-----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, UlXaw4xbhJtK8p/gQ88bgEUENimBNWhP7QQpwgxD5xdvHXx4nDLxJPCl1aI9EXoC R5quHl0yiNWen428Yf0CtA== 0000949303-97-000005.txt : 19970123 0000949303-97-000005.hdr.sgml : 19970123 ACCESSION NUMBER: 0000949303-97-000005 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 ITEM INFORMATION: Other events FILED AS OF DATE: 19970122 SROS: NASD 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: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19333 FILM NUMBER: 97509266 BUSINESS ADDRESS: STREET 1: 555 17TH ST STREET 2: STE 3310 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032940750 FORMER COMPANY: FORMER CONFORMED NAME: RSTS CORP DATE OF NAME CHANGE: 19930328 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: December 1, 1996 (Date of earliest event reported) Bion Environmental Technologies, Inc. (Exact Name of Registrant as Specified in its Charter Colorado 0-19333 84-1176672 (State of (Commission (I.R.S. Employer Incorporation) File No.) Identification No.) 555 17th Street, Suite 3310, Denver, Colorado 80202 (Address and Zip Code of Principal Executive Offices) Registrant's telephone number including area code: (303) 294-0750 ITEM 5. OTHER EVENTS. (a) (i) Bion Environmental Technologies, Inc., through its wholly-owned subsidiaries Bion Technologies, Inc. and BionSoil, Inc. (collectively referred to as the "Registrant") signed contracts in New York State during December 1996, for the design, permitting, construction oversight and initial operation of a BionSoil NMSO system for a large dairy farm (with a total of 600 cows) and for a combination waste treatment system which will blend food processing wastes with animal waste from a 500 cow dairy. Additionally, during the same period the Registrant completed start-up and initial operation of three BionSoil NMS systems representing 1,200 additional cows in the same area. (ii) Currently the Registrant has ten BionSoil NMS systems in operation in New York, Washington, Florida and North Carolina, six in various stages of construction (ranging from final design to initial operation) in Maryland, New York, Washington and Oregon, and five signed contracts for installations in New York and North Carolina. The BionSoil NMS process is designed for the treatment and disposal of large quantities of untreated livestock waste and wastewater that are produced in large animal raising agricultural facilities. The wastes generated in these types of facilities represent a significant environmental problem for the agricultural industry. The BionSoil NMS system bioconverts these wastes into a marketable by-product, BionSoilO, a nutrient-rich organic soil like product that is saleable in the organic soils and soil enhancers market. The Registrant processes and sells the BionSoil produced in the systems and returns a portion of the wholesale price to the farm. Additionally, the systems treat the wastewater so that it can be reused on the farm and they significantly reduce odors associated with the operation. (b) Effective December 1, 1996, the Registrant entered into an agreement (the "Agreement") with Global Financial Group, Inc. ("GFG") whereby Registrant has engaged GFG to provide investment banking services from December 1, 1996 to November 30, 1998. Under the Agreement GFG has agreed to provide Registrant with advice; to consult with Registrant concerning business and financial planning, corporate organization and structure, financial matters in connection with the operation of the business of Registrant, private and public equity and debt financing, acquisitions, mergers and other similar business combinations, Registrant's relations with its securities holders, preparation and distribution of periodic reports, and shall periodically provide to Registrant an analysis of its financial statements. Registrant will provide GFG with the following compensation for the provision of these services: a warrant to purchase 100,000 shares of Registrant's common stock at $6.00 per share exercisable for a six months period commencing June 1, 1998. Additionally, if, directly or indirectly through the efforts of GFG, Registrant raises not less than $1,250,000, or other amount satisfactory to Registrant by June 30, 1997, GFG shall have earned a warrant to purchase 150,000 shares of Registrant's common stock at $8.00 per share exercisable for a six months period commencing June 1, 1999, and a warrant to purchase 200,000 shares of Registrant's common stock at $12.00 per share exercisable for a six months period commencing June 1, 2001 and expiring December 1, 2001. If at any time prior to the exercise of these warrants Registrant undertakes to register any shares of its common stock pursuant to a form of registration statement which would allow registration of the shares underlying the exercise of these warrants, then Registrant shall include the underlying shares in such registration statement at Registrant's sole cost; PROVIDED, HOWEVER, in the event of a registration statement involving an underwriter, such underwriter shall have the right, in its sole discretion, to impose restrictions on the resale of Registrant's securities issued pursuant hereto and/or eliminate this registration right from the underwritten registration statement in its entirety. Additionally, the agreement between GFG and Registrant effective August 1, 1995 to July 31, 1996 (see Form 8-K dated August 1, 1995) contained warrants to purchase 50,000 shares of Registrant's common stock at $2.00 per share for a period ending July 31, 1996 which warrants have expired, and warrants to purchase 50,000 shares of Registrant's common stock at $4.00 per share for a period ending July 31, 1997 and warrants to purchase 100,000 shares of Registrant's common stock at $6.00 per share for a period ending July 31, 1998 which warrants have been cancelled. However, for services provided to this date under the agreement, Registrant has issued to GFG warrants to purchase 25,000 shares of Registrant's common stock at $6.00 per share for a six months period commencing June 1, 1998, warrants to purchase 50,000 shares of Registrant's common stock at $8.00 per share for a six months period commencing June 1, 1999 and warrants to purchase 25,000 shares of Registrant's common stock at a price of $10.00 per share for a period commencing March 1, 2001 and ending October 1, 2003. A copy of the Agreement is attached hereto as Exhibit 10.1. c) Effective December 15, 1996 Registrant issued an option under Registrant's Fiscal Year 1994 Incentive Compensation Plan to Scott R. Sieck, Manager of Corporate Development and Investor Relations, to purchase up to 50,000 shares of the Registrant's Common Stock at a price of $6.25 exercisable through May 1, 1997. A copy of the option agreement is attached hereto as Exhibit 10.2. d) Effective December 1, 1996 the Registrant and Harley E. Northrop ("Lender") (collectively the "Parties") finalized a credit facility agreement ("Agreement") effective as of October 25, 1996 under which Lender shall make a $500,000 credit facility available to Registrant. Under the terms of the Agreement the entire drawn down balance will be due and payable on December 31, 1999 (with no prepayment penalties should the balance be paid at an earlier date), interest will be paid on the drawn down balance at the rate of 1% per month, at any time after January 1, 1998 the entire outstanding balance may be converted into Units each consisting of one share of restricted stock of Registrant and one warrant to purchase one share of restricted stock of Registrant for a price per unit of $4.50. As additional consideration for entering into the Agreement, for each $5.00 drawn down the Registrant shall issue to Lender one warrant to purchase one share of Registrant's restricted stock at a price of $4.50 per share. As incentive for the Registrant to pay the balance due at an earlier date than December 31, 1999, it was agreed that if Registrant pays the entire balance due on or before December 31, 1998, the quantity of warrants issued will be reduced by 50%. Further, Lender agreed that any warrants issued under the Agreement will be exchanged for Class E-1 Warrants under the exchange offer in e(iii) below. As of the date of this report $85,000 has been advanced under the Agreement. Harley E. Northrop is the father of Jon Northrop (Company's Chief Executive Officer) and Jere Northrop (Company's President). A copy of the Agreement is attached as Exhibit 10.3. e) Effective December 1, 1996 the Registrant initiated a series of actions designed to simplify its capital structure. The following actions were taken: i) On December 20, 1996 Dublin Holding, Ltd. ("DHL") agreed to convert the Company's outstanding debt in the amount of $319,527 into units (the "Units") consisting of one share of the Registrant's common stock plus one class K Warrant (the "Warrants")(each Warrant authorizing the holder to purchase one share of Registrants restricted and legended common stock for a price of $4.50 per share for a period commencing January 1, 2001 and expiring December 31, 2001, which warrants were subsequently converted to Class E-1 Warrants pursuant to the offer described in e(iii) below). A copy of the Agreement is attached hereto as Exhibit 10.4. ii) Effective December 1, 1996 Jon Northrop, Registrant's CEO, Jere Northrop, Registrant's President and COO, and M. Duane Stutzman, Registrant's Treasurer and CFO signed Investor Representation and Subscription Agreements ("Agreements") to purchase 33,334, 33,334, and 13,334 shares of the restricted and legended common stock of the Registrant plus 50,000, 50,000, and 20,000 E-1 Warrants to purchase additional shares of the Registrant's common stock at a per share price of $6.00 for a price of $100,000, $100,000 and $40,000 respectively. Further, each of the officers have notified the Registrant that payment for the subscribed stock would be made by cancellation of salary amounts owed to the officers by the Registrant in the amounts of $100,000, $100,000, and $40,000 respectively, such cancellation and payment to occur upon issuance of the restricted and legended common stock. A copy of the form of the Agreements is attached hereto as Exhibit 10.5. iii) Effective December 1, 1996 through December 31, 1996, the Registrant made an offer (the "Offer") to all holders of warrants to purchase shares of the Registrant's restricted and legended common stock at a price per share of $4.50, to exchange each of their warrants for 1.5 Class E-1 Warrants to purchase shares of the Registrant's restricted and legended common stock at a price per share of $6.00 for a period commencing January 1, 2001 and expiring December 31, 2001. The holders of warrants subject to this offer are primarily officers, directors, members of the Northrop family, Dublin Holding, Ltd.("DHL"), LoTayLingKyur, Inc. ("LTLK"), and principals of DHL and LTLK. All such warrant holders accepted the Offer. A copy of the Offer is attached as Exhibit 10.6. As a result of these actions, $559,527 of short term debt will be converted into 106,509 shares of restricted common stock of the Registrant plus 159,764 class E-1 Warrants and $240,000 of subscribed stock (see e(ii) above). Additionally, 2,300,000 warrants at $4.50 per share have been replaced with 3,450,000 Class E-1 Warrants all exercisable for a 12 months period ending December 31, 2001. As a result, the outstanding warrant structure was simplified so that (with the exception of 14,500 warrants at $3.00, 45,000 warrants at $5.00, and employee options under the Fiscal Year 1994 Incentive Compensation Plan (10,000 at $3.75, 60,000 at $5.00 and 50,000 at $5.25)) no warrants are outstanding at less than $6.00 per share. A copy of the form of the E-1 Warrants is attached hereto as Exhibit 10.7. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. 10.1 Agreement dated December 16, 1996, effective December 1, 1996, with Global Financial Group, Inc. 10.2 Option Agreement with Scott R. Sieck under Fiscal Year 1994 Incentive Compensation Plan. 10.3 Agreement dated December 1, 1996 effective October 25, 1996 with Harley E. Northrop. 10.4 Agreement dated December 20, 1996, with Dublin Holding, Ltd. 10.5 Form of Agreement with Jon Northrop, Jere Northrop and M. Duane Stutzman. 10.6 Offer to Warrant Holders. 10.7 Form of E-1 Warrant. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BION ENVIRONMENTAL TECHNOLOGIES, INC. Date: January 21, 1997 By: /s/ M. Duane Stutzman M. Duane Stutzman, Chief Financial Officer INDEX TO EXHIBITS Financial Statements and Exhibits. 10.1 Agreement dated December 16, 1996, effective December 1, 1996, with Global Financial Group, Inc. 10.2 Option Agreement with Scott R. Sieck under Fiscal Year 1994 Incentive Compensation Plan. 10.3 Agreement dated December 1, 1996 effective October 25, 1996 with Harley E. Northrop. 10.4 Agreement dated December 20, 1996, with Dublin Holding, Ltd. 10.5 Form of Agreement with Jon Northrop, Jere Northrop and M. Duane Stutzman. 10.6 Offer to Warrant Holders. 10.7 Form of E-1 Warrant. EX-10.1 2 Kevin S. Miller December 16, 1996 Page 6 December 16, 1996 Kevin S. Miller, Chairman/President Global Financial Group, Inc. 100 Washington Square, Suite 1319 Minneapolis, MN 55401 Dear Mr. Miller: Upon acceptance this letter will serve as the agreement between Global Financial Group ("GFG") and Bion Environmental Technologies, Inc. ("BIET") concerning BIET's retention of GFG to provide investment banking services from December 1, 1996 to November 30, 1998. 1. BIET. BIET designs, sells, oversees the installation, startup and operation of waste and wastewater treatment systems based on patented and proprietary technology. 2. GFG. GFG is in the business of providing corporate investment banking services, including but not limited to, providing public and non-public financing, introducing merger/acquisition and joint venture candidates, negotiating and other related services including but not limited to making public markets in stocks. 3. Engagement of GFG. BIET engages GFG and GFG accepts such engagement, effective December 1, 1996, to provide BIET with advice; to consult with BIET concerning business and financial planing, corporate organization and structure, financial matters in connection with the operation of the business of BIET, private and public equity and debt financing, acquisitions, mergers and other similar business combinations, BIET's relations with its securities holders, preparation and distribution of periodic reports, and shall periodically provide to BIET analysis of its financial statements. Said advice and consultation shall be provided to BIET in such form, manner and place as BIET reasonably requests. GFG shall not by this Letter Agreement be prevented or barred from rendering services of the same or similar nature, as herein described, or services of any nature whatsoever for, or on behalf of, persons, firms, or corporations other than BIET. Similarly, BIET shall not be prevented or barred from seeking or requiring services of a same or similar nature from persons other than GFG. 4. Compensation. a) BIET shall deliver to GFG upon execution hereof a warrant to purchase 100,000 shares of BIET common stock at $6.00 per share for a period of six months commencing June 1, 1998 and expiring December 1, 1998. b) Additionally, if, directly or indirectly through the efforts of GFG, BIET raises not less than $1,250,000, or other amount satisfactory to BIET by June 30, 1997, GFG shall have earned the following: 1) A warrant to purchase 150,000 shares of BIET common stock at $8.00 per share for a period of six months commencing June 1, 1999 and expiring December 1, 1999; 2) A warrant to purchase 200,000 shares of BIET common stock at $12.00 per share for a period six months commencing June 1, 2001 and expiring December 1, 2001; 3) If at any time prior to the exercise of these warrants BIET undertakes to register any shares of its common stock pursuant to a form of registration statement which would allow registration of the shares underlying the exercise of these warrants, then BIET shall include the underlying shares in such registration statement at BIET's sole cost; PROVIDED, HOWEVER, in the event of a registration statement involving an underwriter, such underwriter shall have the right, in its sole discretion, to impose restrictions on the resale of BIET's securities issued pursuant hereto and/or eliminate this registration right from the underwritten registration statement in its entirety. There is no assurance that any registration statement including the warrants or the shares underlying the warrants will ever be filed or, if filed, will become effective. c) Additionally, the agreement between GFG and BIET effective August 1, 1995 to July 31, 1996 contained warrants to purchase 50,000 shares of BIET common stock at $2.00 per share for a period ending July 31, 1996 which warrants have expired, and warrants to purchase 50,000 shares of BIET common stock at $4.00 per share for a period ending July 31, 1997 and warrants to purchase 100,000 shares of BIET common stock at $6.00 per share for a period ending July 31, 1998 which warrants have been cancelled. However, for services provided to this date under the agreement BIET has issued to GFG warrants to purchase 25,000 shares of BIET common stock at $6.00 per share for a period commencing June 1, 1998 and expiring December 1, 1998 and warrants to purchase 50,000 shares of BIET common stock at $8.00 per share for a period commencing June 1, 1999 and expiring December 1, 1999. 5. Non-Circumvention. BIET agrees that GFG will be paid additional compensation in the event BIET should enter into an agreement to combine with or acquire assets from persons or entities first introduced to BIET by GFG. BIET agrees that it will not consummate any such agreement without first entering into an agreement with GFG for compensation to GFG for such introduction and for consultation and efforts related thereto. 6. First Right of Refusal. If BIET determines to do a public offering of its securities during the term of this agreement, GFG will have the first right of refusal to act as an underwriter for said offering, provided that GFG can demonstrate to the satisfaction of BIET that it has the capacity to complete an underwriting of the size contemplated. 7. Indemnification. BIET and GFG will indemnify and hold each other harmless from any and all losses, claims, damages or liabilities, joint or several, to which either may become subject in connection with any transaction contemplated by this Letter Agreement, and agree to reimburse each other or pay directly for any and all legal or other expenses incurred in connection with investigating or defending any action or claim in connection therewith; provided, however that BIET shall not be liable in any such case to the extent that any such loss, claim, damage or liability is found in a final judgement by a court of competent jurisdiction to have resulted in material part from any act by GFG which constitutes, or results in a material breach of any agreement with BIET, fraud, misconduct or negligence. The foregoing indemnity shall also extend to directors, officers, employees, agents and controlling personnel of GFG and BIET. 8. Assignment. This Letter Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Any attempt by either party to assign any rights, duties or obligations which may arise under this Letter Agreement without the prior written consent of the other party shall be void. 9. Other Documentation. It is contemplated that BIET and GFG may from time to time enter into other agreements concerning matters not covered herein with respect to specific services provided thereunder. The parties will negotiate in good faith in their attempt to consummate such agreements. 10. General Provisions. 10.1 Representations. Each party hereto represents that it has the right and authorization to enter into this Letter Agreement and to bind itself to the terms and conditions contained herein. 10.2 Governing Law. This Letter Agreement shall be governed by and interpreted in accordance with the laws of the State of Colorado. 10.3 Arbitration. Any dispute between the parties hereto arising from or in relation to this Letter Agreement which cannot be settled through amicable negotiation shall be finally settled by arbitration in Denver, Colorado in accordance with the arbitration rules of the American Arbitration Association, by three arbitrators appointed according to the applicable arbitration rules. 10.4 No Waiver. No Provision of this Letter Agreement may be waived except by agreement in writing signed by the waiving party. A waiver of any term or provision of this Letter Agreement shall not be construed as a waiver of any other term or provision. 10.5 Entire Agreement. The Letter Agreement constitutes the entire agreement between the parties hereto regarding the subject matter hereof and supersedes all negotiations, agreements and commitments in respect thereto. 10.6 Severability. If any provision of this Letter Agreement is declared by any court of competent jurisdiction to be invalid for any reason, such invalidity shall not affect the remaining provisions of this Letter Agreement. 10.7 Termination. This Letter Agreement can be cancelled by either party for any reason upon 30 day written notice to the other party. In the event of a cancellation by either party only such compensation as has been earned to the cancellation date will be due. 10.8. Notices. (a) If to GFG: Global Financial Group 100 Washington Square, Suite 1319 Minneapolis, MN 55401 (612) 321-9700 (612) 321-9212 (fax) (b) If to BIET: Bion Environmental Technologies, Inc. 555 17th Street, Suite 3310 Denver, Colorado 80202 (303) 294-0750 (303) 298-8251 (fax) Please sign on the indicated line and send a copy to me by facsimile transmission which shall be deemed sufficient binding acknowledgement of our agreement. I will forward an originally executed copy of this Letter Agreement for your records and would ask you to sign a second copy of the Letter Agreement and return it for my records. Sincerely, BION ENVIRONMENTAL TECHNOLOGIES, INC. /s/ M. Duane Stutzman M. Duane Stutzman Chief Financial Officer AGREED TO AND ACCEPTED: GLOBAL FINANCIAL GROUP, INC. By: /s/ Kevin S. Miller Kevin S. Miller Chairman/President EX-10.2 3 6 BION ENVIRONMENTAL TECHNOLOGIES, INC. 1994 INCENTIVE PLAN NON QUALIFIED STOCK OPTION AGREEMENT This OPTION AGREEMENT is made this 31st day of December, 1996, between Bion Environmental Technologies, Inc., a Colorado corporation ("Company"), 555 17th Street, Suite 3310, Denver, Colorado 80202, and Scott R. Sieck, 1081 Park Ave. N., Winter Park, FL 32789 ("Optionee"). In consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows: 1. Grant of Option. Pursuant to the provisions of the Company's Fiscal Year 1994 Incentive Plan ("Plan"), the Company hereby grants to the Optionee, subject to the terms and conditions of the Plan (as it presently exists and as it may hereafter be amended), and subject to the further terms and conditions hereinafter set forth, the right and option to purchase from the Company all or any part of an aggregate of 50,000 shares of the Company's no par value common stock ("Common Stock") at the purchase price of $6.25 per share ("Shares"), such option to be exercised only as hereinafter provided. The option ("Option") is not intended to be, and will not be treated as, an Incentive Stock Option within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended. The number of Shares with respect to which the Option is exercisable, and the purchase price with respect to each Share to be acquired pursuant to the exercise of the Option herein granted, each are subject to adjustment under certain circumstances as more fully set forth in the Plan. The term "Common Stock" as used herein shall include any other class of stock or other securities resulting from any such adjustment. 2. Exercise of Option. The Option herein granted shall be exercisable commencing on December 31, 1996, and, to the extent that it has not theretofore been exercised, shall expire at 11:59 P.M. on May 30, 1997. 3. Option Exercise. Subject to the terms and conditions of Section 2 above, the Option granted hereunder may be exercised in whole or in any part, and may be exercised in part from time to time, all subject to the limitations on exercise set forth herein and in the Plan, provided that no partial exercise of the Option shall be for an aggregate exercise price of less than $1,000 unless such partial exercise is for the last remaining unexercised portion of the Option. The partial exercise of the Option shall not cause the expiration, termination or cancellation of the remaining portion thereof. The Option may be exercised by delivering written notice, in the form attached hereto, to the principal office of the Company, to the attention of its Secretary, no less than three business days in advance of the effective date of the proposed exercise. Such notice shall be accompanied by this Option Agreement and shall specify the number of Shares of Common Stock with respect to which the Option is being exercised and the effective date of the proposed exercise, and shall be signed by the Optionee. The Optionee may withdraw such notice at any time prior to the close of business on the business day immediately preceding the effective date of the proposed exercise, in which case this Option Agreement shall be returned to the Optionee. 4. Payment of the Purchase Price. Payment for Shares of Common Stock to be purchased upon the exercise of the Option shall be made on the effective date of such exercise either (i) in cash, by certified check, bank cashier's check or wire transfer, or (ii) subject to the approval of the Incentive Plan Committee, in Shares of Common Stock owned by the Optionee and valued at their fair market value on the effective date of such exercise (determined in accordance with the method for establishing fair market value as set forth in the Plan), or partly in Shares of Common Stock with the balance in cash, by certified check, bank cashier's check or wire transfer. Any payment in Shares of Common Stock shall be effected by the delivery of such Shares to the Secretary of the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary of the Company shall require from time to time. The Option may be exercised by a broker-dealer acting on behalf of the Optionee if (i) the broker-dealer has received from the Optionee or the Company a fully-and-duly-endorsed agreement evidencing the Option and instructions signed by the Optionee requesting that the Company deliver the Shares of Common Stock subject to the Option to the broker-dealer on behalf of the Optionee and specifying the account into which such Shares should be deposited, (ii) adequate provision has been made with respect to the payment of any withholding taxes due upon such exercise and (iii) the broker-dealer and the Optionee have otherwise complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part 220. Certificates for Shares of Common Stock purchased upon the exercise of the Option shall be issued in the name of the Optionee and delivered to the Optionee as soon as practicable following the effective date on which the Option is exercised. 5. Effect of Termination of Employment. If Optionee was an employee of the Company at the time the Option was granted, this Option shall be subject to termination in accordance with the Plan in the event that the employment of the Optionee with the Company shall terminate. 6. Acceleration of Exercise Date Upon Change in Control. Upon the occurrence of a "change in control" (as defined in the Plan) the Option shall become fully and immediately exercisable and shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan and this Option Agreement. 7. Investment Representations. The Optionee hereby represents and warrants that: (a) Any Shares purchased upon exercise of the Option shall be acquired for the Optionee's account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933, as amended ("Securities Act"), any rule or regulation under the Securities Act, or any applicable state securities law. (b) The Optionee has had such opportunity as the Optionee has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Optionee to evaluate the merits and risks of his investment in the Company. (c) The Optionee is able to bear the economic risk of holding any Shares acquired pursuant to the exercise of the Option for an indefinite period. Upon exercise of the Option, the Optionee shall be deemed to have reaffirmed, as of the date of exercise, the representations made in this Section 7. 8. Securities Law Matters. The Company shall be under no obligation to effect the registration pursuant to the Securities Act of any Shares to be issued pursuant the Option or to effect similar compliance under any state securities laws. Notwithstanding anything to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing the Shares pursuant to the Option unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which the Shares of Common Stock are traded. The Company may, in its sole discretion, defer the effectiveness of any exercise of the Option in order to allow the issuance of Shares of Common Stock pursuant to the Option to be made pursuant to registration or an exemption from the registration or other methods for compliance available under federal or state securities laws. The Company shall inform the Optionee in writing of its decision to defer the effectiveness of the exercise of the Option. During the period that the effectiveness of the exercise of the Option has been deferred, the Optionee may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto. 9. Withholding Taxes. The Company's obligation to deliver Shares upon exercise of the Option shall be subject to the Optionee's satisfaction of all applicable federal, state and local tax withholding requirements, in accordance with the provisions of the Plan. 10. Legend on Stock Certificate. If appropriate, all stock certificates representing Shares of Common Stock issued to the Optionee upon exercise of the Option shall have affixed thereto a legend substantially in the following form, in addition to any other legend required by applicable law, unless such shares have been acquired by Optionee pursuant to an effective registration statement under the Securities Act of 1933: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred, sold or otherwise disposed of in the absence of an effective registration statement with respect to the shares evidenced by this certificate, or an opinion of counsel satisfactory to the Company to the effect that registration under such Act is not required." 11. Non-Transferability. The Option shall not be assignable or transferable otherwise than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by him. 12. Rights of Stockholder. The Optionee shall have no rights as a stockholder with respect to any Shares subject to the Option until the date of the issuance of a stock certificate with respect to such Shares. Except as otherwise expressly provided in the Plan, no adjustment to the Option shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. 13. No Special Employment Rights Created. Nothing contained in the Option or the Plan shall confer upon the Optionee any right with respect to the continuation of his employment, if any, by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Optionee from the rate in existence at the time of the grant of the Option. 14. Failure to Comply. The failure by the Optionee to comply with any of the terms and conditions of the Option or of the Plan, unless such failure is remedied by the Optionee within ten days after having been notified of such failure by the Incentive Plan Committee, shall be grounds for the cancellation and forfeiture of the Option, in whole or in part, as the Committee, in its absolute discretion, may determine. 15. Binding Effect. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of the Plan as it presently exists, and as it may hereafter be amended, are deemed incorporated herein by reference, and any conflict between the terms of this Option Agreement and the provisions of the Plan shall be resolved by the Committee, whose determination shall be final and binding on all parties. 16. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or by registered or certified mail, or facsimile, addressed to a party at the address set forth herein or at such other address as such party may designate by notice in accordance with this paragraph. IN WITNESS WHEREOF, the Company has caused this Option Agreement to be executed by its duly authorized officer and the Optionee has executed this Agreement as of the day and year first above written. OPTIONEE: BION ENVIRONMENTAL TECHNOLOGIES, INC. /s/ Scott R. Sieck By: /s/ Jon Northrop Scott R. Sieck Jon Northrop, Chief Executive Officer OPTION EXERCISE FORM TO: BION ENVIRONMENTAL TECHNOLOGIES, INC. 555 17th Street, Suite 3310 Denver, Colorado 80202 Attention: Secretary RE: Notice of Intention to Exercise Option I am the Optionee under the Non Qualified Stock Option Agreement ("Agreement") entered into with Bion Environmental Technologies, Inc. ("Company") on December 31, 1996. Pursuant to such Agreement, I hereby provide you with official notice that I elect to exercise my Option to purchase Shares of the Company's Common Stock as follows: Number of Shares: ______________________ Effective Date of Exercise:_____________ I understand that payment for the Shares of Common Stock to be purchased by me pursuant to the exercise of the Option must be made on the effective date of exercise in accordance with the Plan. I further understand and agree that the Company shall have the right to require me to remit to the Company in cash an amount sufficient to satisfy federal, state and local withholding tax requirements, if any, attributable to my exercise of the Option prior to the delivery of any certificate or certificates for such Shares. I understand that this election to exercise the Option is irrevocable once it is effective in accordance with the terms and conditions of the Plan. The certificate for the Shares should be delivered to me at the address listed below: NAME OF OPTIONEE:______________________________________ Please typewrite or print ADDRESS:_______________________________________________ _______________________________________________ SOCIAL SECURITY NUMBER: _______________________________ DATED: ______________, 19___ ______________________________ Signature of Optionee EX-10.3 4 Exhibit 10.3 $500,000 Credit Facility Bion Environmental Technologies, Inc. ("Biet") and Harley E. Northrop ("Lender") agree effective as of October 26, 1996 that Lender will make a $500,000 credit facility available to Biet, and that Biet will use such credit under the terms and conditions as described below: * Biet will be able to borrow up to a maximum of $500,000 under this credit facility. * Biet may request that funds be advanced on either the first or the fifteenth of any month, and Lender will make such funds available within fifteen working days. * Interest will be paid monthly in cash by Biet to Lender at the rate of 1% per month on the drawn down balance, and if by mutual agreement not paid in cash, will be added to the unpaid balance. * The entire drawn down balance will be due and payable on December 31, 1999. * There will be no prepayment penalties should Biet pay off the drawn down amount prior to December 31, 1999. * Advances from Lender to Biet shall be evidenced by a promissory note in the form attached hereto as Exhibit A. * The entire outstanding balance may be converted into units (the "Units") at a conversion price of $4.50 per Unit by mutual agreement between Biet and Lender at any time after January 1, 1998. Each Unit shall consist of one share of the restricted and legended common stock of Biet plus one warrant authorizing the holder to purchase one share of the restricted and legended common stock of Biet for a price of $4.50 per share for a period commencing at the time of conversion and expiring December 31, 2001. As additional consideration for establishing this credit facility, for each $5.00 loaned to Biet, Biet shall issue to Lender one warrant ("Warrant") to purchase one share of Biet stock between November 15, 1998 and November 15, 2001 at a price of $4.50 per share. Further, as incentive for Biet to pay the balance due at an earlier date than December 31, 1999, it is agreed that if Biet pays the entire balance due on or before December 31, 1998, the quantity of Warrants issued will be reduced by 50%. Bion Environmental Harley E. Northrop Technologies, Inc. by: /s/ M. Duane Stutzman /s/ Harley E. Northrop Acting as its: Chief Financial Officer EXHIBIT A Principal Amount Due: $ 20,000 but in no event to exceed $ 500,000 Date Due: January 1, 1999 PROMISSORY NOTE ("Note") FOR VALUE RECEIVED, the undersigned, Bion Environmental Technologies, Inc., a Colorado corporation ("Maker"), hereby promises to pay to the order of Harley E. Northrop, ("Holder"), its successors and assignees, at P.O. Box 188, Westfield, New York 14787, or at such other place as the Holder of this Note may from time to time designate in writing, the principal amount of twenty thousand dollars ($ 20,000)(but in no event to exceed five hundred thousand dollars ($ 500,000)) in lawful and immediately available money of the United States. All outstanding principal shall be due and payable on or before December 31, 1999, if not previously paid. Interest shall be paid in cash on the drawn down amount from date of draw down at one percent (1.0%) per month, or if by mutual agreement not paid in cash, will be added to the unpaid balance. If this Note is not paid when due or declared due hereunder, the principal shall draw interest at the rate of one and one half percent (1.5%) per month. Upon default by the Maker of the timely payment of principal or interest due hereunder or upon any Event of Default as hereinafter defined, the Holder may, in its sole discretion, withhold any payments due and payable to Maker and apply same to the Maker's obligations hereunder. In addition, upon any Event of Default, the Holder may declare the full amount of this Note immediately due and payable. If any one or more of the following events ("Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law, pursuant to or in compliance with any judgment, decree of order of any court, or any order, rule or regulation of any administrative or governmental body, or otherwise): (a) Default shall be made in the payment of principal or of interest on this Note or any other obligation of Maker when such shall become due and payable, whether at the stated maturity thereof or by acceleration or otherwise; (b) Maker shall admit in writing its inability to pay its debts as they become due, files a petition in bankruptcy or makes a petition to take advantage of an insolvency act; makes an assignment for the benefit of creditors, commences a proceeding for the appointment of a receiver, trustee liquidator or conservator of itself or of the whole or any _______________ ** initial principal advanced to be inserted which sum shall be increased by subsequent cash advances from Holder to Maker as described in the Credit Facility to which this Note is attached. substantial part of its properties; files a petition or answer seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute or the United States or any State; or (c) Maker shall be adjudged as bankrupt, or a court shall enter an order, judgment or decree, appointing a receiver, trustee, liquidator or conservator of Maker or of the whole or any substantial part of its properties, or approve a petition filed against Maker seeking reorganization or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United State or any state, or if, under the provisions of any other law for the relief or aid of debtors, a court shall assume custody or control of Maker or the whole or any substantial part of his properties, or if there is commenced against Maker any proceeding for any of the foregoing relief or if a petition in bankruptcy is filed against Maker; or if Maker by any act indicates its consent to approval of or acquiescence in any such proceeding or petition; then and in such event, and at any time thereafter, if such or any other Event of Default shall then be continuing, the Holder of this Note may, at its option, upon written notice to Maker, declare this Note and any other promissory note issued by Maker to Holder (whether or not then due in accordance with its terms) to be due and payable, whereupon the entire balance of this Note shall forthwith become and be due and payable. Except as otherwise hereinabove expressly provided, Maker hereby waives diligence, demand, protest, presentment and all notices (whether of nonpayment, dishonor, protest, acceleration or otherwise) and consents to acceleration of the time of payment, surrender or substitution of security or forbearance, or other indulgence, without notice. Jurisdiction and venue shall be in a court of general jurisdiction located in Chautauqua County, New York. In the event that litigation is necessary to collect the principal (and interest) of the Note, Holder shall be entitled to reasonable attorneys' fees and litigation costs associated therewith. BION ENVIRONMENTAL TECHNOLOGIES, INC. By: /s/ M. Duane Stutzman Authorized Officer Date: December 1, 1996 EX-10.4 5 Exhibit 10.4 January 13, 1997 Mark A. Smith, Attorney at Law Dorje Dzong 1345 Spruce St., Suite I Boulder, CO 80302 Dear Mr. Smith: This letter will confirm our recent discussions and your December 20, 1996 letter to Bion Environmental Technologies, Inc. ("BIET") as follows: 1) Dublin Holding, Ltd. ("DHL") was transferred by LoTayLingKyur, Inc. ("LTLK") the right to receive interest and consulting payments due to LTLK from BIET for the months of October, November, and December 1996. 2) DHL agreed during November to allow BIET to add these sums to the outstanding note between DHL and BIET. 3) DHL agreed to convert the entire balance of the outstanding note of $319,527 (principal, interest, LTLK pay- ments) into BIET securities by acquiring 106,509 units ("Units") (consisting of one share of BIET common stock plus one Class K Warrant) at a price of $3.00 per Unit as of December 1, 1996. 4) Subsequently, DHL agreed to convert all of its Class E and Class K Warrants to Class E-1 Warrants. Yours truly, /s/ Jon Northrop Jon Northrop Chief Executive Officer cc: Dublin Holding, Ltd. January 13, 1997 Mark A. Smith, President LoTayLingKyur, Inc. Dorje Dzong 1345 Spruce St., Suite I Boulder, CO 80302 Dear Mr. Smith: This letter will confirm our recent discussions and your December 20, 1996 letter to Bion Environmental Technologies, Inc. ("BIET") as follows: 1) LoTayLingKyur, Inc. ("LTLK") (in partial repayment of a debt) transferred to Dublin Holding, Ltd. ("DHL") the right to receive October, November, and December 1996 interest payments and consulting fees due LTLK from BIET. 2) This transfer was made in November 1996. Yours truly, /s/ Jon Northrop Jon Northrop Chief Executive Officer EX-10.5 6 Exhibit 10.5 INVESTMENT REPRESENTATION AGREEMENT Bion Environmental Technologies, Inc. 555 17th St. Suite 3310 Denver, CO 80202 Gentlemen 1. Subscription. Memorializing the agreement made on December 1, 1996 between Bion Environmental Technologies, Inc. ("Company") and ________________ ("Purchaser"), Purchaser hereby agrees to purchase from the Company _______ shares of the restricted and legended Common Stock of the Company plus 1.5 warrants per share to purchase additional shares of the Company's common stock at a per share price of $6.00 for a period commencing January 1, 2001 and expiring December 31, 2001 (collectively the "Securities"), in a private negotiated transaction pursuant to Section 3(b) and/or 4(2) or other applicable provisions of the Securities Act of 1933, as amended ("Act"), (and the regulations promulgated thereunder) at a price of $__________. 2. Representations and Warranties. The undersigned warrants and represents to the Company (and its shareholders, affiliates and agents) that: a. The Securities are being acquired by the undersigned for investment for its own account, and not with a view to the offer or sale in connection therewith, or the distribution thereof, and that the undersigned is not now, and will not in the future, participate, directly or indirectly, in an underwriting of any such undertaking except in compliance with applicable registration provisions of the Act. b. The undersigned will not take, or cause to be taken, any action that would cause it or the Company to be deemed an underwriter of the Securities, as defined in Section 2(11) of the Act. c. The undersigned has been afforded an opportunity to examine such documents and obtain such information concerning the Company as it may have requested, including without limitation all publicly available information, and has had the opportunity to request such other information (and all information so requested has been provided) for the purpose of verifying the information furnished to it and for the purpose of answering any questions it may have had concerning the business affairs of the Company and it has reviewed to the extent desired by it the Arti cles, Bylaws and minutes of the Company, documentation concerning the Company's financial condition, assets, liabilities, share ownership and capital structure, lack of operations and sales, lack of assets, including without limitation its S.E.C. filings (including Form 10K-SB/A for the fiscal year ended June 30, 1996, Form 10Q-SB for the quarter ended September 30, 1996, and Form 8K dated August 30, 1996 and other material documents and have reviewed all of the terms of the acquisition of Bion Technologies, Inc. by the Company ("Acquisition") and understand the terms of the Acquisition and that the Company was a "shell" corporation with no assets and no operations prior to the Acquisition. d. The undersigned (and its officers, directors and principals as applicable) have had an opportunity to personally ask questions of, and receive answers from, one or more of the officers and directors of the Company and/or the attorneys for the Company to ascertain and verify the accuracy and completeness of all material information regarding the Company, its business and its officers, directors, and promoters. The undersigned has had an opportunity to ask questions of and receive answers from duly designated representatives of the Company concerning the terms and conditions pursuant to which the Securities are being acquired by it. e. It understands that its acquisition of the Securi ties is a negotiated private transaction. f. By reason of its knowledge and experience (and that of its principals, officers and directors and their respective attorneys, advisors and investment bankers) in financial and business matters in general, and investments in particular, it is capable of evaluating the merits and risks of an investment in the Securities. g. The undersigned is capable of bearing the economic risks of an investment in the Securities. h. The undersigned's present financial condition is such that it is under no present or contemplated future need to dispose of any portion of the Securities to satisfy any existing or contemplated undertaking, need or indebtedness. i. If required to do so, it has retained to advise it, as to the merits and risks of a prospective investment in the Securities, a purchaser representative, legal counsel, financial and accounting advisors, investment bankers, etc. j. The undersigned hereby represents and warrants to the Company that all of the representations, warranties and acknowledgements contained in this agreement are true, accurate and complete as of the date herein and acknowledges that the Company, its officers, directors, agents, and affiliates have relied on its representations and warranties herein in consenting to the restricted issuance and/or transfer of the Securities and the undersigned hereby agrees to indemnify and hold the Company (together with its respective officers, directors, agents and affiliates) harmless with respect to any and all expenses, claims or litigation (including without limitation reasonable attorneys' fees related thereto) arising from or related to breach of any warranty or representation herein. 3. Restrictions on Transferability: The undersigned acknow ledges and understands that the Securities are unregistered and must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is availa ble. The undersigned further acknowledges that it is fully aware of the applicable limitations on the resale of the Securities. Rule 144 (the "Rule") permits sales of "Restricted Securities" held for not less than two years and upon compliance with the requirements of such Rule. Further, the Securities must be sold in an active market and appropriate information relating to the Company must be generally available in order to effectuate a transaction pursuant to the Rule by an affiliate of the Company. There is currently only an extremely limited and "thin" trading market in securities of the Company on the over-the-counter market, and there is no assurance that it will continue or that any active trading market will ever develop, or if such a trading market develops, that it will grow and/or continue. Any and all certificates representing the Securities and any and all securities issued in replacement or conversion thereof or in exchange therefor shall bear the following legend, or one sub stantially similar thereto, which the undersigned has read and understands: The securities represented by this Certificate have not been registered under the Securities Act of 1933 (the "Act") and are "restricted securities" as that term is defined in Rule 144 under the Act. The securities may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company. The undersigned further agrees that the Company shall have the right to issue a stop transfer instruction to its transfer agent, if any, or to note a stop transfer instruction in its stockholder records, and it acknowledges that the Company has informed it of its intention to issue such instructions when and if necessary. 4. Notices. Any notices or other communications required or permitted hereby shall be sufficiently given if sent by regis tered or certified mail, postage prepaid, return receipt requested, and, if to the Company, at the address to which this agreement is addressed, and if to the undersigned, at the address set forth below my signature hereto, or to such other addresses as either you or the undersigned shall designate to the other by notice in writing. 5. Registration Rights. In the event that the Company shall file a registration statement (or similar document) with the U.S. Securities & Exchange Commission on the Company's equity securities on a form which would legally allow inclusion of the shares of the Company's common stock issued pursuant hereto, the Company will include such shares in such registration statement at the Company's sole cost; PROVIDED, HOWEVER, in the event of a registration statement involving an underwriter, such underwriter shall have the right, in its sole discretion, to impose restrictions on the resale of the Company's securities issued pursuant hereto and/or eliminate this registration right from the underwritten registration statement in its entirety. 6. Successors and Assigns. This agreement shall be binding upon and shall inure to the benefit of the parties hereto and to the successors and assigns of the Company and to the personal and legal representatives, heirs, guardians, successors and permitted assignees of the undersigned. 7. Applicable Law. This agreement shall be governed by and construed in accordance with the laws of the State of Colorado and, to the extent it involves any United States statute, in accordance with the laws of the United States, and jurisdiction and venue for any dispute related hereto shall be in a court of general jurisdiction located in Denver, Colorado. Purchaser _________________________ By: _____________________________ Name Signature _________________________ ___________________________________ Social Security Number Address Date: ___________________________ ACCEPTED: Bion Environmental Technologies, Inc. By: ______________________ Date: _______________________ Authorized Officer RISK FACTORS The securities being offered hereby are speculative in nature and involve a high degree of risk. Following is a summary discussion of some 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. Lack of Operating History. Substantially all of the Company's business activities are conducted through its subsidiaries, which have been in the development stage until recently. Potential investors should be aware of the difficulties encountered 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 which will be the principal focus of the Company. Since commercial operations have only recently commenced, the Company is without a history of significant revenues. 2. No Profitable Operations. From inception to date, neither the Company nor its subsidiaries has ever sustained any profitable operations. Although the subsidiaries have now commenced sales of wastewater treatment systems, BionSoilO production systems, and BionSoilO and expect to generate sufficient revenues from these operations to pay operating expenses in the future, there can be no assurance that profitable operations will ever be achieved or sustained in the future. In the past, the subsidiaries have been dependent upon infusions of capital from investors and proceeds from loans to enable them to continue in business. In the event the Company is unable to achieve sustained profitable operations in the future, it is likely that any investment in the Shares will ultimately be lost. 3. Immediate Need for Additional Capital and "Going Concern" Qualification of Independent Auditor's Report. The Company has incurred losses from inception totalling $5,903,824 at June 30, 1996, and $6,321,791 at September 30, 1996, and the Company has thus far failed to generate adequate working capital from operations. The Company's audited financial statements for the fiscal period ended June 30, 1996 (and unaudited financial statements for the fiscal period ended September 30, 1996) have been prepared assuming that the Company will continue as a going concern because continued losses without additional equity capital raise substantial doubt about its ability to continue in business during the next twelve months. Management anticipates that in order for the Company to survive for the next three months, it will be necessary to obtain outside funding of approximately $500,000, and that in order for the Company to survive for the next twelve months, it will be necessary for the Company to obtain additional outside funding of approximately $1,500,000 (about one-half of which will be utilized to fund anticipated growth). It is presently anticipated that it will be necessary for the Company to obtain additional funding from some other source(s) in order to meet its expected working capital needs during the next twelve months. Accordingly, it is anticipated that management will be engaged in attempts to obtain additional funds from one or more other outside sources (the availability, terms and viability of which are currently unknown). 4. Dependence on Management. The success of the Company is and will continue to be substantially dependent on the efforts of Jon Northrop, CEO and Jere Northrop, President. Pursuant to existing employment agreements, Messrs. Northrop devote substantially all of their time to the Company's affairs. The Company is wholly dependent, at present, upon the personal efforts and abilities of certain of its officers and directors. Loss of the services of these key employees would have a material adverse effect on the Company. The Company carries key-man life insurance in the amount of $1,500,000 on the lives of Jere Northrop, President, and Jon Northrop, CEO. 5. Conflicts of Interest. The Company and the Subsidiary have entered into several agreements which were not negotiated at arm's length. On March 23, 1990, the Company acquired through a merger 100% of the outstanding stock of Biocycle, Ltd. and Zabion, Ltd. (predecessor companies to one subsidiary, one of which was at that time controlled by Jere Northrop and Harley E. Northrop (father of Jon and Jere Northrop)), including their patents and rights to certain proprietary knowledge. On July 12, 1993 the Company entered into employment agreements with Messrs. Jon Northrop and Jere Northrop. The Company believes that these agreements were negotiated on terms at least as favorable to the Company as those which could have been obtained from unaffiliated persons. 6. Control by Management and Existing Shareholders. As of the date of this offering, present management (together with their affiliates) control approximately 52.7% of the Company's outstanding Common Stock and can elect all of the Company's directors, appoint its officers and control the Company's affairs and operations. The Company's Articles of Incorporation do not provide for cumulative voting. 7. Limited Development of Technology and Uncertain Market Acceptance. The wastewater treatment systems developed and marketed to date by the Company have been limited to certain agricultural and food processing applications and have not yet been expanded into other markets. The Company has 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 anticipates a continuing need for the development of additional applications. Although management believes that the Company's 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. The Company has conducted no formal market studies with respect to its technology and services. It is anticipated that the achievement of any significant degree of market acceptance for the Company's 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. There can be no assurance that the Company's proposed products will ultimately be accepted by targeted industries, and there can be no assurance that substantial revenues will ever be realized from sales of the Company's products. 8. Competition. Although the Company believes that its systems offer many significant advantages over other competing technologies or systems, competition in the biological wastewater treatment industry is intense. The Company is in direct competition with local, regional and national engineering and environmental consulting firms and soils products companies, and some of these companies may be capable of developing soils products or wastewater treatment systems similar to those being developed by the Company or based on other technologies that are competitive with the Company's products. Many of those companies are well-established and have substantially greater financial and other resources than the Company. 9. Obsolescence and Technological Change. The Company's business is susceptible to changing technology. Although the Company intends to continue to develop and improve its wastewater treatment systems, there can be no assurance that funds for such expenditures will be available or that the Company's competitors will not develop similar or superior capabilities. 10. Potential Lack of Adequate Patent and Trade Secret Protection. The Company has limited patent protection on certain aspects of its technology for its wastewater treatment systems and soils products and it possesses certain proprietary processes. The Company intends to obtain additional patents or other appropriate protection for its technology. Additionally, the Company uses nondisclosure contract provisions and license arrangements which prohibit the disclosure of the Company's proprietary processes. However, there can be no assurance that the Company can effectively protect against unauthorized duplication or the introduction of substantially similar products. The Company's ability to compete effectively with other companies is materially dependent upon the proprietary nature of the Company's patents and technologies. There can be no assurance that the Company will be able to obtain any additional key patents or other protection for its technology. In addition, the invalidation of key patents or proprietary rights owned by the Company could have an adverse effect on the Company and its business prospects. 11. Governmental Regulations. As the Company does not itself discharge any substantial waste of any kind during the normal course of its business (and does not itself discharge any wastewater into the environment) it is not itself subject to governmental regulation. However, the Company is in the business of helping its customers solve problems associated with their discharge of wastewater into the environment, and most of the Company's systems and services are subject (both directly and indirectly) to federal, state and local government regulation, and many are subject to extensive testing procedures. The effects of regulatory bodies could delay the Company's marketing efforts for a considerable time and ultimately could prevent the completion of projects. The regulations pertaining to the environment which may impact on the Company's systems are continually changing. While the Company believes that such regulatory changes are favorable to the Company's business since such regulations may require the use of the Company's systems (or similar systems), there can be no assurance that, in the future, such regulations will not cause the Company additional economic expenses. 12. Use of Proceeds Not Certain. The proceeds of this offering have been allocated by the Company to working capital for general corporate purposes. Specific uses of investor's funds will depend upon the business judgment of management. Investor must therefore rely on management's judgment with only limited information about management's specific intentions. 13. Determination of Offering Price of Shares. The price of the Shares offered hereby has been established by management of the Company. Accordingly, investors are cautioned that the offering price of the Shares does not have any direct relationship to the Company's current assets, earnings, book value or any other objective criteria of value, and in no event should such price be regarded as an indication of any future value of the securities. 14. Shares Available for Resale. Of the Company's presently outstanding shares of Common Stock, approximately 870,836 shares are "restricted securities" which may in the future be sold upon compliance with Rule 144 adopted under the Securities Act of 1933, as amended (the "Act"). Generally, Rule 144 provides that a person holding "restricted securities" for a period of at least two years may sell every three months, in brokerage transactions, an amount equal to the greater of one percent of the Company's 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 three years, and who is not an "affiliate" (and has not been an "affiliate" for at least 90 days prior to the date of such sales). The currently outstanding restricted securities of the Company were issued between April 1992 and November 30, 1996, and such restricted securities will become available for resale pursuant to Rule 144 on dates from April 1994 through November 30, 1999. Investors should be aware that such sales under Rule 144 may, in the future, have a depressive effect on the price of the Company's Common Stock. 15. No Dividends and None Anticipated. The investor is cautioned that the Company has never paid any dividends on any class of stock in its past, and that because of its present financial status and its contemplated financial requirements, it does not anticipate paying any cash dividends upon any class of its stock in the immediately foreseeable future. 16. Potential Liabilities and Lack of Insurance Coverage for Damage to the Environment. The Company is in the business of helping its customers solve problems associated with their discharge of wastewater into the environment. As the Company does not itself discharge any substantial waste of any kind during the normal course of its business (and does not itself discharge any wastewater into the environment), it does not consider the risk of potential liability associated with damage to the environment to be substantial, and does not have any insurance coverage with respect to such risks. The Company presently carries only nominal amounts of insurance coverage to cover relatively standard business risks, which coverage management deems to be adequate for the Company's current operations. It is possible, however, that circumstances might potentially exist whereby the Company could be held liable for damage to the environment (i.e., the negligent design of a system resulting in the aggravation of, as opposed to the resolution of, an existing wastewater problem), or for other liabilities resulting from other business risks in excess of its current policy amounts (i.e., personal injury to an employee, breach of contract, etc.). Any such liability, if imposed, could be substantial and would, in all likelihood, cause the business of the Company to be materially and adversely affected. EX-10.6 7 Exhibit 10.6 December 1996 Dear Warrant Holder: Bion Environmental Technologies, Inc. (the "Company") hereby offers, effective December 1, 1996, to exchange each of your warrants to purchase common stock of the Company at a price per share of $4.50 for Class E-1 Warrants to purchase one and one half times the prior amount of common stock of the Company at a price per share of $6.00. The Class E-1 warrants will be exercisable for a period commencing January 1, 2001 and expiring December 31, 2001. Please contact the Company to indicate your participation in this offer. Very truly yours, /s/ Jon Northrop Jon Northrop Chief Executive Officer Exhibit 1 Warrants exchanged
Class E-1 Warrant Holder Warrants Replaced Warrants Issued Dublin Holding, Ltd. 1,006,509 1,509,764 Mark Smith 500,000 750,000 Rosalynde Smith 25,000 37,500 Diana Smith 25,000 37,500 Kelly Moone 30,000 45,000 Quenby Moone 10,000 15,000 Christopher Moone 10,000 15,000 Jere Northrop 400,000 600,000 Jon Northrop 400,000 600,000 2,406,509 3,609,764 Warrants to be exchanged Harley E. Northrop 17,000 25,500
EX-10.7 8 Void after 3:30 p.m., Denver Time, on December 31, 2001 Warrant to Purchase _______ Shares of Common Stock CLASS E-1 WARRANT TO PURCHASE COMMON STOCK OF BION ENVIRONMENTAL TECHNOLOGIES, INC. This is to certify that, FOR VALUE RECEIVED, ___________________ or registered assigns ("Holder), is entitled to purchase, subject to the provisions of this Warrant, from Bion Environmental Technologies, Inc., a Colorado corporation ("Company"), at any time on or after January 1, 2001, and not later than 3:30 p.m., Denver Time, on December 31, 2001, unless extended as provided in Section (a) below, _______ restricted and legended shares of common stock, no par value per share, of the Company ("Common Stock") at a purchase price per share of $6.00 (in cash or stock of the Company). The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Stock" and the exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." (a) Exercise of Warrant. Subject to the provisions of Section (1) hereof, this Warrant may be exercised in whole or in part at any time or from time to time on or after December 1, 1996, but not later than 3:30 p.m., Denver time on December 31, 2001, or if such date is a day on which banking institutions are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price (in cash or equivalent value) for the number of shares specified in such form, together with all federal and state taxes applicable upon such exercise. The Company may unilaterally extend the time within which the Warrant may be exercised but is not obligated to do so, but not longer than twelve (12) months. The Company may unilaterally reduce the exercise price per share. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right hereunder. Upon receipt by the Company of this Warrant at the office or agency of the Company, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. (b) Reservation of shares. The Company, hereby agrees that at all times subsequent hereto there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance or delivery upon exercise of this Warrant. (c) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows: (1) If the Common Stock is listed on a national securi ties exchange or admitted to unlisted trading privileges on such exchange, the current value shall be the last reported sale price of the Common Stock on such exchange on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange; or (2) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current value shall be the mean of the last reported bid and asked prices reported by the National Association of Securities Dealers Automated Quotation System (or, if not so quoted on NASDAQ, by the National Quotation Bureau, Inc.) on the last business day prior to the day of the exercise of this Warrant; or (3) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder. (d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Any assignment hereof shall be made by surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax; whereupon the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The terms "Warrant" and "Warrants" as used herein include any Warrants issued in substitution for a replacement of this Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (e) Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. (f) Adjustments to Exercise Price and Number of Shares. (1) Adjustment of Number of Shares. Anything in this Section (f) to the contrary notwithstanding, in case the Company shall at any time issue Common Stock or Convertible Securities by way of dividend or other distribution on any stock of the Company or subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall be proportionately decreased in the case of such issuance (on the day following the date fixed for determining shareholders entitled to receive such dividend or other distribution) or decreased in the case of such subdivision or increased in the case of such combination (on the date that such subdivision or combination shall become effective). (2) No Adjustment for Small Amounts. Anything in this Section (f) to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Exercise Price unless and until the net effect of one or more adjustments, determined as above provided, shall have required a change of the Exercise Price by at least one cent, but when the cumulative net effect of more than one adjustment so determined shall be to change the actual Exercise Price by at least one cent, such change in the Exercise Price shall thereupon be given effect. (3) Number of Shares Adjusted. Upon any adjustment of the Exercise Price, the Holder of this Warrant shall thereafter (until another such adjustment) be entitled to purchase, at the new Exercise Price, the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares of Common Stock initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the new Exercise Price. (4) Common Stock Defined. Whenever reference is made in this Section (f) to the issue or sale of shares of Common Stock, the term "Common Stock" shall mean the Common Stock of the Company of the class authorized as of the date hereof and any other class of stock ranking on a parity with such Common Stock. However, subject to the provisions of Section (i) hereof, shares issuable upon exercise hereof shall include only shares of the class designated as Common Stock of the Company as of the date hereof. (g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as required by the provisions of Section (f) hereof, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office, and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided and setting forth in reasonable detail the facts requiring such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the Holder. Such certificate shall be conclusive as to the correctness of such adjustment. (h) Notices to Warrant Holders. So long as this Warrant shall be outstanding and unexercised (i) if the Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if the Company shall offer to the Holders of Common Stock for subscription or purchase by them any shares of stock of any class or any other rights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall cause to be delivered to the Holder, at least ten days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any, is to be fixed as of which the Holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (i) Reclassification, Reorganization or Merger. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a change in par value, or from no par value to par value, or as a result of an issuance of Common Stock by way of dividend or other distribution or of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company shall cause effective provision to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for or of a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of subsection (f) hereof with the amount of the consideration received upon the issue thereof being determined by the Board of Directors of the Company, such determination to be final and binding on the Holder. (j) Transfer to Comply with the Securities Act of 1933. (1) This Warrant or the Warrant Stock or any other security issued or issuable upon exercise of this Warrant may not be sold, transferred or otherwise disposed of except to a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or such Warrant Stock may legally be transferred pursuant to Section (d) hereof without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section (j) with respect to any resale or other disposition of such securities. (2) The Company may cause the following legend to be set forth on each certificate representing Warrant Stock or any other security issued or issuable upon exercise of this Warrant not theretofore distributed to the public or sold to underwriters for distribution to the public pursuant to Section (k) hereof, unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary: The securities represented by this certificate may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Securities Act of 1933 (the "Act"), or pursuant to an exemption from registration under the Act the availability of which is to be established to the satisfaction of the Company. (k) Registration Rights for Warrant Stock. In the event that the Company on or before the expiration date shall file a registration statement (or similar document) with the U.S. Securities & Exchange Commission on the Company's equity securities on a form which would legally allow inclusion of the shares of the Company's common stock issued pursuant hereto, the Company shall include such shares in such registration statement, at the Company's sole cost; PROVIDED, HOWEVER, in the event of a registration involving an underwriter, such underwriter shall have the right, in its sole discretion, to impose restrictions on the resale of the Company's securities issued pursuant hereto and/or eliminate this registration right from the underwritten registration statement in its entirety; FURTHER PROVIDED, HOWEVER, in the event an underwriter has eliminated this registration right from an underwritten registration statement, upon request by a majority of the Holders at a date three months after close or cancellation of such underwritten registration, the Company shall one time and one time only file and process to effectiveness (and maintain effectiveness for not less than six months), at the Company's sole expense, a registration statement including all the shares underlying the exercise of this Warrant and any other warrant of the Company owned by Holder. All expenses of any such registration statement including the shares shall be borne by the Company. (l) Applicable Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Colorado. Bion Environmental Technologies, Inc. Date: _______________ By: ______________________ Authorized Officer PURCHASE FORM Dated ________________ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _________ shares of Common Stock and hereby makes payment of $________ in payment of the actual exercise price thereof. __________________ INSTRUCTIONS FOR REGISTRATION OF STOCK Name _________________________________________________ (please typewrite or print in block letters) Address_______________________________________________ Signature__________________________________________ _____________________________ FOR VALUE RECEIVED, ____________________________ hereby sells, assigns, and transfers unto Name________________________________________________ (please typewrite or print in block letters) Address______________________________________________ the right to purchase Common Stock represented by this Warrant to the extent of __________ shares as to which such right is exercis able and does hereby irrevocably constitute and appoint ______________, attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Signature _______________________________ Dated: _______________________ -----END PRIVACY-ENHANCED MESSAGE-----