UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
AMENDMENT NO. 1
[X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 OR THE TRANSITION PERIOD FROM _________ TO
_________
Commission file number: 0-19333
Bion Environmental Technologies, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1176672
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 East 50th Street, 10th Floor
New York, NY 10022
(Address of principal executive offices, including zip code)
(212) 758-6622
(Registrant's telephone number, including area code)
Securities Registered under Section 12(b) of the Exchange Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-K contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended June 30, 2001 were $84,322.
The aggregate market value as of September 25, 2001 of voting stock held by
non-affiliates of the Registrant was $8,048,000 based upon the average of the
closing bid and asked prices on the OTC Electronic Bulletin Board on that
date.
As of September 25, 2001, 13,153,831 shares of Registrant's Common Stock, no
par value, were issued and outstanding.
Documents incorporated by reference: None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers and Directors
--------------------------------
Our Directors and Executive Officers are listed below. Executive
Officers are elected by the Board of Directors and hold office until their
successors are elected and qualified.
Period of Service
Name Age Position(s) as Director
---- --- ----------- -----------------
David J. Mitchell 40 Chairman(1), December 23, 1999 to
Chief Executive Officer, Present
President
and Director
Mark A. Smith 51 Secretary and Director May 21, 1999 to
Present
Jere Northrop 59 Senior Technology Director April 9, 1992 to
and Director Present
Salvatore J. Zizza 55 Director December 23, 1999 to
Present
Andrew G. Gould 47 Director August 10, 2000 to
Present
Joseph R. Wright, Jr. 46 Director June 6, 2001 to
Present
David Fuller 45 Principal Accounting Officer None
------------------------
(1) David J. Mitchell replaced Mark A. Smith as Chairman of the Company on
September 6, 2001.
David J. Mitchell has been our Chairman since September 6, 2001, our
Chief Executive Officer and a Director since December 23, 1999 and our
President since August 10, 2000. Since January 1991, Mr. Mitchell has been
the President of Mitchell & Co., Ltd., a merchant banking company he founded.
Mr. Mitchell is the immediate past president of AmeriCash, a national network
of ATM machines. Over the last 10 years Mr. Mitchell has held various
executive positions primarily in investment banking and brokerage firms. He
currently serves as a director of Kellstrom Industries, Inc., a NASDAQ listed
company in the business of selling jet engine parts. Mr. Mitchell is also a
director of Centerpoint Corporation. Mr. Mitchell also serves as a director
of several private companies and not-for-profit universities and foundations.
Mark A. Smith has been a Director since May 21, 1999 and served as our
Chairman from May 1999 to September 2001. He also serves as our Secretary.
2
He was the president of RSTS Corporation (now Bion Environmental Technologies,
Inc.) prior to its acquisition of Bion Technologies in 1992. Mr. Smith
received a Juris Doctor degree from the University of Colorado School of Law,
Boulder, Colorado (1980) and a Bachelor of Science degree from Amherst
College, Amherst, Massachusetts (1971). Mr. Smith has engaged in the private
practice of law in Colorado since 1980. In addition, Mr. Smith has been
active in running private family companies, Stonehenge Corporation (until
1994) and LoTayLingKyur, Inc. (1994-present).
Jere Northrop has been our Chief Technology Officer since May 21, 1999
and a Director since April 9, 1992. Dr. Northrop is a founder of Bion
Technologies, Inc. and was its President from October 1989 to July 23, 1999.
Prior to founding Bion he had ten years experience in the management of
operations and process control at a large municipal advanced wastewater
treatment plant in Amherst, New York (1979-1989). He also has twenty-five
years of experimental research on both individual and complex systems of
microorganisms. Dr. Northrop has a bachelor's degree in biology from Amherst
College, Amherst, Massachusetts (1964), a doctorate degree in biophysics from
Syracuse University, Syracuse, New York, (1969), and has done post doctoral
work at both the University of California at Davis, Davis, California and The
Center for Theoretical Biology, State University of New York at Buffalo,
Buffalo, New York.
Salvatore J. Zizza has been a Director of Bion since December 23, 1999.
He has served as Chairman of the Board, President, Treasurer and a Director of
Hollis Eden Pharmaceuticals (f/k/a IAC), a NASDAQ listed company, since its
inception in November 1992. Mr. Zizza was also Chairman of the Board of
Directors of The Lehigh Group, Inc. (f/k/a The LVI Group Inc.) beginning in
1991, and was President and Chief Financial Officer of The Lehigh Group, Inc.
from 1985 to 1991. The Lehigh Group Inc., a New York Stock Exchange listed
company, was engaged, through its subsidiary, in the distribution of
electrical products, and from 1985 until 1991 was one of the largest interior
construction and asbestos abatement firms in the United States. Mr. Zizza was
Chief Operating and Chief Financial Officer of NICO, Inc. from 1978 until its
acquisition in 1985 by Lehigh Valley Industries, Inc. (currently The Lehigh
Group, Inc.) NICO, Inc. was an interior construction firm. Mr. Zizza is a
director of The Gabelli Equity Trust, The Gabelli Asset Fund, The Gabelli
Growth Fund and The Gabelli Convertible Securities Fund.
Andrew G. Gould has been a Director of Bion since August 10, 2000. From
May 1998 to June 2000 Mr. Gould was Special Principal and New Business
Development Manager of DZ Israel Associates, Tel Aviv, Israel, a venture
banking and investment company. Since 1981, Mr. Gould has been a Managing
Director of Arthur P. Gould & Co., a merchant bank. Mr. Gould has a
bachelor's degree in philosophy from Yale University (1976), and an MBA in
finance and economics from New York University (1983). Mr. Gould is a
director of Storlogic Ltd., a privately-held Israeli/U.S. developer and
manufacturer of network-attached storage and other server hardware and
software, and Regency Stocks & Commodities Fund LP, a privately-held
investment partnership trading financial futures and equities using
proprietary, systems-based trading methods.
Joseph Wright has been a Director of Bion since June 6, 2001. Mr. Wright
is President and Chief Executive Officer of PAN-AM SAT Corporation. In
addition, Mr. Wright serves as Vice Chairman and Director of Terremark
Worldwide Inc., Vice Chairman/Director of Jefferson Consulting Group, Co-
Chairman/Director of Baker & Taylor Holdings and as a member of AT&T
3
Government Markets Advisory Board. From 1989 through 1992 Mr. Wright served
as Vice Chairman, Executive Vice President and Director of W.R. Grace &
Company, Chairman and Director of Grace Energy Corporation and President of
Grace Environmental Company. Additionally, he served extensively in the
Federal Government culminating with service as Director of the Federal Office
of Management and Budget under President Reagan.
David Fuller has served as our Principal Accounting Officer since April
2001. From January 2001 to April 2001, Mr. Fuller was a consultant to several
companies, including Bion. From March 1994 to December 2000, he was the Chief
Financial Officer of Hyman Beck & Company, Inc., an international money
management firm. From July 1991 to February 1994, Mr. Fuller was Senior
Financial Officer of Link Strategic Investors Inc. (and Bearbull Investment
Products (USA), its predecessor company), an international investment
management firm. From January 1989 to July 1991, he was Controller of Rayner
& Stonington, L.P., a commodity trading company and a registered commodity
trading advisor. From October 1984 to December 1988, Mr. Fuller was
Controller and Assistant Treasurer of Gill & Duffus Inc., members of the
Coffee, Sugar & Cocoa Exchange, Inc. Mr. Fuller began his career in 1978 in
public accounting and is a member of the American Institute of Certified
Public Accountants and the New York Society of Certified Public Accountants.
Mr. Fuller graduated from Lehigh University in May 1978 with a B.S. degree in
Accounting.
We have an Executive Committee, which currently consists of Mark A. Smith
and David J. Mitchell, which was established on December 23, 1999. See our
Form 8-K dated December 11, 1999. On August 10, 2000, we reestablished the
Audit and Compensation Committees of which Salvatore Zizza is currently the
only member.
Family Relationships
--------------------
There are currently no family relationships among our Directors and
Executive Officers.
Indemnification
---------------
The Articles of Incorporation and the Bylaws provide that we may
indemnify our officers and directors for costs and expenses incurred in
connection with the defense of actions, suits, or proceedings where the
officer or director acted in good faith and in a manner he reasonably believed
to be in our best interest and is a party to such actions by reason of his
status as an officer or director.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons pursuant to the foregoing provisions or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
4
Compliance with Section 16(a) of the Exchange Act of 1934
---------------------------------------------------------
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to us during the fiscal year ended June 30, 2001, and certain
investment representations, no one who was a director, officer or beneficial
owner of more than ten percent (10%) of our Common Stock failed to file, on a
timely basis, reports required by Section 16(a) of the Exchange Act during the
fiscal year, except as follows: David Fuller, an officer, filed a Form 3 and
a Form 4 late, Andrew G. Gould, a director, filed a Form 4 late; and Salvatore
J. Zizza, a director, filed a Form 4 late.
Advisory Board
--------------
On June 6, 2001, our Board of Directors authorized the formation of an
Advisory Board to consist of up to 15 members and determined that up to
300,000 options, in aggregate, be made available as compensation for Advisory
Board members over the next two years, subject to Board of Directors'
ratification on a case-by-case basis.
We currently have four persons on our Advisory Board. They are:
Dan Glickman, former U.S. Agriculture Secretary, who served as a member
of President Clinton's Cabinet for six years and whose service prior to that
position included 18 years as a member of the U.S. House of Representatives.
Jon D. Howard, Managing Director at Bear Stearns & Co. Inc. and head of
Bear Stearns Merchant Banking Group whose prior experience includes executive
positions with Vestar Capital Partners, Inc. and Wesray Capital Corporation.
Mr. Howard is a director of Acropostal, Inc., Dyersberg Corporation,
Integrated Circuit System, Inc., and Nice-Pac Holdings, Inc.
Victor L. Lechtenberg, Ph.D., Dean of Agriculture at Purdue University --
a premier land grant college of agriculture. Dr. Lechtenberg is chairman of
the National Agricultural Research, Extension, Education and Economics
Advisory Board.
William Spier, former Vice Chairman of Phibro-Salomon, an international
commodity trading and investment banking firm. Mr. Spier also serves as a
director of Keystone Consolidated Industries and Empire Resources, Inc.
5
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation
--------------------
The following table shows the aggregate direct remuneration for the
fiscal years ended June 30, 2001, 2000, and 1999 to each executive officer and
two additional individuals:
Summary Compensation Table
--------------------------
Long Term Compensation
----------------------------------------
Annual Compensation Awards(11) Payouts
---------------------------------- ---------------------- ----------------
Securities All
Other Underlying Other
Annual Restricted Options/ LTIP Compen-
Name and Principal Salary(1) Compen- Stock SARs Payouts sation
Position Year ($) Bonus($) sation($) Award(s) (#) ($) ($)
------------------ ---- --------- -------- ------------ --------- ---------- ------- -------
David J. Mitchell(A) 2001 370,000(2) 0 2,230,000(4) 0 0 0 0
Chief Executive 2000 120,000(3) 0 0 0 0 0 0
Officer and
President
Mark A. Smith(A) 2001 0 0 0 0 0 0 0
Chairman 2000 600,000(5) 0 0 0 0 0 0
Director 1999 26,667(6) 0 0 0 626,667 0 0
Jon Northrop(B) 2001 150,000 0 0 0 0 0 0
Executive V.P. 2000 150,000 0 0 0 0 0 0
Asst. Secretary 1999 150,000(7) 0 0 0 0 0 0
Director
Jere Northrop 2001 150,000 0 0 0 0 0 0
Chief Technology 2000 150,000 0 0 0 0 0 0
Officer 1999 150,000(7) 0 0 0 0 0 0
Craig Scott 2001 33,500(8) 0 0 0 0 0 0
2000 132,000 0 0 150,000 0 0 0
1999 132,000 0 0 10,000 0 0 0
M. Duane Stutzman 2001 120,000(9) 0 0 0 0 0 0
2000 120,000 0 0 75,000 0 0 0
1999 120,000(10) 0 0 227,452 0 0 0
------------------
(A) David Mitchell replaced Mark A. Smith as Chairman of the Company on
September 6, 2001.
(B) Jon Northrop resigned from the Company on August 31,2001.
(1) Includes compensation paid by Bion Technologies, Inc., our wholly owned
subsidiary.
(2) Includes compensation of $120,000 that has been added to the balance of
the 2000 D2 Convertible Bridge Note; compensation of $125,000 has been
added to the balance of the 2000 Convertible Bridge Note for the Trust
Under Deferred Compensation Plan for D2CO, LLC; and compensation of
$125,000 has been added to the balance of the 2001 Convertible Bridge
Note for the Trust Under Deferred Compensation Plan for D2CO, LLC.
(3) Compensation for the period January 1, 2000 (inception of agreement),
through June 30, 2000, which has been added to the balance of the D2
2000 Convertible Bridge Note.
(4) Represents the difference between the value of warrants to purchase
6,500,000 shares purchased by Southview, Inc., a company owned by
David J. Mitchell, and the amount paid therefor.
6
(5) Consulting fees received according to the agreements between
LoTayLingKyur,Inc., Mark A. Smith, and Bion as reported in our Forms 8-K
dated December 11, 1999, (Item 10.4) and May 21, 1999, (Item 5.1).
(6) Compensation for the period May 21, 1999 (inception of agreement),
through June 30, 1999.
(7) Management deferred and accrued $50,000 of fiscal year
1999 salary as a liability to conserve cash.
(8) The employment of Craig Scott was terminated on April 15, 2001.
(9) The employment of Duane Stutzman was terminated on December 31, 2000.
The salary amount for 2001 includes $60,000 in severance pay through
June 30, 2001.
(10) Management deferred and accrued $30,000 of fiscal year 1999
salary as a liability to conserve cash.
(11) Does not include any options or warrants received in financing
transactions or otherwise purchased.
Compensation of Directors
-------------------------
Effective September 1, 1993, until December 31, 1999, outside directors
were compensated at a rate of $75 per month for their contributions. Members
of the Board of Directors do not currently receive any cash compensation for
their services as Directors, but are entitled to be reimbursed for their
reasonable expenses in attending meetings of the Board.
During the fiscal year ended June 30, 2001, we granted, pursuant to our
2000 Incentive Plan, the following options to our outside directors:
Number of Exercise Expiration
Name of Director Shares Price Date
---------------- --------- -------- ----------
Ronald G. Cullis* 10,000 $2.25 12/31/03
Andrew Gould 75,000 $2.25 12/31/03
Salvatore Zizza 75,000 $2.25 12/31/03
Joseph Wright 20,000 $1.50 12/31/05
------------------
* Mr. Cullis resigned effective September 6, 2001.
Employment Contracts and Termination of Employment and Change in
Control Arrangements
----------------------------------------------------------------
On December 1, 1997, we entered into separate employment agreements with
Jon Northrop, Jere Northrop and M. Duane Stutzman pursuant to which Jon
Northrop and Jere Northrop were each entitled to receive an annual salary of
$150,000 and M. Duane Stutzman was entitled to receive an annual salary of
$120,000. All of the employment agreements were for the period beginning on
December 1, 1997, and ending on December 31, 2002. The employment agreement
with Duane Stutzman was terminated December 31, 2000. The employment
agreement with Jon Northrop was terminated August 31, 2001.
7
The remaining employment agreement provides that Jere Northrop's
compensation will be reviewed no less than once per year with a view to making
such increases in his salary or declaring such bonuses or other benefits as
may be merited and warranted in light of factors considered pertinent by our
Board of Directors. Mr. Northrop is entitled to receive free of cost parking
for his automobile, health, hospitalization and life insurance with coverage
exceeding or equal to that which was then in force through us, as well as such
other benefits as our Board may deem appropriate from time to time. The
subject agreement provides that in the event Mr. Northrop is terminated by us
for any reason other than "for cause," he will continue to be compensated by
us for the duration of the term of the agreement. The agreement also provides
that in the event that we have a change in control at any time during his
term, as a result of which the Board of Directors appoints any person other
than Mr. Northrop to serve in the capacity for which he is entitled to receive
compensation under his agreement, Mr. Northrop will nevertheless be entitled
to receive all of his compensation and benefits under his agreement regardless
of whether he continues to perform any services for us. In addition, the
agreement provides that in the event that Jere Northrop is terminated upon
death or disability, terminated without cause, or terminated upon change in
management, all warrants, options or shares issued but unvested at the date of
termination will become fully vested as of the date of termination.
On May 21, 1999, we also entered into a consulting agreement with Mark A.
Smith and LTLK to perform consulting services for us during the period
beginning on May 21, 1999, and ending on December 31, 2001. In accordance
with the consulting agreement, LTLK received compensation in the form of a
convertible promissory note in the amount of $626,667 and warrants to purchase
626,667 shares of our Common Stock. The terms of the promissory note and
warrants were later modified when the transaction with D2 was consummated (see
"Certain Relationships and Related Transactions").
On December 23, 1999, we entered into a three year management agreement
with D2 pursuant to which D2 provides us with specific management and
consulting services and David J. Mitchell has been appointed to serve as our
Chief Executive Officer, Chairman of our Executive Committee and as one of our
Directors. In accordance with this agreement, D2 received warrants to
purchase 2,500,000 shares of our Common Stock at an exercise price of $2.50
per share until December 31, 2004, and receives ongoing compensation of
$240,000 per year payable in shares of our Common Stock or cash. Also in
accordance with this agreement, we added three members to our Board of
Directors (David J. Mitchell and Salvatore J. Zizza added December 23, 1999,
and Andrew G. Gould added August 10, 2000), and receive consulting services
from Summerwind Restructuring, Inc., which provides the services of consultant
Dominic Bassani, who is acting as Vice President of Operations of Bion
Technologies, Inc. and BionSoil, Inc. at present. We amended this agreement
on August 10, 2000, including (but not limited to) extending the term for one
additional year, issuing additional warrants to D2, and amending certain
provisions of the Shareholders Agreement. See our Form 8-K dated August 3,
2000.
Effective December 1, 2000, the Company amended the D2 management and
consulting agreement by extending the term of the agreement by 18 months,
canceling all outstanding warrants owned by D2 by agreeing to repay to D2
$1,000,000 with $500,000 cash and cancellation of the existing
$500,000 non-recourse promissory note receivable and accrued interest and
increasing the annual base consideration from $240,000 as follows: calendar
year 2001 - $500,000; calendar year 2002 - $600,000; and calendar year 2003 -
$750,000. See our Form 8-K dated December 1, 2000.
8
The original agreement and amendments may be referenced in our Forms 8-K
dated December 11, 1999, August 3, 2000, December 1, 2000 and September 6,
2001.
Incentive Compensation Plans
----------------------------
On July 9, 1993, the Board of Directors adopted the Fiscal Year 1994
Incentive Plan ("Plan"), which was ratified by our shareholders on August 30,
1993. The maximum number of shares of Common Stock that may be issued under
the Plan is the greater of 250,000 shares or 20% of our outstanding Common
Stock. See Item 10 of our Form 10-KSB dated June 30, 1998, for specific
details of this Plan.
On June 14, 1996, the Board of Directors adopted the 1996 Nonemployee
Director Stock Plan ("Director Plan"). The maximum number of shares of Common
Stock that may be issued under the Director Plan is 100,000 shares. See Item
10 of our Form 10-KSB dated June 30, 1998, for specific details of this
Director Plan.
On May 16, 2000, the Board of Directors adopted the 2000 Incentive Plan
("2000 Plan"), which will be submitted for ratification by our shareholders at
the next meeting of the shareholders. The maximum number of shares of Common
Stock, that may be issued under the 2000 Plan is 1,000,000 shares. See
Exhibit 99.5 of our Form 8-K dated August 10, 2000, for specific details of
this 2000 Plan.
On June 5, 2001, the Board of Directors adopted the 2001 Incentive Plan
("2001 Plan"), which will be submitted for ratification by our shareholders at
the next meeting of the shareholders. The maximum number of shares of Common
Stock, that may be issued under the 2001 Plan is 1,500,000 shares. See
Exhibit 10.12 to our Form 8-K dated September 6, 2001.
9
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Security
Ownership of Management
------------------------------------------------------------
The following table sets forth information as of September 30, 2001,
based on information obtained from the persons named below, with respect to
the beneficial ownership of Common Stock by (i) each person known by
management to be the owner of more than 5% of the outstanding Common Stock;
(ii) each officer and director; and (iii) all officers and directors as a
group:
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Owner Percent of Class
------------------- -------------------- ----------------
David J. Mitchell 12,946,389(1) 58.5%
18 E. 50th Street
10th Floor
New York, NY 10022
Mark A. Smith 6,396,389(2) 41.0%
409 Spruce Street
Boulder, CO 80302
Jere Northrop 757,092(3) 5.8%
1961 Tonawanda Creek Rd.
Amherst, NY 14228
Jon Northrop 699,390(4) 5.3%
Suite 600
26 West Dry Creek Circle
Littleton, CO 80120
Southview, Inc. 6,500,000(5) 33.1%
18 E. 50th Street
10th Floor
New York, NY 10022
LoTayLingKyur Foundation 1,716,186 13.1%
409 Spruce Street
Boulder, CO 80302
Dublin Holding, Ltd. 3,611,411(6) 23.8%
C/O Amerilawyer, Ltd.
Attn: Lloyd Rodney, Esq.
Harbor House
P.O. Box 120, Grand Turk
Turks & Caicos Isl., B.W.I.
Salvatore J. Zizza 219,550(7) 1.6%
810 Seventh Ave., 27th Floor
New York, NY 10019
Andrew G. Gould 77,363(8) 0.6%
c/o Bion Environmental
Technologies
18 E. 50th Street, 10th Floor
New York, NY 10022
Joseph Wright 29,550(9) 0.2%
c/o Bion Environmental
Technologies
18 E. 50th Street, 10th Floor
New York, NY 10022
David Fuller 14,167(10) 0.1%
18 E. 50th Street, 10th Floor
New York, NY 10022
Management as a Group 14,044,111(11) 62.5%
(7 persons)
10
------------------
(1) Includes warrants owned by Southview, Inc., a corporation wholly owned
by David Mitchell, to purchase 6,500,000 shares of Common Stock
exercisable until February 16, 2006 and 30,000 shares underlying bridge
warrants held by D2. Also includes 20,000 shares held by a minor child
of David Mitchell. Also includes shares over which David Mitchell holds
voting control through a voting agreement involving shares beneficially
owned by Mark A. Smith including LoTayLingKyur, Inc. ("LTLK") (owned by
Mr. Smith and his wife), the LoTayLingKyur Foundation (operated by Mr.
Smith) and Dublin Holding, Ltd. ("DHL") (voted by Mr. Smith). Does not
include a minimum of 259,832 shares issuable upon the conversion of
convertible notes held by D2 and a trust for D2's benefit since neither
D2 nor the trust have the right to convert such notes within 60 days.
See our Forms 8-K dated December 11, 1999, April 13, 1999, August 10,
2000, December 1, 2000, and September 6, 2001, and Item 12 herein.
(2) Includes 34,154 shares held directly by Mark Smith; 389,672 shares held
jointly with his wife; 52,400 shares held by his wife; 72,079 shares
held by Mark A. Smith IRA Rollover; 55,875 shares held by Kelly Smith
IRA Rollover; 1,716,186 shares held by LoTayLingKyur Foundation which
is controlled by Mark Smith; 57,152 shares held by LoTayLingKyur, Inc.
which is owned by Mark A. Smith and his wife; 1,565,331 shares held
by Dublin Holding, Ltd. which is controlled by Mark Smith. Also
includes 2,453,540 shares which represents the minimum number of shares
issuable upon the conversion of convertible notes held by Mark A. Smith
IRA Rollover, Kelly Smith IRA Rollover and Dublin Holding Ltd.
(3) Includes 381,336 shares held directly by Jere Northrop; 359,010 shares
held by his wife; and 16,746 shares held by a family trust. Does not
include a minimum of 131,214 shares issuable upon the conversion
of convertible notes held by Jere Northrop since he does not have
the right to convert such notes within 60 days. Does not include
shares owned by an adult child of Jere Northrop, 15,080 shares owned
by the Jere and Lynn Northrop Family Foundation, and 79,052 shares
owned by the Jere Northrop Family trust, for each of which Mr.
Northrop disclaims beneficial ownership.
(4) Includes 388,004 shares held directly by Jon Northrop; 204,640 shares
held by his wife; and 16,346 shares held by a family trust. Also
includes 90,000 shares underlying options held by Jon Northrop. Does
not include a minimum of 148,839 shares issuable upon conversion of
convertible notes held by Jon Northrop since he does not have the
right to convert such notes within 60 days.
(5) Southview, Inc., a corporation wholly owned by David Mitchell, owns
warrants to purchase 6,500,000 shares of Common Stock at prices ranging
from $1.00 to $2.00 through February 16, 2006. See Forms 8-K dated
December 1, 2000 and September 6, 2001, and Item 12 herein.
(6) Includes 1,565,331 shares held directly by Dublin Holding, Ltd. and
2,046,080 shares which represents the minimum number of shares issuable
upon the conversion of convertible notes held by Dublin Holdings, Ltd.
11
(7) Includes options held by Mr. Zizza to purchase 75,000 shares of Common
Stock at $2.25 per share until December 31, 2003; shares underlying J1
bridge warrants to purchase 15,000 shares of Common Stock at $1.50 per
share until December 31, 2004; shares underlying a J2 warrant to purchase
100,000 shares of Common Stock at $2.375 per share until December 31,
2004; and shares underlying an underlying J1B bridge warrant to purchase
29,550 shares of Common Stock at $1.50 per share until December 31,
2004. Does not include a minimum of 63,876 shares issuable upon the
conversion of convertible notes held by Mr. Zizza since he does not
have the right to convert such notes within 60 days.
(8) Includes options held by Mr. Gould to purchase 75,000 shares of Common
Stock at $2.25 per share until December 31, 2003; and 2,363 shares
underlying warrants. Does not include a minimum of 3,252 shares
issuable upon the conversion of a convertible note held by Mr. Gould
since he does not have the right to convert such note within 60 days.
(9) Includes warrants held by Mr. Wright to purchase 29,550 shares of Common
Stock. Does not include a minimum of 40,823 shares issuable upon the
conversion of a convertible note held by Mr. Wright since he does not
have the right to convert such note within 60 days.
(10) Includes options to purchase 14,167 shares of Common Stock at $1.85 per
share until December 31, 2003.
(11) Includes 9,324,170 shares underlying options and warrants exercisable
within sixty days and notes that are convertible within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a list of certain relationships and related party
transactions in the previous two years:
During the period beginning July 1, 1999, we entered into numerous
transactions with Mark A. Smith (our Chairman) and/or entities controlled hy
him: LoTayLingKyur, Inc. ("LTLK"), LTLK Defined Benefit Plan, LoTayLingKyur
Foundation, and Dublin Holding Ltd. (collectively "First Parties"), including
the following:
i) From July 1, 1999, to December 21, 1999, we received advances from
LTLK, aggregating $1,035,681, for which LTLK received convertible notes (plus
one Class X Warrant for each $1.00 advanced).
ii) Effective December 20, 1999, pursuant to an agreement between
First Parties and us, (see our Form 8-K dated December 11, 1999):
(a) First Parties exchanged all the convertible promissory notes
for new convertible promissory notes with aggregate principal
of $3,075,797.85 (which amount equaled the principal plus
accrued interest of the prior promissory notes) due at
December 31, 2002;
(b) we received the right to convert such new notes to Common Stock
under specific conditions;
(c) First Parties' Class X Warrants were exchanged for 0.3
restricted shares of Common Stock plus 0.7 Class Z Warrants for
each Class X (in aggregate, 1,172,426 restricted shares of
Common Stock and 2,735,660 Class Z Warrants were issued and
exchanged for 3,908,084 Class X Warrants); and
(d) First Parties agreed to participate in and support a future
registered warrant exchange on specified terms and conditions.
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iii) Commencing August 3, 2000, and at various other effective dates
through the month of August 2000, the First Parties (and certain related
holders of our Class X Warrants and Class Z Warrants) exchanged, in aggregate,
165,198 Class X Warrants and 5,425,440 Class Z Warrants for 863,399 restricted
shares of our Common Stock. This exchange occurred pursuant to an agreement
we had with the warrant holders dated December 20, 1999. See our Form 8-K
dated December 11, 1999, Exhibits 10.4, 10.9, and 10.13. Mark A. Smith,
Chairman, (and affiliates and extended family members of Mr. Smith)
participated in this warrant exchange agreement. For further details see our
Form 8-K dated August 3, 2000, and Exhibit 99.4 thereto.
On December 23, 1999, we entered into the following transactions with D2
Co., LLC and Southview, Inc., which was formerly unaffiliated with us (see our
Forms 8-K dated December 11, 1999 and December 1, 2000):
i) We entered into a three year Management Agreement with D2 Co., LLC
("D2") of which David Mitchell, Chairman, CEO and President of the Company, is
sole member, pursuant to which D2 agreed to provide us specific management and
consulting services; compensation to D2 for such services consists of:
$240,000 per year payable in our Common Stock or cash; and 2,500,000 warrants
exercisable at $2.50 expiring on December 31, 2004.
ii) We entered into a Warrant Purchase Agreement and other agreements
with D2, pursuant to which D2 purchased 2,500,000 warrants, exercisable at
$1.75 expiring on December 31, 2004, for $1,000,000 ($500,000 in cash and
%500,000 in a non-recourse promissory note to us that is secured by the
subject warrants).
iii) On December 23, 1999, D2, Mark A. Smith, Jere Northrop, Jon
Northrop, LoTayLingKyur, Inc., and Dublin Holding, Ltd. entered into a
Shareholders' Agreement which, among other things, provides that D2 will
receive warrants to purchase additional shares of Common Stock, allows D2 to
receive additional shares of Common Stock in lieu of cash payments for its
fee, and grants D2 2,500,000 warrants to purchase additional shares of Common
Stock for an aggregate purchase price of $1,000,000. Effective August 31,
2001 this agreement was amended to remove Jon Northrop as a party.
iv) On August 10, 2000, we amended the Management Agreement with D2
that we entered into on December 23, 1999, which amendment (1) extended the
agreement for D2's services for an additional year; and (2) issued D2
1,500,000 additional warrants (1,000,000 exercisable at $3.50 per share and
500,000 exercisable at $6.00 per share, both exercisable from January 1, 2002,
until August 10, 2005). See our Form 8-K dated August 3, 2000.
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v) On December 1, 2000, the Company made additional amendments to the
D2 management and consulting agreement by extending the term of the agreement
by 18 months, canceling all outstanding warrants owned by D2 by agreeing to
repay to D2 $1,000,000 with $500,000 cash and cancellation of the existing
$500,000 non-recourse promissory note receivable and accrued interest and
increasing the annual base consideration from $240,000 as follows: calendar
year 2001 - $500,000; calendar year 2002 - $600,000; and calendar year 2003 -
$750,000. See our Form 8-K dated December 1, 2000.
vi) Effective January 1, 2001, the Company agreed to make the payments
due under the consulting agreement under a deferred compensation plan to a
"Rabbi Trust" (Trust Under Deferred Compensation Plan for D2CO, LLC) for the
benefit of D2. The payments to the trust for the six months ended June 30,
2001 totaling $250,000 were made in the form of 2000 and 2001 Convertible
Bridge Notes. Commencing July 1, 2001, payments are to be made by the
issuance to the trust of shares of Common Stock on a quarterly basis, based on
the average closing price of the Common Stock during the quarter.
(vii) Effective January 8, 2001, Southview, Inc. ("Southview"), a
corporation wholly owned by David J. Mitchell, Chairman, CEO and President of
the Company, agreed to purchase warrants to purchase 6,500,000 shares of the
Company's common stock for the sum of $500,000 cash payable on or before
February 16, 2001. On February 16, 2001, Southview completed the purchase.
Warrants to purchase 3,250,000 shares of common stock are exercisable at $1.00
per share and warrants to purchase another 3,250,000 shares of common stock
are exercisable at varying prices between $1.00 and $2.00 per share, depending
on the market price of the Company's common stock. All warrants purchased are
exercisable from February 16, 2001 to February 16, 2006.
On May 21, 1999, we made agreements with five parties, including Jon
Northrop, CEO, Jere Northrop, CTO, M. Duane Stutzman, CFO, the Family Trust
U/A 3rd U/W Catherine Northrop and one other employee, whereby we issued long-
term promissory notes to each party in exchange for payables aggregating
$793,500 owed to such parties. See our Form 8-K dated May 21, 1999.
Effective December 15, 1999, we entered into agreements with eight
holders of outstanding promissory notes (Jon Northrop, Jere Northrop, Northrop
Family Trust, M. Duane Stutzman, Harley Northrop, Edward Hennig, William
Crossetta and Craig Scott), pursuant to which each note holder agreed to
exercise either outstanding options or warrants owned by the note holder by
cancellation of the promissory note owned by the holder under certain
specified conditions. Additionally, each note holder agreed to participate in
and support a future registered warrant exchange under specified terms and
conditions. See our Form 8-K dated December 11, 1999.
Effective August 29, 2001, we amended the above agreements with holders
of the outstanding promissory notes, pursuant to which each note holder agreed
extend the maturity date to April 30, 2002, cancel certain outstanding options
owned by the note holder, and change the terms of the note so that outstanding
principal and interest shall be completely converted to shares of the
Company's Common Stock upon the earlier of April 29, 2002 or the conversion of
the Company's outstanding Convertible Bridge Notes which conversion shall take
place at the lower of: i) $2.25 per share, or ii) the conversion price of the
convertible bridge notes. See our Form 8-K dated September 6, 2001.
Effective August 23, 2000, certain holders of our Class X Warrants and
Class Z Warrants, including without limitation, Jon Northrop, who was then a
Director and President, and Jere Northrop, Director and Chief Technology
Officer (and their extended families), agreed to exchange, in aggregate,
471,545 Class X Warrants and 855,696 Class Z Warrants for 269,831 restricted
shares of our Common Stock. This exchange occurred pursuant to the terms of
agreements dated December 20, 1999. See our Forms 8-K dated December 11,
1999, and August 10, 2000.
14
Andrew G. Gould joined our Board of Directors on August 10, 2000. In
addition to his duties as a director, Mr. Gould, through Arthur P. Gould &
Co., Inc., a company that he owns, will provide us with an average of
approximately ten (10) hours per month of technology consulting services
through August 31, 2002, at no cost to us. We have granted Mr. Gould options
to purchase 75,000 shares of our Common Stock at a price of $2.25 per share,
exercisable until December 31, 2003. See our Form 8-K dated August 3, 2000.
Beginning August 10, 2000, Salvatore J. Zizza, one of our directors, has
served as our governmental affairs liaison and provide additional consulting
services through September 1, 2002 for which he receives no additional
compensation. We granted Mr. Zizza options to purchase 75,000 shares of our
Common Stock at a price of $2.25 per share, exercisable until December 31,
2003, and issued him 100,000 Class J-2 warrants purchasing Common Stock at a
price of $2.375 per share. We will provide Mr. Zizza with office space in our
New York City office. See our Form 8-K dated August 3, 2000.
Effective June 6, 2001, Joseph R. Wright, Jr. was elected to our
Board of Directors. Mr. Wright received options to purchase 20,000 shares of
unrestricted common stock at $1.50 per share, with 10,000 shares vesting on
June 6, 2002 and 10,000 shares vesting on June 6, 2003, and all shares are
exercisable until December 31, 2005. See our Form 8-K dated April 26,2001.
On April 13, 2000, we completed a private placement offering of
$4,156,425 consisting of $4,095,000 in long term convertible bridge debt and
$61,425 for the purchase of 1,213,500 warrants exercisable at $2.375 per share
until December 31, 2004. See our Form 8-K dated April 13, 2000. D2 and
Salvatore Zizza participated in this offering on the same terms as
unaffiliated third parties. D2 purchased four units ($100,00 convertible debt
and 30,000 warrants) and Mr. Zizza purchased two units ($50,000 convertible
debt and 15,000 warrants). Effective September 15, 2000, we amended certain
terms of the convertible bridge notes upon approval of the holders of a
majority of the notes concerning changes to the conversion procedure and
amended exercise prices on the Bridge Warrants. See our Form 8-K dated August
10, 2000. Effective February 24, 2001, we further amended certain terms of
the convertible bridge notes upon approval of the holders of a majority of the
notes concerning changes to the conversion procedure and maturity date and
amended the call price and exercise prices on the Bridge Warrants. See our
Form 8-K dated February 6, 2001.
On June 8, 2001, we completed private placement offerings of $2,565,125
consisting of $2,527,218 in short term convertible debt and $37,906 for the
purchase of 758,138 warrants exercisable at $1.50 per share until December 31,
2005. See our Form 8-K dated April 26, 2001. Salvatore Zizza, Andrew Gould
and Joseph Wright each participated in this offering on the same terms as
unaffiliated third parties. Messrs. Zizza and Wright each purchased
convertible notes of $98,552 and 29,550 warrants. Mr. Gould purchased a
convertible note of $7,882 and 2,363 warrants.
Directors and officers were issued options and warrants as disclosed in
Item 10 Executive Compensation in this Form 10-KSB, above.
The following transactions occurred effective on September 6, 2001:
(a) Severance Agreements. We entered into severance agreements with Jon
Northrop and the only other employee that remained in our Denver, Colorado
office. As a result, we no longer have any employees in Denver and
substantially all of our business operations are conducted out of our office
in New York City, although we will continue to have a small office in Denver
which will be used by Mr. Northrop in his capacity as our consultant.
15
(b) Restructuring of Notes to Related Parties and Cancellation of
Options and Warrants. We have amended the terms of certain notes that we owe
to certain related parties and have cancelled certain outstanding options and
warrants held by them. The accrued amounts due under notes that we amended
are as follows:
Amount of Accrued Debt
Holder (Accrued to November 1, 2001)
------ -----------------------------
Jon Northrop $ 337,466
Jere Northrop $ 297,531
Harley Northrop $ 397,865
Northrop Family Trust $ 136,150
Edward A. Hennig $ 159,173
M. Duane Stutzman $ 181,106
William J. Crossetta $ 279,000
S. Craig Scott $ 49,804
Dublin Holding Ltd. $3,682,944
Mark Smith Rollover IRA $ 393,556
Kelly Smith Rollover IRA $ 339,870
----------
TOTAL $6,254,465
The provisions of the agreements vary for each debt holder, with
cancellations of certain options and warrants. All of the subject debt is
convertible to shares of our Common Stock or before April 29, 2002, subject to
certain conditions precedent.
(c) Mark Smith Agreements.
- Mark Smith and certain entities related to him which own shares
of our Common Stock (the "Smith Shares") entered into a voting
agreement that gives David Mitchell, our President and CEO, the
power to vote all of the Smith Shares as to most matters, but Mr.
Smith will still have the right to vote the Smith Shares with
respect to a sale of substantially all of our assets or a merger.
The voting agreement is purely contractual and is not a formal
voting trust.
- In addition, Mr. Smith and certain entities that he controls
entered into a separate agreement with us which imposes certain
restrictions on the sale and transfer of the Smith Shares and
amends the respective terms of five convertible promissory notes
payable to Dublin Holding, Ltd, the Mark A. Smith Rollover IRA
and the Kelly Smith Rollover IRA to provide that all five of
these notes will be automatically and fully converted (with all
principal and accrued interest calculated as if they had been
held to maturity) into shares of our Common Stock upon the
conversion of our outstanding Convertible Bridge Notes and 2001
Convertible Notes at a conversion rate equal to the lesser of (i)
$1.80 per share or (ii) the conversion price of our outstanding
Convertible Bridge Notes and 2001 Convertible Notes.
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(d) D2CO, LLC Agreements.
We entered into an agreement with D2CO, LLC, Southview, Inc. and Atlantic
Partners, LLC, all of which are affiliates of David Mitchell, our President
and CEO (collectively, "D2") in which, among other things, we agreed to:
- provide that certain compensation to D2 be paid in a deferred
manner as set forth in an exhibit to the agreement;
- be a party to the voting agreement that gives David Mitchell the
power to vote all of the Smith Shares as to most matters;
- release Jon Northrop from the restrictions related to the sale of
shares of our Common Stock owned by him that are contained in the
Shareholders Agreement dated December 23, 1999, as amended; and
- amend the SV1 and SV2 Warrants held by D2 so that upon earlier of
(i) completion of financing or series of financings large enough
to "trigger" the conversion of Bion's outstanding Bridge Notes
and 2001 Convertible Notes (collectively "CV Notes") into Bion
Common Stock; or (ii) conversion of the CV Notes into Bion Common
Stock on April 29, 2002, the outstanding Class SV1 and SV2
Warrants owned by D2 will be adjusted ("Adjusted Warrants") so
that D2 owns Adjusted Warrants to purchase a number of shares of
Bion Common Stock equal to 20% of the "fully_diluted" outstanding
shares, calculated by including (i) the Adjusted Warrants, (ii)
the securities issued in the conversion of the CV Notes and other
notes, (iii) the securities issued in connection with the subject
financing, and (iv) other outstanding options, warrants and/or
convertible promissory notes which are exercisable or
convertible, as applicable, at a price equal to or lower than the
exercise price of the Adjusted Warrants, which Adjusted Warrants
will have the same expiration date as the current SV1 and SV2
Warrants and will have an exercise price equal to the lower of
$1.00 per share or the conversion price of the CV Notes;
provided, however, that for purposes of calculating the number of
Adjusted Warrants, no securities outstanding related to any
portion of a financing aggregating greater than $10,000,000 will
be included in the calculation. As partial consideration for our
agreeing to the adjustment to the warrants, Southview agreed to
extend the term of the outstanding promissory note (with an
accrued balance of $521,039.81 as of July 31, 2001)so that such
promissory note could be repaid from the proceeds of a new
financing.
All past and future and ongoing transactions with affiliates are and will
be on terms which our management believes are no less favorable than could be
obtained from non-affiliated parties. All future and ongoing loans to our
affiliates, officials and shareholders will be approved by the majority vote
of disinterested directors.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this Amendment to be signed on its behalf by
the undersigned thereunto duly authorized.
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Date: October 25, 2001 By:/s/ David J. Mitchell
David J. Mitchell, President
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