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