SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: April 12, 2003
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(Date of earliest event reported)
Bion Environmental Technologies, Inc.
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(Exact Name of Registrant as Specified in its Charter
Colorado 001-31437 84-1176672
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(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
18 East 50th Street, 10th Floor, New York, NY 10022
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(Address and Zip Code of Principal Executive Offices)
Registrant's telephone number including area code: (212) 758-6622
Item 5. Other Events.
LIQUIDITY UPDATE.
During the period from April 12, 2003 through June 6, 2003, Bright
Capital, Ltd. ("Brightcap"), an entity owned and controlled by Dominic
Bassani, a consultant whose services were provided to us as part of our
management agreement with D2CO, LLC ("D2") (see discussion below), made
further advances to us pursuant to the letter agreement attached hereto as
Exhibit 99.1. These advances to us total approximately $445,000 as of June 6,
2003 and were made for the purpose of providing funds to allow us to be able
to pay operating expenses that are critical to our operations, primarily
consisting of salaries paid to retain critical personnel (which now consists
of six employees), to take actions to protect and expand our intellectual
property and to commence work on a system installation in Texas. Brightcap
has agreed to lend us the money that we need (up to an amount not to exceed
approximately $600,000, unless agreed otherwise) to pay these expenses as an
additional loan on an as-needed basis (the "Brightcap Bridge Loan"), and to
convert all of the amounts due under the Brightcap Bridge Loan to amounts that
will become due under the same identical terms that the investors will receive
in the first of a series of anticipated financings consisting of mandatorily
convertible debt which are intended to be accomplished in 2003 through Bion
Dairy Corporation, one of Bion's wholly-owned subsidiaries (the "Bion Dairy
Financing").
Brightcap had lent us money in the past pursuant to a Secured Promissory
Note dated March 28, 2003 (the "Secured Note"), and in connection with that
loan we had granted Brightcap a security interest in certain of our tangible
assets pursuant to a related Security Agreement (the "Security Agreement").
The Secured Note bears interest on the unpaid principal at the simple rate of
six percent (6%) per annum, and all principal and accrued interest becomes
payable on March 28, 2004. All of the amounts provided to us under the
Brightcap Bridge Loan (plus prior advances from Brightcap, directly and/or
indirectly through D2, since January 1, 2003 which had not been previously
included in the Secured Note) were added as principal due under the existing
Secured Note.
All of the obligations due under the Secured Note will automatically and
mandatorily convert to being an obligation under the Bion Dairy Financing
contemporaneously with the issuance of the first convertible note under the
Bion Dairy Financing; provided, however, that to the extent any funds are
realized from the disposition of tangible assets under the existing Security
Agreement, all of such funds will be utilized to reduce the amount due under
the Secured Note and will not be converted (or, if received after the Secured
Note has already been converted, such funds will be paid to Brightcap and
applied to reduce the principal of the convertible notes received in the Bion
Dairy Financing despite any prohibition on prepayment).
As collateral for the Brightcap Bridge Loan, Bion and its subsidiaries
have now granted Brightcap an additional security interest in all of their
intellectual property, including without limitation, patents, patent
applications, trade secrets and technical know-how (the "Intellectual Property
Collateral") pursuant to an amendment to the existing Security Agreement.
Brightcap has acknowledged that the Intellectual Property Collateral is
exactly the same collateral that we plan to grant as security to note holders
in connection with the Bion Dairy Financing. Accordingly, Brightcap has
agreed that: (a) even though Brightcap was granted a security interest in the
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Intellectual Property Collateral under the Brightcap Bridge Loan, Brightcap
specifically consented to the anticipated granting of a security interest in
the same collateral to the holders of notes under the Bion Dairy Financing
after the date of the Brightcap Bridge Loan; (b) Brightcap will share its
security interest in the Intellectual Property Collateral in pari pasu with
the holders of any notes that are issued in the future pursuant to the Bion
Dairy Financing; (c) Brightcap's security interest in the Intellectual
Property Collateral will not be senior to the security interest granted to the
holders of the notes under the Bion Dairy Financing, irrespective of the
date(s) on which such security interests were granted; and (d) Brightcap will
execute and deliver any documents reasonably requested by us and/or
participants in the Bion Dairy Financing in that regard.
Also, as of June 6, 2003, we owe approximately $900,000 to unsecured
creditors in addition to the amounts that we currently owe to Brightcap as
discussed above and $487,500 that we currently owe to The Trust Under Deferred
Compensation Plan for D2CO, LLC (the "D2 Trust") for past management services.
It should be noted, however, that the amounts currently owed by us to the D2
Trust will be converted into shares of our Common Stock (unless otherwise
agreed in writing) upon the earlier to occur of (a) a $5 million or greater
equity financing(s) by us, in which case the amount payable will be converted
into shares of our Common Stock at the equity price of the financing (or, in
the event that the $5 million in equity financing is obtained in a series of
more than one financing, the price of the equity financing which pushes the
aggregate total of the financings above $5 million), or (b) March 31, 2005, at
the then current market price of our Common Stock. (Please see our Current
Report on Form 8-K dated March 25, 2003).
Although we are currently seeking other outside sources of capital, as of
this date we have not been able to secure financing that is necessary for our
current and future operations and there can be no assurance that sufficient
funds will be available from external sources. Further, there can be no
assurance that any such required funds, if available, will be available on
attractive terms or that they will not have a significantly dilutive effect on
our existing shareholders. Since we do not yet have the ability to generate
cash flow from operations, we have substantially curtailed our current
business activities and we may need to cease operations if we are not able to
immediately raise capital from outside sources. This would have a material
adverse effect on our business and our shareholders.
WAIVER OF POST-CLOSING ADJUSTMENT PROVISIONS BY OAM AND CENTERPOINT
Effective as of May 29, 2003, we and Centerpoint Corporation, our
majority-owned subsidiary, entered into an agreement (the "OAM Agreement", a
copy of which is attached hereto as Exhibit 99.2) with OAM, S.p.A., an Italian
corporation ("OAM") which is the former parent of Centerpoint that sold to us
its majority ownership interest in Centerpoint on January 10, 2002 pursuant to
a series of agreements dated as of that date among us, OAM, Centerpoint and
others (the "Transaction Documents"). The Transaction Documents contain
certain Post-Closing Adjustment provisions that have made it economically
undesirable for outside investors to provide investment capital to us which
has resulted in our current severe financial difficulties. In the OAM
Agreement, OAM has agreed to waive these "Post-Closing Adjustment" provisions
as they would apply to any of our financings or other transactions or
issuances. The OAM Agreement also clarifies certain disputed matters
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between OAM and Centerpoint concerning costs and expenses related to certain
litigation and arbitration claims in which Centerpoint owns a 35% interest.
The OAM Agreement requires us to use our best efforts to cause
Centerpoint to hold a special meeting of its stockholders in New York City
within sixty days of May 29, 2003 for the purpose of seeking formal
stockholder ratification of an existing agreement between us and Centerpoint
effective February 12, 2003 (the "Amended Centerpoint Agreement," a copy of
which is attached as Exhibit 99.3) in which Centerpoint also agreed, among
other things, to waive certain "Post-Closing Adjustment" provisions contained
in the Transaction Documents. The waiver of the subject Post-Closing
Adjustment provisions by OAM in the OAM Agreement will not be effective unless
Centerpoint stockholder ratification is obtained as discussed below.
Bion has been informed by investment banking firms, potential outside
investors and others that the Post-Closing Adjustment provisions contained in
both the OAM Agreement and the Amended Centerpoint Agreement have made it
economically undesirable for outside investors to provide capital to Bion.
Bion believes that it is in the best interests of the Centerpoint stockholders
to waive the subject Post-Closing Adjustment provisions because Centerpoint
holds a significant number of Bion shares that may become worthless if Bion
does not receive financing. Bion has been and continues to be unable to
obtain needed outside financing due to the Post-Closing Adjustment provisions.
Unless a majority of the Centerpoint stockholders (other than Bion) present at
a meeting either in person or by proxy ratifies the Amended Centerpoint
Agreement which, in addition to other matters, waives the Post-Closing
Adjustment provisions, Bion's ability to obtain outside financing will be
extremely limited.
Upon ratification of the Amended Centerpoint Agreement by a majority of
the Centerpoint stockholders (other than Bion) present at a meeting either in
person or by proxy, the OAM Agreement also requires Bion, among other things,
to pay (i) to OAM the sum of $80,000, and (ii) on behalf of OAM, the sum of
$10,000 to reimburse OAM for certain of its legal fees incurred in connection
with the negotiation of the OAM Agreement. Full and final payment of these
amounts is a condition precedent to the effectiveness of OAM's waiver of the
subject Post-Closing Adjustment provisions. The OAM Agreement also requires a
third party to pay OAM the sum of $25,000 to purchase Bion shares from OAM.
Additionally, in connection with the execution of the OAM Agreement, Bion
and Centerpoint have agreed to allow a consultant to Bion which is an
affiliate of OAM to receive its consulting fees (approximately $19,000) from
Centerpoint's share of settlement proceeds, if any, of the Aprilia
arbitration.
We currently anticipate that a meeting of the Centerpoint stockholders
will be held during the second half of July of this year for the purpose of
seeking stockholder ratification of the Amended Centerpoint Agreement.
TEXAS INSTALLATION
During the second half of May, 2003 we commenced construction of a second
generation Bion Nutrient Management System ("NMS") on the Devries dairy in
Texas (which milks approximately 1150 cows) as a retrofit of the dairy's
existing lagoon. We anticipate start-up to occur during the second half of
June of this year. The purpose of this installation is to demonstrate the
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capacity of our second generation NMS to remove nutrients (primarily nitrogen
and phosphorus) from the waste stream. We consider the success of this system
at the Devries Dairy in Texas to be extremely important in demonstrating the
effectiveness of the Bion NMS.
Item 7. Financial Statements and Exhibits.
The following documents are filed as exhibits to this Form 8-K:
Exhibit No. Description
99.1 Letter Agreement with Bright Capital, Ltd.
99.2 Agreement with OAM, S.p.A.
99.3 Amended Agreement with Centerpoint Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Date: June 10, 2003 By: /s/ Mark A. Smith
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Mark A. Smith, President
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