0000948830-01-500489.txt : 20011030 0000948830-01-500489.hdr.sgml : 20011030 ACCESSION NUMBER: 0000948830-01-500489 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20011026 FILER: 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: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-72332 FILM NUMBER: 1768109 BUSINESS ADDRESS: STREET 1: 18 EAST 50TH STREET STREET 2: 10TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 3032940750 MAIL ADDRESS: STREET 1: 18 EAST 50TH ST STREET 2: 10TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: RSTS CORP DATE OF NAME CHANGE: 19930328 S-2 1 bions2.txt BION ENVIRONMENTAL TECH S-2 As Filed with the Securities and Exchange Commission on October 26, 2001 Registration Statement No. 333-_______ ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT of 1933 BION ENVIRONMENTAL TECHNOLOGIES, INC. (Exact Name of Registrant in its Charter) Colorado 84-1176672 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 18 East 50th Street, 10th Floor New York, New York 10022 (212) 758-6622 (Address and telephone number of principal executive offices and principal place of business) David J. Mitchell, Chairman of the Board Bion Environmental Technologies, Inc. 18 East 50th Street, 10th Floor New York, New York 10022 (212) 758-6622 (Name, address and telephone number of agent for service) Copies to: Stanley F. Freedman, Esq. Krys Boyle Freedman & Sawyer, P.C. 600 Seventeenth Street, Suite 2700 South Denver, Colorado 80202-5427 (303) 893-2300 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [ ] If any of the securities registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _____________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a)of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. CALCULATION OF REGISTRATION FEE ============================================================================= Proposed Proposed Maximum Maximum Title of Each Class Offering Aggregate Amount of of Securities to be Amount to be Price Per Offering Registration Registered Registered Share Price Fee _____________________________________________________________________________ Common Stock, 12,852,281 $0.81 $10,410,347.60 $2,602.58 no par value (1) (2) (2) ============================================================================= (1) To be offered by Converting Holders. (2) Estimated solely for the purpose of computing the amount of registration fee based on the average of the closing bid and ask prices of our Common Stock on the OTC Bulletin Board on October 24, 2001 which was $0.805 per share. PROSPECTUS SUBJECT TO COMPLETION DATED OCTOBER 26, 2001 ____________________________________________________________________________ The information in this prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. BION ENVIRONMENTAL TECHNOLOGIES, INC. 12,852,281 Shares of Common Stock to be Offered by Converting Holders The securities offered by this prospectus include 12,852,281 shares to be offered for resale by the holders of certain warrants and debt instruments. The shares to be offered for resale may be issued to the holders upon the exercise of warrants or the conversion of the debt instruments they hold. These persons may be deemed to be "underwriters" within the meaning of the Securities Act. We will receive proceeds from the exercise of warrants, but not from the conversion of currently outstanding debt. See "Use of Proceeds." Our Common Stock is traded on the OTC Bulletin Board under the symbol "BION." On October 24, 2001, the reported closing price for our Common Stock on the OTC Bulletin Board was $0.76. ____________________________ This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss. SEE "RISK FACTORS" BEGINNING ON PAGE 7. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or passed upon the adequacy or accuracy of the prospectus. Any representation to the contrary is a criminal offense. We anticipate that sales may be effected from time to time, by or for the accounts of the Converting Holders, in the over-the-counter market, in negotiated transactions or otherwise. Sales, if any, will be made through broker-dealers acting as agent for the converting holders or to broker-dealers who may purchase the Common Stock as principals and thereafter sell the shares from time to time in the over-the-counter market, in negotiated transactions or otherwise. Sales, if any, will be made at market prices prevailing at the times of the sales or at negotiated prices. See "Plan of Distribution" beginning on page 19. The date of this Prospectus is __________, 2001 1 AVAILABLE INFORMATION We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith file reports and other information with the Securities and Exchange Commission. Such reports and other information filed by us can be inspected and copied at the public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Requests for copies should be directed to the Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC- 0330 for more information on the public reference rooms. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically. We have filed with the Commission a Registration Statement on Form S-2 of which this Prospectus constitutes a part, under the Securities Act of 1933, as amended. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules of the Commission. For further information pertaining to us, reference is made to the Registration Statement. Statements contained in this Prospectus or any document incorporated herein by reference concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission. Copies of the Registration Statement are on file at the offices of the Commission, and may be inspected without charge at the offices of the Commission, the addresses of which are set forth above, and copies may be obtained from the Commission at prescribed rates. The Registration Statement has been filed electronically through the Commission's Electronic Data Gathering, Analysis and Retrieval System and may be obtained through the Commission's Web site (http://www.sec.gov). 2 TABLE OF CONTENTS PAGE PROSPECTUS SUMMARY ......................................... 4 RISK FACTORS ............................................... 7 COMPANY INFORMATION ........................................ 13 USE OF PROCEEDS ............................................ 13 DETERMINATION OF OFFERING PRICE ............................ 13 RECENT MATERIAL CHANGES IN OUR BUSINESS ................... 14 CONVERTING HOLDERS ......................................... 16 PLAN OF DISTRIBUTION ....................................... 18 DESCRIPTION OF COMMON STOCK ................................ 20 EXPERTS .................................................... 21 LEGAL MATTERS .............................................. 21 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF OFFICERS AND DIRECTORS ......... .......................... 21 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ............ 22 3 PROSPECTUS SUMMARY The following is a summary of the pertinent information regarding this offering. This summary is qualified in its entirety by the more detailed information and financial statements and related notes incorporated by reference in this Prospectus. The Prospectus should be read in its entirety, as this summary does not contain all the facts necessary to make an investment decision. The Company ----------- Bion Environmental Technologies, Inc. ("Bion," "we," "us" or "our") is an environmental services company focused on the needs of confined animal feeding operations (CAFO's). We are engaged in two main areas of activity: waste stream remediation and organic soil and fertilizer production. Our waste remediation service business provides CAFO's, primarily in the swine and dairy industries, with treatment for animal waste outputs. In this regard, we treat the entire waste stream in a manner which cleans and reduces the waste stream thereby mitigating pollution of the air, water and soil, while creating value- added organic soil and fertilizer products. Bion's soil and fertilizer products are being used for a variety of applications including school athletic fields, golf courses and home and garden applications. Our principal offices are located at 18 East 50th Street, 10th Floor, New York, New York 10022, and our phone number is (212) 758-6622. The Offering ------------ Securities Offered: Included in the shares being offered hereby are 12,094,143 shares that may be issued upon the conver- sion of convertible notes that are currently outstand- ing. Also included in the shares being offered hereby are a total of 758,138 shares that may be issued upon the exercise of currently outstanding warrants issued to holders of convertible debt. These shares are to be offered by the holders of the warrants and convertible notes. The number of shares which may be issued upon conversion of the convertible notes is based on an assumed conversion rate of $0.80 per share and interest is calculated through April 29, 2002, the automatic conversion date of each note. The actual conversion rate may be greater and/or the conversion date may be earlier, so fewer shares may actually be issued. The holders of the warrants and convertible notes are referred to in this document as the "Converting Holders." It is currently unknown how many of the Converting Holders will exercise their warrants to purchase shares of our Common Stock. The actual number of shares that would be issued upon conversion of the notes is also unknown. We also do not know whether any Converting Holders will decide to sell any of these shares into the market. 4 Offering Price: The shares being offered by Converting Holders who decide to resell their shares into the marketplace from time to time, will be sold at the then current market price. Common Stock to be 26,156,096 shares. The number of shares outstanding Outstanding after after the offering assumes that the Converting Holders Offering exercise all of their warrants to purchase shares of our Common Stock and that all of the notes are con- verted into Common Stock at $.80 per share. Prior to this offering, as of October 22, 2001, we had 13,303,815 shares issued and outstanding. Dividend Policy We do not anticipate paying dividends on our Common Stock in the foreseeable future. Use of Proceeds The shares offered by this prospectus may be sold by Converting Holders and we will not receive any proceeds of the offering, except that we will receive proceeds from any exercise of the warrants. Risk Factors This offering involves a high degree of risk, elements of which include: - We Have a Very Limited Operating History - We Have Incurred Substantial Losses and May Never Achieve Profitability - We Need Additional Working Capital; The Report of our Accountants Contains a "Going Concern" Qualification - Our Future Operations Will Depend on the Efforts of our Management Team and our Business Will Suffer if We Lose the Services of Any Key Employees - We Have Numerous Agreements with Related Parties Which May Create Conflicts of Interest that Could Hurt our Business - Our Management Beneficially Owns over 50% of our Stock and Can Control the Election of All of our Directors - The Development of our Technology Has Been Limited to a Few Markets; We May Not Attract Enough Customers to be Successful - We Face Intense Competition Which Could Adversely Affect our Financial Performance - Our Products Could Become Obsolete; We May Not be Able to Keep Up with Changes in Technology - Our Patent and Trade Secret Protection Efforts May Not be Adequate to Protect our Technology - Our Business is Affected by Government Regulations Which Change - We Face Risks of Litigation Resulting from Improper Operation of our Systems - We are Not Sure How We Will Use the Proceeds of Any Warrant Exercises 5 - The Exercise Price of our Warrants is Not Based on Any Objective Criteria of Value - Resales of Outstanding Restricted Shares Could Hurt the Market Price of our Stock - We do Not Expect to Pay Dividends - Our Business Could Make Us Liable for Damages for Which we do Not Have Adequate Insurance - The Market for our Shares is Very Limited and May Not be Maintained - The Market for our Common Stock is Adversely Affected by the "Penny Stock" Rules - NASD Sales Practice Requirements Adversely Affect the Market for Our Common Stock - Our Results of Operations May be Affected by Non- cash Charges - Conversion of Outstanding Convertible Debt to Stock and Exercise of Warrants Will Reduce the Ownership Percentage of Existing Shareholders 6 RISK FACTORS Prospective investors should consider carefully, in addition to the other information in this Prospectus, the following: The securities being offered hereby are speculative in nature and involve a high degree of risk. Following is a summary discussion of the risk factors applicable to an investment in the securities. Prospective investors should thoroughly consider all of the risk factors discussed below and should understand that there is substantial risk they will lose all or part of their investment. No person should consider investing who cannot afford to lose his entire investment or who is in any way dependent upon the funds that he is investing. 1. WE HAVE A VERY LIMITED OPERATING HISTORY. All of our business activities are conducted through our subsidiaries. Potential investors should be aware of the difficulties faced by a new enterprise, especially in view of the intense competition from existing and more established companies in the wastewater, waste management, environmental control and soils products businesses. During the past fiscal year we essentially curtailed our commercial operations to focus on research and development activities associated with the development of our second generation system. Consequently, we have very little history of commercial operations and we have never achieved any significant revenues. 2. WE HAVE INCURRED SUBSTANTIAL LOSSES AND MAY NEVER ACHIEVE PROFITABILITY. From inception to date, neither we nor our subsidiaries have ever sustained any profitable operations. During the year ended June 30, 2001 we had a net loss of $15,553,223 and through June 30, 2001 we have total losses from our inception of $39,380,101. We are in the process of completing research and development of our second generation of Bion Nutrient Management Systems and expect to commence sales of these systems during our current fiscal year. Although we expect to eventually generate sufficient revenues from sales of these systems and the related BionSoil(R) to pay our future operating expenses, there can be no assurance that profitable operations will ever be achieved or sustained. We are still dependent upon infusions of capital from investors and proceeds from loans to enable us to continue in business. We believe that since we have curtailed sales efforts of our first generation systems and are not yet finished with the development of our second generation system, we will not generate sufficient operating cash flow to meet our needs in the near term without additional external financing. There is no assurance that our efforts to obtain such financing will be successful. Any failure on our part to do so will have a material adverse impact on us and may cause us to cease operations. In the event we are unable to achieve sustained profitable operations in the future, it is likely that any investment in our Common Stock will ultimately be lost. 3. WE NEED ADDITIONAL WORKING CAPITAL; THE REPORT OF OUR ACCOUNTANTS CONTAINS A "GOING CONCERN" QUALIFICATION. We have incurred losses from our inception totaling $39,380,101 at June 30, 2001, and we have thus far failed to generate adequate working capital from operations. As of June 30, 2001, we had a working capital deficit of 7 $7,028,315. Our auditors have included an explanatory paragraph in the auditors' opinion, noting that there is substantial doubt as to our ability to continue as a going concern. Our audited financial statements for the fiscal year ended June 30, 2001 have been prepared assuming that we will continue as a going concern. Our continued losses without additional equity capital raise substantial doubt about our ability to continue in business during the next twelve months. 4. OUR FUTURE OPERATIONS WILL DEPEND ON THE EFFORTS OF OUR MANAGEMENT TEAM AND OUR BUSINESS WILL SUFFER IF WE LOSE THE SERVICES OF ANY KEY EMPLOYEES. We are completely dependent upon the efforts and abilities of our team of officers and directors to manage our business. We do not currently carry any "key man" life insurance coverage on any of our employees. Although none of our officers or directors has experience in the management of any profitable entity that has engaged in our area of business, the loss of the services of any of these persons could have a material adverse impact on our business, results of operations and financial condition. 5. WE HAVE NUMEROUS AGREEMENTS WITH RELATED PARTIES WHICH MAY CREATE CONFLICTS OF INTEREST THAT COULD HURT OUR BUSINESS. We have entered into a Management Agreement with D2 Co., LLC ("D2") which has resulted in David J. Mitchell becoming our President and in our retention of Summerwind Restructuring, Inc. as a consultant. We have also issued warrants to D2 that will allow it to purchase 20% of our "fully- diluted" outstanding shares under certain circumstances. In addition, we have entered into an employment agreement with Jere Northrop and a consulting agreement with LoTayLingKyur, Inc. for the services of Mark A. Smith. We have entered into numerous other agreements with related parties. We believe that all of these agreements were negotiated on terms at least as favorable to us as those which could have been obtained from unaffiliated persons; however, our business, results of operations and financial condition could be materially adversely affected by conflicts of interest. 6. OUR MANAGEMENT BENEFICIALLY OWNS OVER 50% OF OUR STOCK AND CAN CONTROL THE ELECTION OF ALL OF OUR DIRECTORS. Present management beneficially controls in excess of 50% of our outstanding Common Stock and can elect all of our directors, appoint our officers and control our affairs and operations. Such control by management could materially adversely affect our business, results of operations and financial condition. D2, Mark A. Smith, Jere Northrop, Jon Northrop, LoTayLingKyur, Inc., and Dublin Holding, Ltd. are parties to a shareholders' agreement which, among other things, allows D2 to designate three board members and, with our consent, nominate a fourth. Our Articles of Incorporation do not provide for cumulative voting. Mark Smith and certain entities related to him which own shares of our Common Stock (the "Smith Shares") have entered into a voting agreement that gives David Mitchell, our Chairman, President and CEO, the power to vote all of the Smith Shares as to most matters, but Mr. Smith will still have the right to vote the Smith Shares with respect to a sale of substantially all of our assets or a merger. The voting agreement is purely contractual and is not a formal voting trust. 8 7. THE DEVELOPMENT OF OUR TECHNOLOGY HAS BEEN LIMITED TO A FEW MARKETS; WE MAY NOT ATTRACT ENOUGH CUSTOMERS TO BE SUCCESSFUL. Our wastewater treatment systems to date have been developed and marketed to certain agricultural and food processing applications and have not yet been expanded into other markets. We have not yet completed the development of all of the wastewater treatment system applications that will be necessary to address targeted market applications and geographic areas and we anticipate a continuing need for the development of additional applications. During the fiscal year ended June 30, 2001, we invested substantially in developing our second generation system. This upgraded system is designed to operate using significantly lower water volume and less energy. Although management believes that our existing technology is sufficient to support development of additional commercial applications, no assurance can be given that new applications can be developed or that existing and/or new applications will achieve commercially viable sales levels. We have not conducted formal market studies with respect to our technology and services. We anticipate that the achievement of any significant degree of market acceptance for our wastewater treatment systems and products will require substantial marketing efforts and the expenditure of significant amounts of funds to inform potential customers of the distinctive characteristics and benefits of such products. We cannot give any assurances that our targeted customers will accept our proposed products. We also cannot give any assurance that we will ever realize substantial revenues from the sale of our products. 8. WE FACE INTENSE COMPETITION WHICH COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE. Although we believe that our systems offer many significant advantages over other competing technologies/systems, competition in the biological wastewater treatment industry is intense. We are in direct competition with local, regional and national engineering and environmental consulting firms and soils products companies. Some of our competitors may be capable of developing soils products or waste and wastewater treatment systems similar to ours or based on other competitive technologies. Many of our competitors are well-established and have greater financial and other resources than we do. 9. OUR PRODUCTS COULD BECOME OBSOLETE; WE MAY NOT BE ABLE TO KEEP UP WITH CHANGES IN TECHNOLOGY. Our business is susceptible to changing technology. Although we intend to continue to develop and improve our treatment systems, there is no assurance that funds for such expenditures will be available or that our competitors will not develop similar or superior capabilities. 10. OUR PATENT AND TRADE SECRET PROTECTION EFFORTS MAY NOT BE ADEQUATE TO PROTECT OUR TECHNOLOGY. We have limited patent protection on our soils products and also on certain aspects of our wastewater treatment systems technology. We also possess certain proprietary processes. We intend to obtain additional patents or other appropriate protection for our technology. Additionally, we use nondisclosure contract provisions and license arrangements which prohibit the disclosure of our proprietary processes. However, there can be no assurance 9 that we can effectively protect against unauthorized duplication or the introduction of substantially similar products. Our ability to compete with other companies is materially dependent upon the proprietary nature of our patents and technologies. We cannot give assurances that we will be able to obtain any additional key patents or other protection for our technology. In addition, if any of our key patents or proprietary rights were invalidated, there could be an adverse effect on our business, results of operations and financial condition. 11. OUR BUSINESS IS AFFECTED BY GOVERNMENT REGULATIONS WHICH CHANGE. We are a provider of systems and services that result in the reduction of pollution and, therefore, we are not under direct enforcement or regulatory pressure. We are involved, however, in waste and wastewater treatment and are impacted by environmental regulations in at least three different ways: (1) our marketing and sales success depends, to a substantial degree, on the pollution clean-up requirements of various governmental agencies, from the Environmental Protection Agency at the federal level to state and local agencies; (2)our system design and performance criteria must be responsive to the changes in federal, state and local environmental agencies' effluent standards and other requirements; and (3) our system installations and operations require governmental permits or approvals in many jurisdictions. We are also a manufacturer and provider of BionSoil(R) products such as potting soils, soil amendments and fertilizers. Some state and federal regulatory agencies have standards these products must meet to be sold as soil amendment or fertilizer products in various markets. The production and sales of our BionSoil(R) products currently meet relevant federal and state requirements. These regulations can change which creates a level of unpredictability. We are continually reviewing current regulations and potential changes that may affect our business and are making necessary compliance efforts in all jurisdictions in which we do business. We believe that Bion is currently in compliance with all applicable federal, state and local regulations. We are in the business of helping our customers solve problems associated with their discharge of wastewater into the environment, and most of our systems and services are subject to federal, state and local government regulation, and many are subject to extensive testing procedures. The effects of rulings of regulatory bodies could delay our marketing efforts for a long time and ultimately could prevent the completion of projects. The regulations pertaining to the environment which may impact our systems are continually changing. While we believe that such regulatory changes are favorable to our business since such regulations may require the use of our systems, there can be no assurance that, in the future, such regulations will not cause us additional economic expense or be a materially adverse effect on our business, results of operations and financial condition. 12. WE FACE RISKS OF LITIGATION RESULTING FROM IMPROPER OPERATION OF OUR SYSTEMS. In order for our waste and waste water treatment systems to function properly, the systems must be operated in accordance with our specifications. In the event that our systems are not operated properly and environmental violations or other problems occur as a result, it is possible that we could be named as a defendant in litigation brought by governmental agencies and/or 10 individuals. Such litigation could seek, among other things, damages, equitable remedies, punitive damages and penalties. In fact, we were named as a defendant, along with the owners of one of our first generation systems, in just such an action filed by the Attorney General of the State of Illinois alleging environmental violations associated with the operation of a hog farm. While we were able to settle that litigation for approximately $9,000, there can be no assurance that similar litigation will not occur in the future. Litigation of this nature could damage our reputation. 13. WE ARE NOT SURE HOW WE WILL USE THE PROCEEDS OF ANY WARRANT EXERCISES. To the extent that we receive any proceeds from the exercise of currently outstanding warrants, these proceeds have been allocated by us to working capital for general corporate purposes. Specific uses of these funds will depend upon the business judgment of our management. 14. THE EXERCISE PRICE OF OUR WARRANTS IS NOT BASED ON ANY OBJECTIVE CRITERIA OF VALUE. The exercise price of our warrants was determined by us based on management's perceptions of future market conditions at the time the warrants were sold. The exercise prices of all the warrants do not have any direct relationship to our current assets, earnings, book value or any other objective criteria of value. Such price should not be regarded as an indication of any future value of the shares that underlie the warrants. Bion has the unilateral right to reduce the exercise price of warrants and may or may not elect to do so with one or more classes of warrants. 15. RESALES OF OUTSTANDING RESTRICTED SHARES COULD HURT THE MARKET PRICE OF OUR STOCK. Of our shares of Common Stock currently outstanding a significant number are "restricted securities" which may in the future be sold upon compliance with Rule 144 adopted under the Securities Act of 1933, as amended. Generally, Rule 144 provides that a person holding "restricted securities" for a period of at least one year may sell every three months, in brokerage transactions, an amount equal to the greater of one percent of our outstanding shares of Common Stock or the average weekly reported volume of trading for the securities. There is no limitation on the amount of "restricted securities" which may be sold by a person who has been the beneficial owner of such restricted securities for more than two years, and has not been an "affiliate" for at least 90 days prior to the date of such sales. Investors should be aware that such sales under Rule 144 may, in the future, cause the price of our Common Stock to drop. 16. WE DO NOT EXPECT TO PAY DIVIDENDS. Investors are cautioned that we have never paid any cash dividends on any class of stock in the past. Due to our present financial status and our contemplated financial requirements, we do not anticipate paying any cash dividends upon any class of stock in the immediately foreseeable future. 11 17. OUR BUSINESS COULD MAKE US LIABLE FOR DAMAGES FOR WHICH WE DO NOT HAVE ADEQUATE INSURANCE. We are in the business of helping our customers solve problems associated with their discharge of waste and wastewater into the environment. As we do not ourselves discharge any substantial waste of any kind during the normal course of our business, we do not consider the risk of potential liability associated with damage to the environment to be substantial, and do not have insurance coverage with respect to such risks. Presently we carry only nominal amounts of insurance coverage to cover relatively standard business risks. Management believes such coverage to be adequate for our current operations. It is possible, however, that circumstances might potentially exist that could cause us to be held liable for damage to the environment, such as the negligent design of a system resulting in the aggravation of an existing wastewater problem. We could also be subject to liabilities resulting from other business risks in excess of our current policy amounts. Any such liability, if imposed, could be substantial and would, in all likelihood, be an adverse effect on our business, results of operations and financial condition. 18. THE MARKET FOR OUR SHARES IS VERY LIMITED AND MAY NOT BE MAINTAINED. Investors should be aware that our Common Stock trades on the OTC Bulletin Board, that there is currently only an extremely limited and "thin" trading market in our Common Stock, and there is no assurance that it will continue or that any active trading will occur. 19. THE MARKET FOR OUR COMMON STOCK IS ADVERSELY AFFECTED BY THE "PENNY STOCK" RULES. Our Common Stock is currently defined as a "penny stock" under the Exchange Act and rules of the Securities and Exchange Commission. The Exchange Act and such penny stock rules generally impose additional sales practices and disclosure requirements on broker-dealers who sell our securities to persons other than "accredited investors" or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, the broker-dealer must make a written suitability determination for each purchaser and receive the purchaser's written agreement prior to the sale. In addition, the broker-dealer must make certain required disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, and the compensation to be received by the broker-dealer and certain associated persons, provide monthly account statements showing the market value of each penny stock held in a customer's account, and deliver certain standardized risk disclosures required by the Securities and Exchange Commission. Consequently, the penny stock rules affect the ability of broker-dealers to make a market in or trade our shares and may also affect the ability of purchasers of shares to resell those shares in the public market. 20. NASD SALES PRACTICE REQUIREMENTS ADVERSELY AFFECT THE MARKET FOR OUR COMMON STOCK. In addition to the "Penny Stock" rules described above, the NASD has adopted rules that require that, in recommending an investment to a customer, that a broker-dealer have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced 12 securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers' financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, and this has an adverse effect on the market for our shares. 21. OUR RESULTS OF OPERATIONS MAY BE AFFECTED BY NON-CASH CHARGES. During the year ended June 30, 2001 we recorded significant non-cash charges. In some cases we expect to incur such charges in the future, including those charges related to beneficial features of equity instruments exchanged and amortization of debt discount as interest expense. These charges are related to transactions in which stock options and warrants are used, and are likely to be incurred on a one-time or sporadic basis. Results of operations could be materially adversely affected by these non-cash charges. 22. CONVERSION OF OUTSTANDING CONVERTIBLE DEBT TO STOCK AND EXERCISE OF WARRANTS WILL REDUCE THE OWNERSHIP PERCENTAGE OF EXISTING SHAREHOLDERS. The conversion of outstanding convertible debt to stock and exercise of warrants will result in a significant reduction in the respective percentage interests of Bion and voting power held by the shareholders, other than those participating in the conversion exercise. We expect to issue additional shares of our Common Stock, warrants and options in connection with further financings. COMPANY INFORMATION This Prospectus is accompanied by a copy of our most recent Annual Report on Form 10-KSB for our fiscal year ended June 30, 2001, which report is incorporated by reference into this Prospectus in its entirety. USE OF PROCEEDS We will not receive any proceeds from the sale of the Common Stock being registered hereunder for sale by the Converting Holders. However, some of the Converting Holders' shares being registered are to be issued pursuant to the terms of currently outstanding warrants. If any of these warrants are exercised, we would receive certain proceeds. Any proceeds received pursuant to the exercise of these warrants would be used for general working capital purposes. DETERMINATION OF OFFERING PRICE The shares being offered by Converting Holders will be sold at the market price as of the date of sale. The exercise price of the Warrants was arbitrarily determined by us and set at $1.50 per share. Our Common Stock is traded on the OTC Bulletin Board under the symbol "BION". On October 18, 13 2001, the reported closing price for our Common Stock on the OTC Bulletin Board was $0.81. RECENT MATERIAL CHANGES IN OUR BUSINESS There have been no material changes in our business since June 30, 2001, except as set forth below: Changes in our Management. The following changes in our management were either adopted or ratified by us on September 6, 2001: - We accepted the resignation of Ron Cullis as a member of our Board of Directors. The options held by Mr. Cullis will continue to be exercisable in accordance with their terms. His resignation was not the result of any disagreement with us on any matter relating to our operations, policies or practices. - We accepted the resignation of Jon Northrop as an officer and director of our company and as an officer and director of each of our subsidiaries. Mr. Northrop will continue to serve us as a consultant and will also serve as a member of our Advisory Board. His resignation was not the result of any disagreement with us on any matter relating to our operations, policies or practices. - Mark Smith resigned as Chairman of our Board and was replaced in that capacity by David Mitchell, our President. Mr. Smith will continue to serve as a director and as a member of our Executive Committee. - Mr. Mitchell will serve as the President of both of our subsidiaries. - The resignation of Bart Chilton as our Senior Vice President in August 2001 to continue his career with the United States government was ratified. Severance Agreements. We entered into severance agreements with Jon Northrop and the only other employee that remained in our Denver, Colorado office. As a result, we no longer have any employees in Denver and substantially all of our business operations are conducted out of our office in New York City, although we will continue to have a small office in Denver which will be used by Mr. Northrop in his capacity as our consultant. Restructuring of Notes to Related Parties and Cancellation of Options and Warrants. We have amended the terms of certain notes that we owe to certain related parties and have cancelled certain outstanding options and warrants held by them. The accrued amounts due under notes that we amended are as follows: 14 Amount of Accrued Debt Holder (Accrued to November 1, 2001) ------ ----------------------------- Jon Northrop $ 337,466 Jere Northrop $ 297,531 Harley Northrop $ 397,865 Northrop Family Trust $ 136,150 Edward A. Hennig $ 159,173 M. Duane Stutzman $ 181,106 William J. Crossetta $ 279,000 S. Craig Scott $ 49,804 Dublin Holding Ltd. $3,682,944 Mark Smith Rollover IRA $ 393,556 Kelly Smith Rollover IRA $ 339,870 TOTAL $6,254,465 As the result of these amendments we now have approximately $14.2 million of debt (without non-cash discounts reflected in our balance sheet) in instruments (including accrued interest to November 1, 2001) that will convert into our Common Stock at the same time and at the same price, subject to conversion price caps which differ for the various debt instruments from $1.80 to $2.50 per share. The provisions of the agreements vary for each debt holder, with cancellations of certain options and warrants. All of the subject debt is convertible to shares of our Common Stock or before April 29, 2002, subject to certain conditions precedent. Mark Smith Agreements. - Mark Smith and certain entities related to him which own shares of our Common Stock (the "Smith Shares") entered into a voting agreement that gives David Mitchell, our President and CEO, the power to vote all of the Smith Shares as to most matters, but Mr. Smith will still have the right to vote the Smith Shares with respect to a sale of substantially all of our assets or a merger. The voting agreement is purely contractual and is not a formal voting trust. - In addition, Mr. Smith and certain entities that he controls entered into a separate agreement with us which imposes certain restrictions on the sale and transfer of the Smith Shares and amends the respective terms of five convertible promissory notes payable to Dublin Holding, Ltd, the Mark A. Smith Rollover IRA and the Kelly Smith Rollover IRA to provide that all five of these notes will be automatically and fully converted (with all principal and accrued interest calculated as if they had been held to maturity) into shares of our Common Stock upon the conversion of our outstanding Convertible Bridge Notes and 2001 Convertible Notes at a conversion rate equal to the lesser of (i) $1.80 per share or (ii) the conversion price of our outstanding Convertible Bridge Notes and 2001 Convertible Notes. 15 D2CO, LLC Agreements. We entered into an agreement with D2CO, LLC, Southview, Inc. and Atlantic Partners, LLC, all of which are affiliates of David Mitchell, our President and CEO (collectively, "D2") in which, among other things, we agreed to: - provide that certain compensation to D2 be paid in a deferred manner as set forth in an exhibit to the agreement; - be a party to the voting agreement that gives David Mitchell the power to vote all of the Smith Shares as to most matters; - release Jon Northrop from the restrictions related to the sale of shares of our Common Stock owned by him that are contained in the Shareholders Agreement dated December 23, 1999, as amended; and - amend the SV1 and SV2 Warrants held by D2 so that upon earlier of (i) completion of financing or series of financings large enough to "trigger" the conversion of Bion's outstanding Bridge Notes and 2001 Convertible Notes (collectively "CV Notes") into Bion Common Stock; or (ii) conversion of the CV Notes into Bion Common Stock on April 29, 2002, the outstanding Class SV1 and SV2 Warrants owned by D2 will be adjusted ("Adjusted Warrants") so that D2 owns Adjusted Warrants to purchase a number of shares of Bion Common Stock equal to 20% of the "fully-diluted" outstanding shares, calculated by including (i) the Adjusted Warrants, (ii) the securities issued in the conversion of the CV Notes and other notes, (iii) the securities issued in connection with the subject financing, and (iv) other outstanding options, warrants and/or convertible promissory notes which are exercisable or convertible, as applicable, at a price equal to or lower than the exercise price of the Adjusted Warrants, which Adjusted Warrants will have the same expiration date as the current SV1 and SV2 Warrants and will have an exercise price equal to the lower of $1.00 per share or the conversion price of the CV Notes; provided, however, that for purposes of calculating the number of Adjusted Warrants, no securities outstanding related to any portion of a financing aggregating greater than $10,000,000 will be included in the calculation. As partial consideration for our agreeing to the adjustment to the warrants, Southview agreed to extend the term of the outstanding promissory note (with an accrued balance of $521,039.81 as of July 31, 2001)so that such promissory note could be repaid from the proceeds of a new financing. CONVERTING HOLDERS Included in the securities being offered hereby are 12,852,281 shares being offered for resale by the Converting Holders. Up to 12,094,143 of those shares are issuable upon conversion of notes held by investors. Up to 758,138 shares are issuable upon exercise of warrants held by investors. The shares are being offered for the account of the Converting Holders as set forth in the table below. 16 The following table sets forth information concerning the selling Converting Holders, including: * the estimated maximum number of shares issuable upon conversion of notes; * the number of shares issuable upon exercise of warrants; and * the number of shares offered by each Converting Holder. Bion has no knowledge of the intentions of any Converting Holder to actually sell any of the securities listed under the column "Shares Offered." There are no material relationships between any of the selling security holders and Bion other than those disclosed below: Shares Shares Issuable on Issuable Percent of Conversion on Exercise Common Stock of Notes of Warrants Shares held after Security Holder (1) (2) Offered the Offering --------------- ----------- ----------- ---------- ------------ 2001 Convertible Bridge Notes and Warrants: Ronald Altbach 13,637 2,925 16,562 * Berkley Insurance Co. 1,362,329 300,000 1,662,329 * Bistate Oil 340,865 73,875 414,740 * Bruno Schuschny 13,620 2,925 16,545 * Donald Codignotto 33,604 7,425 41,029 * Stanley Cohen 54,537 11,850 66,387 * Barry Fingerhut 345,634 75,000 420,634 * Steve Gottlieb 100,688 22,200 122,888 * Andrew Gould (A) 10,735 2,363 13,098 * International Jumpers, Ltd. 68,038 14,775 82,813 * Richard Kirshenbaum 34,187 7,500 41,687 * Jonathan Leiterdorf 272,287 59,100 331,387 * Jan Mitchell 269,048 59,100 328,148 * Anthony Orphanos 276,233 60,000 336,233 * Salvatore Zizza (B) 134,727 29,550 164,277 * Joseph Wright (C) 134,727 29,550 164,277 * --------- ------- --------- Total 3,464,896 758,138 4,223,034 Convertible Debt: Jon Northrop 441,170 0 441,170 4.5% Jere Northrop (D) 389,165 0 389,165 5.9% Harley Northrop 520,440 0 520,440 * Northrop Family Trust 178,082 0 178,082 * Edward A. Hennig 208,367 0 208,367 * M. Duane Stutzman 236,883 0 236,883 * William J. Crossetta 365,625 0 365,625 * S. Craig Scott 65,143 0 65,143 * Dublin Holding Ltd. (E) 4,603,681 0 4,603,681 8.8% 17 Mark Smith Rollover IRA (F) 491,947 0 491,947 *(3) Kelly Smith Rollover IRA (G) 424,838 0 424,838 *(3) --------- ------- --------- Total 7,925,341 0 7,925,341 D2 Convertible Notes: D2 Co, LLC (H) 356,250 0 356,250 *(4) Trust Under Deferred Compensation Plan for D2 Co, LLC 347,656 0 347,656 * --------- ------- --------- Total 703,906 703,906 ------------------------- * represents less than 1%. (1) Based on an assumed conversion price of $.80 per share and accrued interest on the notes through April 20, 2002. (2) The warrants may be exercised to purchase shares of Common Stock at $1.50 per share through December 31, 2005. (3) Does not include other shares beneficially owned by Mark Smith and Kelly Smith. (4) Does not include other shares beneficially owned by David Mitchell. ------------------ (A) Andrew Gould is a Director of Bion. (B) Salvatore J. Zizza is a Director of Bion. (C) Joseph Wright is a Director of Bion. (D) Jere Northrop is Chief Technical Officer and a Director of Bion. (E) Dublin Holding, Ltd. is a principal shareholder of Bion. (F) Mark Smith is Secretary and a Director of Bion. (G) Kelly Smith is the wife of Mark Smith, Secretary and a Director of Bion. (H) D2 Co, LLC is owned by David Mitchell, President and a Director of Bion. PLAN OF DISTRIBUTION CONVERTING HOLDERS Included in the shares offered hereby are a total of 758,138 shares that may be issued upon the exercise of 2001 Bridge Warrants that we currently have outstanding. A description of these warrants is contained in Exhibit 10.3 to our Report on Form 8-K dated April 26, 2001, which is incorporated herein by reference. An additional 12,094,143 shares offered hereby may be issued upon the conversion of convertible notes and debt that are also currently outstanding. 18 The number of shares which may be issued upon conversion of the convertible notes is based on an assumed conversion rate of $0.80 per share and interest is calculated through maturity of each note. The actual conversion rate may be greater, and so fewer shares may actually be issued. It is currently unknown how many of the Converting Holders will exercise their warrants to purchase shares of our Common Stock. The actual number of shares that would be issued upon conversion of the notes is also unknown. We also do not know whether any Converting Holders will decide to sell any of these shares into the market. The Common Stock registered hereunder may be sold from time to time by the Converting Holders. Such sales may be made in the over-the-counter market or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated transactions. In connection with such sales the Converting Holders may be deemed to be "underwriters" within the meaning of the Securities Act. At the time of their purchase of the securities, none of the Converting Holders had any agreements or understandings, directly or indirectly, with any person to distribute the securities. The Common Stock may be sold by one or more of the following methods: (i) a block trade in which the broker or dealer so engaged will attempt to sell the Common Stock as agent for the Converting Holders; and (ii) ordinary brokerage transactions and transactions in which the broker solicits purchasers. In effecting sales, brokers or dealers engaged by the Converting Holders may arrange for other brokers or dealers to participate. Brokers or dealers will receive commissions from the Converting Holders in amounts to be negotiated by the holders immediately prior to the sale. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. The Converting Holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the Common Stock against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is therefore unenforceable. EXERCISE OF BRIDGE WARRANTS The shares which may be purchased upon the exercise of the outstanding Warrants are being offered to the holders of those warrants by the Company on a "best efforts" basis. No commissions or fees will be paid to anyone for the solicitation of the exercise of the Warrants. The Warrants are exercisable to purchase one share at a price of $1.50 per share until December 31, 2005. The Warrants are not transferrable. Persons who wish to exercise their Warrants must deliver an executed Warrant with the form of Election to Purchase, properly executed, accompanied with payment in check or money order payable to "Bion Environmental 19 Technologies, Inc." for the number of shares subscribed to the Company. All payments must be received by the Company prior to the termination of the exercise period, and Warrants not exercised prior to the termination of the exercise period will expire. DESCRIPTION OF COMMON STOCK We are authorized to issue 100,000,000 shares of our no par value Common Stock, of which 13,303,815 shares were issued and outstanding as of October 22, 2001. Holders of Common Stock are entitled to cast one vote for each share held of record on all matters presented to shareholders. Shareholders do not have cumulative rights; hence, the holders of more than 50% of the outstanding Common Stock can elect all directors. We have reserved approximately 20,000,000 shares of our Common Stock for issuance under outstanding options, warrants, rights and convertible securities. Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor. In the event of liquidation, holders of Common Stock will share pro rata in any distribution of our assets after payment of all liabilities. We do not anticipate that any dividends on Common Stock will be declared or paid in the foreseeable future. Holders of Common Stock do not have any rights of redemption or conversion or preemptive rights to subscribe to additional shares if issued by us. All of the outstanding shares of our Common Stock are fully paid and nonassessable. Penny Stock and NASD Sales Practices Rules Our Common Stock is currently defined as a "penny stock" under the Exchange Act and rules of the Securities and Exchange Commission. The Exchange Act and such penny stock rules generally impose additional sales practices and disclosure requirements on broker-dealers who sell our securities to persons other than "accredited investors" or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, the broker-dealer must make a written suitability determination for each purchaser and receive the purchaser's written agreement prior to the sale. In addition, the broker-dealer must make certain required disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, and the compensation to be received by the broker-dealer and certain associated persons, provide monthly account statements showing the market value of each penny stock held in a customer's account, and deliver certain standardized risk disclosures required by the Securities and Exchange Commission. Consequently, the penny stock rules affect the ability of broker-dealers to make a market in or trade our shares and may also affect the ability of purchasers of shares to resell those shares in the public market. In addition to the "penny stock" rules described above, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers' financial 20 status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, and this has an adverse effect on the market for our shares. EXPERTS The June 30, 2001 financial statements incorporated by reference in this Prospectus have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report (which contains an explanatory paragraph regarding the Company's ability to continue as a going concern) incorporated herein by reference, and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. LEGAL MATTERS The validity of the issuance of the Common Stock offered hereby will be passed upon for us by Krys Boyle Freedman & Sawyer, P.C., Denver, Colorado. Officers, directors and employees of this law firm own an aggregate of approximately 120,000 shares of our Common Stock. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY COMMON STOCK IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the forgoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. 21 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents that we have filed with the Commission shall be deemed to be incorporated in this Prospectus and to be a part hereof from the date of the filing of such documents: 1. Annual Report on Form 10-KSB for the fiscal year ended June 30, 2001. 2. Amendment on Form 10-KSB/A to the Annual Report on Form 10-KSB for the fiscal year ended June 30, 2001. 3. Current Report on Form 8-K dated September 6, 2001. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for all purposes to the extent that a statement contained in this Prospectus or in any other subsequently filed document which is also incorporated herein by reference modifies or replaces such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. We will provide without charge to each person to whom this Prospectus is delivered, on written or oral request of such person, a copy of any or all documents incorporated by reference in this Prospectus. Requests for such copies should be directed to Bion Environmental Technologies, Inc., 18 East 50th Street, 10th Floor, New York, New York 10022, or (212) 758-6622. 22 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ______________________________________ ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table itemizes our estimated expenses in connection with the issuance and distribution of the securities being registered hereby. SEC Registration Fee.................... $ 2,587 Transfer Agent Fees..................... 1,000 Legal Fees and Expenses................. 6,000 Accounting Fees and Expenses............ 3,000 Miscellaneous........................... 2,413 -------- Total .............................. $ 15,000 ======== ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Colorado Business Corporation Act generally provides that a corporation may indemnify its directors, officers, employees and agents against liabilities and reasonable expenses (including attorneys' fees) incurred in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal (a "Proceeding"), by reason of being or having been a director, officer, employee, fiduciary or agent of the Corporation, if such person acted in good faith and reasonably believed that his conduct in his official capacity with the Corporation was in the best interests of the Corporation (or, with respect to employee benefit plans, was in the best interests of the participants in or beneficiaries of the plan), and in all other cases his conduct was at least not opposed to the Corporation's best interests. In the case of a criminal proceeding, the director, officer, employee or agent must have had no reasonable cause to believe his conduct was unlawful. The Corporation may not indemnify a director, officer, employee or agent in connection with a proceeding by or in the right of the Corporation if such person is adjudged liable to the Corporation, or in a proceeding in which such person is adjudged liable for receipt of an improper personal benefit. Unless limited by the Corporation's Articles of Incorporation, the Corporation shall be required to indemnify a director or officer of the Corporation who is wholly successful, on the merits or otherwise, in defense of any proceeding to which he was a party, against reasonable expenses incurred by him in connection with the proceeding. The foregoing indemnification is not exclusive of any other rights to which those indemnified may be entitled under applicable law, the Corporation's Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors, or otherwise. The Corporation's Articles of Incorporation and Bylaws generally provide for indemnification of directors, officers, employees and agents to the fullest extent allowed by law. II-1 ITEM 16. EXHIBITS Exhibit Number Description of Exhibit ------- ---------------------- 5.1 Opinion of Krys Boyle Freedman & Sawyer, P.C. regarding legality.* 23.1 Consent of BDO Seidman, LLP.* 23.2 Consent of Krys Boyle Freedman & Sawyer, P.C. Contained in Exhibit 5.1.* ______________ * Filed herewith electronically. ITEM 17. UNDERTAKINGS The undersigned Company hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-2 (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering. (5) That, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on October 26, 2001. BION ENVIRONMENTAL TECHNOLOGIES, INC. By: /s/ David J. Mitchell ---------------------------------- David J. Mitchell, Chief Executive Officer, President and Chairman (Principal Executive Officer) Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date(s) indicated. Signatures Title Date /s/ David J. Mitchell ------------------------- Chief Executive Officer, October 26, 2001 David J. Mitchell President and Chairman /s/ David Fuller ------------------------- Principal Accounting October 26, 2001 David Fuller Officer /s/ Mark A. Smith ------------------------- Secretary and Director October 26, 2001 Mark A. Smith /s/ Jere Northrop ------------------------- Chief Technical Officer October 26, 2001 Jere Northrop and Director ------------------------- Director October __, 2001 Salvatore J. Zizza ------------------------- Director October __, 2001 Andrew G. Gould /s/ Joseph R. Wright, Jr. ------------------------- Director October 26, 2001 Joseph R. Wright, Jr. EX-5 3 bionss2ex51.txt BION ENVIRONMENTAL TECH S-2 EX 5.1 EXHIBIT 5.1 KRYS BOYLE FREEDMAN & SAWYER, P.C. TELEPHONE ATTORNEYS AT LAW FACSIMILE (303) 893-2300 SUITE 2700 SOUTH TOWER (303) 893-2882 600 SEVENTEENTH STREET DENVER, COLORADO 80202 October 26, 2001 Board of Directors Bion Environmental Technologies, Inc. 7921 Southpark Place, Suite 200 Littleton, CO 80120 Dear Board of Directors: We have acted as counsel to Bion Environmental Technologies, Inc., a Colorado corporation (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission of a Registration Statement on Form S-2 (the "Registration Statement"), pursuant to which the Company is registering under the Securities Act of 1933, as amended, a total of 12,852,281 shares (the "Shares") of its common stock, no par value (the "Common Stock") for resale to the public. This opinion is being rendered in connection with the filing of the Registration Statement. All capitalized terms used herein and not otherwise defined shall have the respective meanings given to them in the Registration Statement. In connection with this opinion, we have examined the Company's Articles of Incorporation and Bylaws, both as currently in effect; such other records of the corporate proceedings of the Company and certificates of the Company's officers as we have deemed relevant; and the Registration Statement and the exhibits thereto. In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. Based upon the foregoing and subject to the limitations set forth below, we are of the opinion that the Shares to be issued upon the exercise of currently exercisable warrants or the conversion of convertible debt will be duly and validly issued in accordance with their terms and payment to the Company of the consideration specified therein, be duly and validly issued, fully paid and non-assessable. Our opinion is limited to the laws of the State of Colorado, and we express no opinion with respect to the laws of any other jurisdiction. No opinion is expressed herein with respect to the qualification of the Shares under the securities or blue sky laws of any state or any foreign jurisdiction. Page 2 We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We hereby further consent to the reference to us under the caption "Legal Matters" in the prospectus included in the Registration Statement. Very truly yours, KRYS BOYLE FREEDMAN & SAWYER, P.C. By: /s/ Stanley F. Freedman, P.C. Stanley F. Freedman, P.C. EX-23 4 bions2ex231.txt BION ENVIRONMENTAL TECH S-2 EX 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Bion Environmental Technologies, Inc. New York, NY We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement on Form S-2 of our report dated August 10, 2001 (except for Note 6, which is as of August 31, 2001 and Note 10, which is as of September 6, 2001) relating to the consolidated financial statements of Bion Environmental Technologies, Inc. and subsidiaries, appearing in the Company's annual Report on Form 10-KSB for the year ended June 30, 2001. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP BDO Seidman,LLP October 26, 2001 New York, New York