, for value received,D2 Co., LLC, or its registered assigns ("Holder"), is entitled to subscribe for and purchase from Bion Environmental Technologies, Inc., a Colorado corporation (hereinafter called the "Company"), at the price of $2.375 per share (such price as from time to time adjusted as hereinafter provided being hereinafter called the "Warrant Price"), at any time prior to December 31, 2004 (the "Warrant Expiration Date"), up to 30,000(subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, no par value per share, of the Company (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Bridge Warrant was issued pursuant to a certain Note and Warrant Purchase Agreement, dated as of ________________ (the "Purchase Agreement"), among the Company, D2 Co., LLC and certain other parties and the rights and benefits contained therein shall inure to the benefit of all subsequent holders of this Bridge Warrant. The Bridge Warrants issued pursuant to the Purchase Agreement and any warrant or warrants subsequently issued upon exchange or transfer thereof are hereinafter collectively called the "Bridge Warrants.""Registered Holder" shall mean, as to any Bridge Warrant and as of any particular date the person in whose name the certificate representing the Bridge Warrant shall be registered on that date on the books maintained by the Company pursuant to Section 3(b). Section 1. Exercise of Bridge Warrant. (a) Method of Exercise. The rights represented by this Warrant may be exercised by the holder hereof, in whole at any time or from time to time in part, but not as to a fractional share of Common Stock, by the surrender of this Warrant (properly endorsed) at the office of the Company as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Company, and as further provided below in this Section 1 by payment to the - 1 - Company of the Warrant Price in cash or by certified or official bank check, for each share being purchased. (b) Delivery of Certificates. Etc. In the event of any exercise of the rights represented by this Bridge Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the holder, shall be delivered to the holder hereof within a reasonable time, not exceeding ten days, after the rights represented by this Bridge Warrant shall have been so exercised; and, unless this Bridge Warrant has expired, a new Bridge Warrant representing the number of shares (except a remaining fractional share), if any, with respect to which this Bridge Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Bridge Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Bridge Warrant was surrendered and payment of the Warrant Price and any applicable taxes was made, except that, if the date of such surrender and payment is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 2. Reservation of Shares; Listing; Payment of Taxes; etc. (a) The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon exercise of Bridge Warrant, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Bridge Warrant. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of the Bridge Warrant shall, at the time of delivery (assuming full payment of the purchase price thereof), be duly and validly issued, fully paid, nonassessable and free from all issuance taxes, liens and charges with respect to the issue thereof including, without limitation, adverse claims whatsoever (with the exception of claims arising through the acts of the Registered Holders themselves and except as arising from applicable Federal and state securities laws), that the Company shall have paid all taxes, if any, in respect of the original issuance thereof and that upon issuance such shares, to the extent applicable, shall be listed on, or included in, the Stock Market. As used herein, "Stock Market" shall mean the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, shall mean NASDAQ or, if the Common Stock is not quoted on Nasdaq, shall mean the OTC Bulletin Board or, if the Common Stock is not quoted on the OTC Bulletin Board, shall mean the over-the-counter market as furnished by any NASD member firm selected from time to time by the Company for that purpose. (b) The Company covenants that if any securities to be reserved for the purpose of exercise of the Bridge Warrant hereunder require registration with, or the approval of, any governmental authority under any federal securities law before such securities may be validly issued or delivered upon such exercise, then the Company will in good faith and as expeditiously as reasonably possible, endeavor to secure such registration or approval. The Company will use reasonable efforts to obtain appropriate approvals or registrations under state "blue sky" securities - 2 - laws; provided, that the Company shall not be required to qualify as a foreign corporation or file a general or limited consent to service of process in any such jurisdictions or make any changes in its capital structure or any other aspects of its business or enter into any agreements with blue sky commissions, including any agreement to escrow shares of its capital stock. With respect to any such securities, however, Bridge Warrants may not be exercised by, or shares of Common Stock issued to, any Registered Holder in any state in which such exercise would be unlawful. (c) The Company shall pay all documentary, stamp or similar taxes and other similar governmental charges that may be imposed with respect to the issuance of Bridge Warrants, or the issuance or delivery of any shares upon exercise of the Bridge Warrants; provided, however, that if the shares of Common Stock are to be delivered in a name other than the name of the Registered Holder on any Bridge Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Company the amount of transfer taxes or charges incident thereto, if any. 3. Exchange and Registration of Transfer. (a) This Bridge Warrant may be exchanged for another Bridge Warrant representing an equal aggregate number of Bridge Warrants of the same class or may be transferred in whole or in part, by surrendering it to the Company at its corporate office. Upon satisfaction of the terms and provisions hereof, the Company shall execute, and the Company shall sign, issue and deliver in exchange therefor, such new Bridge Warrant or Bridge Warrants that the Registered Holder making the exchange shall be entitled to receive. (b) The Company shall keep at its office books in which, subject to such reasonable regulations as it may prescribe, it shall register Bridge Warrants and any transfers thereof in accordance with its regular practice. Upon due presentment for registration of transfer of any Bridge Warrant at such office, the Company shall execute and the Company shall issue and deliver to the transferee or transferees a new Bridge Warrant or Bridge Warrants representing an equal aggregate number of Bridge Warrants. (c) With respect to all Bridge Warrants presented for registration or transfer, or for exchange or exercise, the subscription form attached hereto shall be duly endorsed, or be accompanied by a written instrument or instruments of transfer and subscription, in form satisfactory to the Company, duly executed by the Registered Holder or his attorney-in-fact duly authorized in writing. (d) Prior to due presentment for registration of transfer thereof, the Company may deem and treat the Registered Holder of any Bridge Warrant as the absolute owner thereof (notwithstanding any notations of ownership or writing thereon made by anyone other than a duly authorized officer of the Company) for all purposes and shall not be affected by any notice to the contrary. The Bridge Warrants, which are being offered in Units with the Bridge Notes pursuant to - 3 - the Purchase Agreement, will immediately be detachable and separately transferable from the Bridge Notes. 4. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it of the ownership of and loss, theft, destruction or mutilation of any Bridge Warrant and (in case of loss, theft or destruction) of indemnity satisfactory to it, and (in the case of mutilation) upon surrender and cancellation thereof, the Company shall execute, sign and deliver to the Registered Holder in lieu thereof a new Bridge Warrant of like tenor representing an equal aggregate number of Bridge Warrants. 5. Redemption. (a) At any time after the first anniversary of the Final Closing Date (as defined in the Purchase Agreement), so long as the Company has caused the Registrable Securities to become registered in accordance with Section 8 of the Purchase Agreement, the Company may, at its option, redeem the Bridge Warrants at a price of $0.05 per share of Common Stock, as may adjusted pursuant to Section 6 (the Redemption Price"), provided the Closing Bid Price exceeds 250% of the Warrant Price on the Initial Closing Date (as defined in the Purchase Agreement) per share of Common Stock for at least 20 trading days in any 30 consecutive trading day period ending three days prior to the date of notice of redemption (which shall be the date of mailing of such notice). All outstanding Bridge Warrants must be redeemed if any are redeemed. The date fixed for redemption of the Bridge Warrants is referred to herein as the "Redemption Date." For purposes hereof, the "Closing Bid Price" for each trading day shall be the reported per share closing bid price of the Common Stock regular way on the Stock Market on such trading day. (b) If the conditions set forth in Subsection 5(a) are met, and the Company desires to exercise its right to redeem the Bridge Warrants, it shall mail a notice of redemption to each of the Registered Holders of the Bridge Warrants to be redeemed, first class, postage prepaid, not later than the sixtieth day before the date fixed for redemption, at their last address as shall appear on the records maintained pursuant to Subsection 3(b). Any notice mailed in the manner provided herein shall be conclusively presumed to have been duly given whether or not the Registered Holder receives such notice. (c) The notice of redemption shall specify (i) the Redemption Price, (ii) the Redemption Date, (iii) the place where the Bridge Warrants shall be delivered and the redemption price paid and (iv) that the right to exercise the Bridge Warrants shall terminate at 5:00 P.M. (New York time) on the business day immediately preceding the Redemption Date. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to a Registered Holder (a) to whom notice was not mailed or (b) whose notice was defective. An affidavit of the Secretary or an Assistant Secretary of the Company that notice of redemption has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. - 4 - (d) Any right to exercise a Bridge Warrant shall terminate at 5:00 P.M. (New York time) on the business day immediately preceding the Redemption Date. On and after the Redemption Date, Holders of the Bridge Warrants shall have no further rights except to receive, upon surrender of the Bridge Warrants, the Redemption Price. (e) From and after the Redemption Date, the Company shall, at the place specified in the notice of redemption, upon presentation and surrender to the Company by or on behalf of the Registered Holder thereof of one or more Bridge Warrants to be redeemed, deliver or cause to be delivered to or upon the written order of such Holder a sum in cash equal to the redemption price of such Bridge Warrants. From and after the Redemption Date and upon the deposit or setting aside by the Company of a sum sufficient to redeem all the Bridge Warrants called for redemption, such Bridge Warrants shall expire and become void and all rights hereunder, except the right to receive payment of the Redemption Price, shall cease. 6. Adjustment of Warrant Price and Number of Shares of Common Stock or Bridge Warrants. Upon each adjustment of the Warrant Price pursuant to this Section 6, the total number of shares of Common Stock purchasable upon the exercise of each Bridge Warrant shall (subject to the provisions contained in Subsection 6(c)) be such number of shares (calculated to the nearest tenth) purchasable at the Warrant Price in effect immediately prior to such adjustment multiplied by a fraction, the numerator of which shall be the Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the Warrant Price in effect immediately after such adjustment. (a) Except as otherwise provided herein, in the event the Company shall, at any time or from time to time after the date hereof, (i) sell or issue any shares of Common Stock for a consideration per share less than the Warrant Price in effect on the date of such sale or issuance, (ii) issue any shares of Common Stock as a stock dividend to the holders of Common Stock, or (iii) subdivide or combine the outstanding shares of Common Stock into a greater or fewer number of shares (any such sale, issuance, subdivision or combination being herein called a "Change of Shares"), then, and thereafter upon each further Change of Shares, the Warrant Price in effect immediately prior to such Change of Shares shall be changed to a price (rounded to the nearest cent) determined by multiplying the Warrant Price in effect immediately prior thereto by a fraction, the numerator of which shall be (x) the sum of (A) the number of shares of Common Stock outstanding immediately prior to the sale or issuance of such additional shares or such subdivision or combination plus (B) the number of shares of Common Stock that the aggregate consideration received (determined as provided in Paragraph 6(g)(v)) for the issuance of such additional shares would purchase at the Warrant Price in effect on the date of such issuance and the denominator of which shall be (y) the number of shares of Common Stock outstanding immediately after the sale or issuance of such additional shares or such subdivision or combination. Such adjustment shall be made successively whenever any such issuance is made. (b) In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock, or in case of any consolidation or merger of the Company - 5 - with or into another entity (other than a consolidation or merger in which the Company is the continuing entity and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock other than the number thereof), or in case of any sale or conveyance to another entity of the property of the Company as, or substantially as, an entirety (other than a sale/leaseback, mortgage or other financing transaction), the Company shall cause effective provision to be made so that each holder of a Bridge Warrant then outstanding shall have the right thereafter, by exercising such Bridge Warrant, upon the terms and conditions specified in the Bridge Warrant and in lieu of the shares of Common Stock immediately theretofore purchasable upon exercise of the Bridge Warrant, to purchase the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock that might have been purchased upon exercise of such Bridge Warrant immediately prior to such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The Company shall not effect any such consolidation, merger or sale unless prior to, or simultaneously with, the consummation thereof the successor (if other than the Company) resulting from such consolidation or merger or the entity purchasing assets or other appropriate entity shall assume, by written instrument executed and delivered to the Company, the obligation to deliver to the holder of each Bridge Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase and the other obligations under this Bridge Warrant. The foregoing provisions shall similarly apply to successive reclassifications, capital reorganizations and other changes of outstanding shares of Common Stock and to successive consolidations, mergers, sales or conveyances. (c) If, at any time or from time to time, the Company shall issue or distribute to the holders of shares of Common Stock evidence of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding an issuance or distribution governed by one of the preceding Subsections of this Section 6 and also excluding cash dividends or cash distributions paid out of net profits legally available therefor in the full amount thereof (any such non-excluded event being herein called a "Special Dividend")), then in each case the Registered Holders of the Bridge Warrants shall be entitled to a proportionate share of any such Special Dividend as though they were the holders of the number of shares of Common Stock of the Company for which their Bridge Warrants are exercisable as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such Special Dividend. (d) The Company may elect, upon any adjustment of the Warrant Price hereunder, to adjust the number of Bridge Warrants outstanding, in lieu of the adjustment in the number of shares of Common Stock purchasable upon the exercise of each Bridge Warrant as hereinabove provided, so that each Bridge Warrant outstanding after such adjustment shall represent the right to purchase one share of Common Stock. Each Bridge Warrant held of record prior to such adjustment of the number of Bridge Warrants shall become that number of Bridge Warrants (calculated to the - 6 - nearest tenth) determined by multiplying the number one by a fraction, the numerator of which shall be the Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the Warrant Price in effect immediately after such adjustment. Upon each adjustment of the number of Bridge Warrants pursuant to this Section 6, the Company shall, as promptly as practicable, cause to be distributed to each Registered Holder of Bridge Warrants on the date of such adjustment Bridge Warrants evidencing, subject to Section 7, the number of additional Bridge Warrants to which such Holder shall be entitled as a result of such adjustment or, at the option of the Company, cause to be distributed to such Holder in substitution and replacement for the Bridge Warrants held by him prior to the date of adjustment (and upon surrender thereof, if required by the Company) new Bridge Warrants evidencing the number of Bridge Warrants to which such Holder shall be entitled afer such adjustment. (e) Irrespective of any adjustments or changes in the Warrant Price or the number of shares of Common Stock purchasable upon exercise of the Bridge Warrants, the Bridge Warrants theretofore and thereafter issued shall, unless the Company shall exercise its option to issue new Bridge Warrants pursuant to Subsection 3(a), continue to express the same Warrant Price per share, number of shares purchasable thereunder and Redemption Price therefor as when the same were originally issued. (f) After each adjustment of the Warrant Price pursuant to this Section 6, the Company will promptly prepare a certificate signed by the Chairman or President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company setting forth: (i) the Warrant Price as so adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of each Bridge Warrant after such adjustment, and, if the Company shall have elected to adjust the number of Bridge Warrants pursuant to Subsection 6(d), the number of Bridge Warrants to which the registered holder of each Bridge Warrant shall then be entitled, and the adjustment in Redemption Price resulting therefrom, and (iii) a brief statement of the facts accounting for such adjustment. The Company will cause a brief summary thereof to be sent by ordinary first class mail to each Registered Holder of Bridge Warrants at his or her last address as it shall appear on the registry books. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of such adjustment. The affidavit the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (g) For purposes of Subsections 6(a) and 6(d), the following provisions (i) to (v) shall also be applicable: (i) the number of shares of Common Stock deemed outstanding at any given time shall include all shares of capital stock convertible into, or exchangeable for, Common Stock (on an as converted basis) as well as all shares of Common Stock issuable upon the exercise of (x) any convertible debt, (y) warrants outstanding on the date hereof and (z) options outstanding on the date hereof. - 7 - (ii) No adjustment of the Warrant Price shall be made unless such adjustment would require an increase or decrease of at least $.01 in such price; provided that any adjustments which by reason of this Paragraph (ii) are not required to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with adjustments so carried forward, shall require an increase or decrease of at least $.01 in the Warrant Price then in effect hereunder. (iii) In case of (1) the sale by the Company (including as a component of a unit) of any rights or warrants to subscribe for or purchase, or any options for the purchase of, Common Stock or any securities convertible into or exchangeable for Common Stock (such securities convertible, exercisable or exchangeable into Common Stock being herein called "Convertible Securities"), or (2) the issuance by the Company, without the receipt by the Company of any consideration therefor, of any rights or warrants to subscribe for or purchase, or any options for the purchase of, Common Stock or Convertible Securities, whether or not such rights, warrants or options, or the right to convert or exchange such Convertible Securities, are immediately exercisable, and the consideration per share for which Common Stock is issuable upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities (determined by dividing (x) the minimum aggregate consideration, as set forth in the instrument relating thereto without regard to any antidilution or similar provisions contained therein for a subsequent adjustment of such amount, payable to the Company upon the exercise of such rights, warrants or options, plus the consideration received by the Company for the issuance or sale of such rights, warrants or options, plus, in the case of such Convertible Securities, the minimum aggregate amount, as set forth in the instrument relating thereto without regard to any antidilution or similar provisions contained therein for a subsequent adjustment of such amount, of additional consideration, if any, other than such Convertible Securities, payable upon the conversion or exchange thereof, by (y) the total maximum number, as set forth in the instrument relating thereto without regard to any antidilution or similar provisions contained therein for a subsequent adjustment of such amount, of shares of Common Stock issuable upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities issuable upon the exercise of such rights, warrants or options) is less than the Warrant Price of the Common Stock as of the date of the issuance or sale of such rights, warrants or options, then such total maximum number of shares of Common Stock issuable upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities (as of the date of the issuance or sale of such rights, warrants or options) shall be deemed to be "Common Stock" for purposes of Subsections 6(a) and 6(d) and shall be deemed to have been sold for an amount equal to such consideration per share and shall cause an adjustment to be made in accordance with Subsections 6(a) and 6(d). (iv) In case of the sale or other issuance by the Company of any Convertible Securities, whether or not the right of conversion or exchange thereunder is immediately exercisable, and the price per share for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities (determined by dividing (x) the total amount of consideration received by the Company for the sale of such Convertible Securities, plus the - 8 - minimum aggregate amount, as set forth in the instrument relating thereto without regard to any antidilution or similar provisions contained therein for a subsequent adjustment of such amount, of additional consideration, if any, other than such Convertible Securities, payable upon the conversion or exchange thereof, by (y) the total maximum number, as set forth in the instrument relating thereto without regard to any antidilution or similar provisions contained therein for a subsequent adjustment of such amount, of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities) is less than the Warrant Price of the Common Stock as of the date of the sale of such Convertible Securities, then such total maximum number of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities (as of the date of the sale of such Convertible Securities) shall be deemed to be "Common Stock" for purposes of Subsections 6(a) and 6(d) and shall be deemed to have been sold for an amount equal to such consideration per share and shall cause an adjustment to be made in accordance with Subsections 6(a) and 6(d). (v) In case the Company shall modify the rights of conversion, exchange or exercise of any of the securities referred to in Paragraphs (iii) or (iv) of this Subsection 6(g) or any other securities of the Company convertible, exchangeable or exercisable for shares of Common Stock, for any reason other than an event that would require adjustment to prevent dilution, so that the consideration per share received by the Company after such modification is less than the Warrant Price as of the date prior to such modification, then such securities, to the extent not theretofore exercised, converted or exchanged, shall be deemed to have expired or terminated immediately prior to the date of such modification and the Company shall be deemed, for purposes of calculating any adjustments pursuant to this Section 6, to have issued such new securities upon such new terms on the date of modification. Such adjustment shall become effective as of the date upon which such modification shall take effect. On the expiration or cancellation of any such right, warrant or option or the termination or cancellation of any such right to convert or exchange any such Convertible Securities, the Warrant Price then in effect hereunder shall forthwith be readjusted to such Warrant Price as would have obtained (a) had the adjustments made upon the issuance or sale of such rights, warrants, options or Convertible Securities been made upon the basis of the issuance of only the number of shares of Common Stock theretofore actually delivered (and the total consideration received therefor) upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities and (b) had adjustments been made on the basis of the Warrant Price as adjusted under clause (a) of this sentence for all transactions (which would have affected such adjusted Warrant Price) made after the issuance or sale of such rights, warrants, options or Convertible Securities. (vi) In case of the sale of any shares of Common Stock, any Convertible Securities, any rights or warrants to subscribe for or purchase, or any options for the purchase of, Common Stock or Convertible Securities, the consideration received by the Company therefor shall be deemed to be the gross sales price therefor without deducting therefrom any expense paid or incurred by the Company or any underwriting discounts or commissions or concessions paid or allowed by the Company in connection therewith. In the event that any securities shall be issued in connection with any other securities of the Company, together comprising one integral transaction - 9 - in which no specific consideration is allocated among the securities, then each of such securities shall be deemed to have been issued for such consideration as the Board of Directors of the Company determines in good faith; provided, however that if holders of more than of 10% of the then outstanding Bridge Warrants disagree with such determination, the Company shall retain an independent investment banking firm for the purpose of obtaining an appraisal. (h) Notwithstanding any other provision hereof, no adjustment to the Warrant Price of the Bridge Warrants or to the number of shares of Common Stock purchasable upon the exercise of each Bridge Warrant will be made: (i) upon the exercise of any of the options outstanding on the date hereof under the Company's existing stock option plans; or (ii) upon the issuance or exercise of options which may hereafter be granted with the approval of the Board of Directors, or exercised, under any employee benefit plan of the Company to officers, directors, consultants or employees, but only with respect to such options as are exercisable at prices no lower than the Closing Bid Price (or, if the price referenced in the definition of Closing Bid Price cannot be determined, the Fair Market Value (as defined below)) of the Common Stock as of the date of grant thereof; or (iii) upon issuance or exercise of the warrants issued to D2 Co., LLC in connection with the Management Agreement between D2 Co., LLC and the Company, dated December 23, 1999 or upon the conversion or exercise of the Bridge Notes or the Bridge Warrants included in the Units issued on or prior to the Final Closing Date; or (iv) upon the issuance or sale of Common Stock or Convertible Securities pursuant to the exercise of any rights, options or warrants to receive, subscribe for or purchase, or any options for the purchase of, Common Stock or Convertible Securities, whether or not such rights, warrants or options were outstanding on the date of the original sale of the Bridge Warrants or were thereafter issued or sold, provided that an adjustment was either made or not required to be made in accordance with Subsections 6(a) and 6(d) in connection with the issuance or sale of such securities or any modification of the terms thereof; or (v) upon the issuance or sale of Common Stock upon conversion or exchange of any Convertible Securities, provided that any adjustments required to be made upon the issuance or sale of such Convertible Securities or any modification of the terms thereof were so made, and whether or not such Convertible Securities were outstanding on the date of the original sale of the Bridge Warrants or were thereafter issued or sold. Paragraph 6(g)(v) shall nevertheless apply to any modification of the rights of conversion, exchange or exercise of any of the securities referred to in Paragraphs (i), (ii) and (iii) of this Subsection 6(h). For purposes hereof, "Fair Market Value" shall mean the average Closing Bid Price for twenty (20) consecutive trading days, ending with the trading day prior to the date as of which the Fair Market - 10 - Value is being determined, (with appropriate adjustments for subdivisions or combinations of shares effected during such period) provided that if the prices referred to in the definition of Closing Bid Price cannot be determined for such period, "Fair Market Value" shall be the fair market value as determined by the Board of Directors in good faith. (i) As used in this Section 6, the term "Common Stock" shall mean and include the Company's Common Stock authorized on the date of the original issue of the Units and shall also include any capital stock of any class of the Company thereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary liquidation, dissolution or winding up of the Company; provided, however, that the shares issuable upon exercise of the Bridge Warrants shall include only shares of such class designated in the Company's Certificate of Incorporation, as amended, as Common Stock on the date of the original issue of the Units or (i), in the case of any reclassification, change, consolidation, merger, sale or conveyance of the character referred to in Subsection 6(c), the stock, securities or property provided for in such section or (ii), in the case of any reclassification or change in the outstanding shares of Common Stock issuable upon exercise of the Bridge Warrants as a result of a subdivision or combination or consisting of a change in par value, or from par value to no par value, or from no par value to par value, such shares of Common Stock as so reclassified or changed. (j) Any determination as to whether an adjustment in the Warrant Price in effect hereunder is required pursuant to Section 6, or as to the amount of any such adjustment, if required, shall be binding upon the holders of the Bridge Warrants and the Company if made in good faith by the Board of Directors of the Company. (k) If and whenever the Company shall grant to the holders of Common Stock, as such, rights or warrants to subscribe for or to purchase, or any options for the purchase of, Common Stock or securities convertible into or exchangeable for or carrying a right, warrant or option to purchase Common Stock, the Company may at its option elect concurrently therewith to grant to each Registered Holder as of the record date for such transaction of the Bridge Warrants then outstanding, the rights, warrants or options to which each Registered Holder would have been entitled if, on the record date used to determine the shareholders entitled to the rights, warrants or options being granted by the Company, the Registered Holder were the holder of record of the number of whole shares of Common Stock then issuable upon exercise of his or her Bridge Warrant. If the Company shall so elect under this Subsection 6(k), then such grant by the Company to the holders of the Bridge Warrants shall be in lieu of any adjustment which otherwise might be called for pursuant to this Section 6. 7. Fractional Warrants and Fractional Shares. If the number of shares of Common Stock purchasable upon the exercise of each Bridge Warrant is adjusted pursuant to Section 6, the Company nevertheless shall not be required to issue fractions of shares, upon exercise of the Bridge Warrant or otherwise, nor to distribute certificates that evidence fractional shares. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Registered - 11 - Holder an amount in cash equal to such fraction multiplied by the Fair Market Value of one share of Common Stock as of the date of exercise. 8. Warrant Holders Not Deemed Shareholders. No holder of Bridge Warrants shall, as such, be entitled to vote or to receive dividends or be deemed the holder of Common Stock that may at any time be issuable upon exercise of such Bridge Warrants for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the holder of Bridge Warrants, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue or reclassification of stock, change of par value or change of stock to no par value, consolidation, merger or conveyance or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights, until such Holder shall have exercised such Bridge Warrants and been issued shares of Common Stock in accordance with the provisions hereof. 9. Rights of Action. All rights of action with respect to this Agreement are vested in the respective Registered Holders of the Bridge Warrants, and any Registered Holder of a Bridge Warrant, without consent of the holder of any other Bridge Warrant, may, in his own behalf and for his own benefit, enforce against the Company his right to exercise his Bridge Warrant for the purchase of shares of Common Stock in the manner provided herein. 10. Agreement of Warrant Holders. Every holder of any Bridge Warrant, by his acceptance thereof, consents and agrees with the Company and every other holder of any Bridge Warrant that: (i) The Bridge Warrants are transferable only on the registry books of the Company by the Registered Holder thereof in person or by his or her attorney duly authorized in writing and only if such Bridge Warrants are surrendered at the office of the Company, duly endorsed or accompanied by a proper instrument of transfer satisfactory to the Company, in its sole discretion, together with payment of any applicable transfer taxes; and (ii) The Company may deem and treat the person in whose name the Bridge Warrant is registered as the holder and as the absolute, true and lawful owner thereof for all purposes, and the Company shall not be affected by any notice or knowledge to the contrary, except as otherwise expressly provided in Section 3. 11. Investment Representation and Legend. The holder, by acceptance of the Bridge Warrants, represents and warrants to the Company that it is acquiring the Bridge Warrants and the shares of Common Stock (or other securities) issuable upon the exercise hereof for investment purposes only and not with a view towards the resale or other distribution thereof and agrees that the Company may affix upon this Bridge Warrant the following legend: - 12 - "This Warrant has been issued in reliance upon the representation of the holder that it has been acquired for investment purposes and not with a view towards the resale or other distribution thereof. Neither this Warrant nor the shares issuable upon the exercise of this Warrant have been registered under the Securities Act of 1933, as amended." The holder, by acceptance of this Bridge Warrant, further agrees that the Company may affix the following legend to certificates for shares of Common Stock issued upon exercise of this Bridge Warrant: "The securities represented by this certificate have been issued in reliance upon the representation of the holder that they have been acquired for investment and not with a view toward the resale or other distribution thereof, and have not been registered under the Securities Act of 1933, as amended. Neither the securities evidenced hereby, nor any interest therein, may be offered, sold, transferred, encumbered or otherwise disposed of unless either (i) there is an effective registration statement under said Act relating thereto or (ii) the Company has received an opinion of counsel, reasonably satisfactory in form and substance to the Company, stating that such registration is not required." 12. Cancellation of Bridge Warrants. If the Company shall purchase or acquire any Bridge Warrant or Bridge Warrants, by redemption or otherwise, each such Bridge Warrant shall thereupon be and canceled by it and retired. The Company shall also cancel the Bridge Warrant or Bridge Warrants following exercise of any or all thereof or delivered to it for transfer, split up, combination or exchange. 13. Modification of Bridge Warrant. The terms of the Bridge Warrants shall not be modified, supplemented or altered in any respect except with the consent in writing of the Registered Holders representing at least a majority of the Bridge Warrants then outstanding; provided, that, no change in the number or nature of the securities purchasable upon the exercise of any Bridge Warrant, or the Warrant Price therefor, or the acceleration of the Warrant Expiration Date, shall be made without the consent in writing of the Registered Holder of the Bridge Warrant, and in compliance with applicable law. 14. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed by means of first class registered or certified mail, postage prepaid as follows: if to the Registered Holder of a Bridge Warrant, at the address of such holder as shown on the registry books maintained by the Company; if to the Company, at 555 17th St., Suite 3310, Denver, CO 80202, or at such other address as may have been furnished to the Registered Holder in writing by the Company. 15. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without reference to principles of conflict of laws. - 13 - 16. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company, the Registered Holder and their respective successors and assigns, and the holders from time to time of the Bridge Warrants. Nothing in this Bridge Warrant is intended nor shall be construed to confer upon any other person any right, remedy or claim, in equity or at law, or to impose upon any other person any duty, liability or obligation. 17. Registration Rights. The rights of the holder hereof with respect to the registration under the Securities Act of 1933, as amended, of the shares of Common Stock issuable upon the exercise of this Bridge Warrant are set forth in the Purchase Agreement. IN WITNESS WHEREOF, the Company has caused this Bridge Warrant to be duly executed as of the date first above written. BION ENVIRONMENTAL TECHNOLOGIES, INC. By: ---------------------------------- Authorized Officer - 14 - SUBSCRIPTION FORM To Be Executed by the Registered Holder in Order to Exercise Bridge Warrant The undersigned Registered Holder hereby irrevocably elects to exercise __________ Bridge Warrants represented by this certificate, and to purchase the securities issuable upon the exercise of such Bridge Warrants, and requests that certificates for such securities shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- [please print or type name and address] and be delivered to -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- [please print or type name and address] and if such number of Bridge Warrants shall not be all the Bridge Warrants evidenced by this Warrant Certificate, that a new Bridge Warrant for the balance of such Bridge Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. The undersigned represents that the exercise of the within Bridge Warrant was solicited by a member of the National Association of Securities Dealers, Inc. If not solicited by an NASD member, please write "unsolicited" in the space below. --------------------------------- (Name of NASD Member) Dated: X -------------------------- --------------------------------- --------------------------------- --------------------------------- Address --------------------------------- Taxpayer Identification Number --------------------------------- Signature Guaranteed - 15 - ASSIGNMENT To Be Executed by the Registered Holder In Order to Assign Bridge Warrant FOR VALUE RECEIVED,________________________________________________hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- [please print or type name and address] ___________________________ of the Bridge Warrants represented hereby, and hereby irrevocably constitutes and appoints - -------------------------------------------------------------------------------- Attorney to transfer this Bridge Warrant on the books of the Company, with full power of substitution in the premises. Dated: X ---------------------------- --------------------------------------- Signature Guaranteed THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A MEMBER OF THE MEDALLION STAND PROGRAM. - 16 - -----END PRIVACY-ENHANCED MESSAGE-----