Exhibit 10.5
INVESTMENT REPRESENTATION AGREEMENT
Bion Environmental Technologies, Inc.
000 00xx Xx. Xxxxx 0000
Xxxxxx, XX 00000
Gentlemen
1. Subscription. Memorializing the agreement made on
December 1, 1996 between Bion Environmental Technologies, Inc.
("Company") and ________________ ("Purchaser"), Purchaser hereby
agrees to purchase from the Company _______ shares of the
restricted and legended Common Stock of the Company plus 1.5
warrants per share to purchase additional shares of the Company's
common stock at a per share price of $6.00 for a period
commencing January 1, 2001 and expiring December 31, 2001
(collectively the "Securities"), in a private negotiated
transaction pursuant to Section 3(b) and/or 4(2) or other
applicable provisions of the Securities Act of 1933, as amended
("Act"), (and the regulations promulgated thereunder) at a price
of $__________.
2. Representations and Warranties. The undersigned warrants
and represents to the Company (and its shareholders, affiliates
and agents) that:
a. The Securities are being acquired by the undersigned
for investment for its own account, and not with a view to the
offer or sale in connection therewith, or the distribution
thereof, and that the undersigned is not now, and will not in the
future, participate, directly or indirectly, in an underwriting
of any such undertaking except in compliance with applicable
registration provisions of the Act.
b. The undersigned will not take, or cause to be taken,
any action that would cause it or the Company to be deemed an
underwriter of the Securities, as defined in Section 2(11) of the
Act.
c. The undersigned has been afforded an opportunity to
examine such documents and obtain such information concerning the
Company as it may have requested, including without limitation
all publicly available information, and has had the opportunity
to request such other information (and all information so
requested has been provided) for the purpose of verifying the
information furnished to it and for the purpose of answering any
questions it may have had concerning the business affairs of the
Company and it has reviewed to the extent desired by it the Arti
cles, Bylaws and minutes of the Company, documentation concerning
the Company's financial condition, assets, liabilities, share
ownership and capital structure, lack of operations and sales,
lack of assets, including without limitation its S.E.C. filings
(including Form 10K-SB/A for the fiscal year ended June 30, 1996,
Form 10Q-SB for the quarter ended September 30, 1996, and Form 8K
dated August 30, 1996 and other material documents and have
reviewed all of the terms of the acquisition of Bion
Technologies, Inc. by the Company ("Acquisition") and understand
the terms of the Acquisition and that the Company was a "shell"
corporation with no assets and no operations prior to the
Acquisition.
d. The undersigned (and its officers, directors and
principals as applicable) have had an opportunity to personally
ask questions of, and receive answers from, one or more of the
officers and directors of the Company and/or the attorneys for
the Company to ascertain and verify the accuracy and completeness
of all material information regarding the Company, its business
and its officers, directors, and promoters. The undersigned has
had an opportunity to ask questions of and receive answers from
duly designated representatives of the Company concerning the
terms and conditions pursuant to which the Securities are being
acquired by it.
e. It understands that its acquisition of the Securi
ties is a negotiated private transaction.
f. By reason of its knowledge and experience (and that
of its principals, officers and directors and their respective
attorneys, advisors and investment bankers) in financial and
business matters in general, and investments in particular, it is
capable of evaluating the merits and risks of an investment in
the Securities.
g. The undersigned is capable of bearing the economic
risks of an investment in the Securities.
h. The undersigned's present financial condition is
such that it is under no present or contemplated future need to
dispose of any portion of the Securities to satisfy any existing
or contemplated undertaking, need or indebtedness.
i. If required to do so, it has retained to advise it,
as to the merits and risks of a prospective investment in the
Securities, a purchaser representative, legal counsel, financial
and accounting advisors, investment bankers, etc.
j. The undersigned hereby represents and warrants to
the Company that all of the representations, warranties and
acknowledgements contained in this agreement are true, accurate
and complete as of the date herein and acknowledges that the
Company, its officers, directors, agents, and affiliates have
relied on its representations and warranties herein in consenting
to the restricted issuance and/or transfer of the Securities and
the undersigned hereby agrees to indemnify and hold the Company
(together with its respective officers, directors, agents and
affiliates) harmless with respect to any and all expenses, claims
or litigation (including without limitation reasonable attorneys'
fees related thereto) arising from or related to breach of any
warranty or representation herein.
3. Restrictions on Transferability: The undersigned acknow
ledges and understands that the Securities are unregistered and
must be held indefinitely unless they are subsequently registered
under the Act or an exemption from such registration is availa
ble.
The undersigned further acknowledges that it is fully aware
of the applicable limitations on the resale of the Securities.
Rule 144 (the "Rule") permits sales of "Restricted Securities"
held for not less than two years and upon compliance with the
requirements of such Rule. Further, the Securities must be sold
in an active market and appropriate information relating to the
Company must be generally available in order to effectuate a
transaction pursuant to the Rule by an affiliate of the Company.
There is currently only an extremely limited and "thin"
trading market in securities of the Company on the
over-the-counter market, and there is no assurance that it will
continue or that any active trading market will ever develop, or
if such a trading market develops, that it will grow and/or
continue.
Any and all certificates representing the Securities and any
and all securities issued in replacement or conversion thereof or
in exchange therefor shall bear the following legend, or one sub
stantially similar thereto, which the undersigned has read and
understands:
The securities represented by this Certificate have not
been registered under the Securities Act of 1933 (the
"Act") and are "restricted securities" as that term is
defined in Rule 144 under the Act. The securities may
not be offered for sale, sold or otherwise transferred
except pursuant to an effective registration statement
under the Act or pursuant to an exemption from
registration under the Act, the availability of which
is to be established to the satisfaction of the
Company.
The undersigned further agrees that the Company shall have
the right to issue a stop transfer instruction to its transfer
agent, if any, or to note a stop transfer instruction in its
stockholder records, and it acknowledges that the Company has
informed it of its intention to issue such instructions when and
if necessary.
4. Notices. Any notices or other communications required or
permitted hereby shall be sufficiently given if sent by regis
tered or certified mail, postage prepaid, return receipt
requested, and, if to the Company, at the address to which this
agreement is addressed, and if to the undersigned, at the address
set forth below my signature hereto, or to such other addresses
as either you or the undersigned shall designate to the other by
notice in writing.
5. Registration Rights. In the event that the Company
shall file a registration statement (or similar document) with
the U.S. Securities & Exchange Commission on the Company's equity
securities on a form which would legally allow inclusion of the
shares of the Company's common stock issued pursuant hereto, the
Company will include such shares in such registration statement
at the Company's sole cost; PROVIDED, HOWEVER, in the event of a
registration statement involving an underwriter, such underwriter
shall have the right, in its sole discretion, to impose
restrictions on the resale of the Company's securities issued
pursuant hereto and/or eliminate this registration right from the
underwritten registration statement in its entirety.
6. Successors and Assigns. This agreement shall be binding
upon and shall inure to the benefit of the parties hereto and to
the successors and assigns of the Company and to the personal and
legal representatives, heirs, guardians, successors and permitted
assignees of the undersigned.
7. Applicable Law. This agreement shall be governed by and
construed in accordance with the laws of the State of Colorado
and, to the extent it involves any United States statute, in
accordance with the laws of the United States, and jurisdiction
and venue for any dispute related hereto shall be in a court of
general jurisdiction located in Denver, Colorado.
Purchaser
_________________________ By: _____________________________
Name Signature
_________________________ ___________________________________
Social Security Number Address
Date: ___________________________
ACCEPTED:
Bion Environmental Technologies, Inc.
By: ______________________ Date: _______________________
Authorized Officer
RISK FACTORS
The securities being offered hereby are speculative in
nature and involve a high degree of risk. Following is a summary
discussion of some of the risk factors applicable to an
investment in the securities. Prospective investors should
thoroughly consider all of the risk factors discussed below and
should understand that there is substantial risk they will lose
all or part of their investment. No person should consider
investing who cannot afford to lose his entire investment or who
is in any way dependent upon the funds that he is investing.
1. Lack of Operating History. Substantially all of the
Company's business activities are conducted through its
subsidiaries, which have been in the development stage until
recently. Potential investors should be aware of the
difficulties encountered by a new enterprise, especially in view
of the intense competition from existing and more established
companies in the wastewater, waste management, environmental
control, and soils products businesses which will be the
principal focus of the Company. Since commercial operations have
only recently commenced, the Company is without a history of
significant revenues.
2. No Profitable Operations. From inception to date,
neither the Company nor its subsidiaries has ever sustained any
profitable operations. Although the subsidiaries have now
commenced sales of wastewater treatment systems, BionSoilO
production systems, and BionSoilO and expect to generate
sufficient revenues from these operations to pay operating
expenses in the future, there can be no assurance that profitable
operations will ever be achieved or sustained in the future. In
the past, the subsidiaries have been dependent upon infusions of
capital from investors and proceeds from loans to enable them to
continue in business. In the event the Company is unable to
achieve sustained profitable operations in the future, it is
likely that any investment in the Shares will ultimately be lost.
3. Immediate Need for Additional Capital and "Going
Concern" Qualification of Independent Auditor's Report. The
Company has incurred losses from inception totalling $5,903,824
at June 30, 1996, and $6,321,791 at September 30, 1996, and the
Company has thus far failed to generate adequate working capital
from operations. The Company's audited financial statements for
the fiscal period ended June 30, 1996 (and unaudited financial
statements for the fiscal period ended September 30, 1996) have
been prepared assuming that the Company will continue as a going
concern because continued losses without additional equity
capital raise substantial doubt about its ability to continue in
business during the next twelve months. Management anticipates
that in order for the Company to survive for the next three
months, it will be necessary to obtain outside funding of
approximately $500,000, and that in order for the Company to
survive for the next twelve months, it will be necessary for the
Company to obtain additional outside funding of approximately
$1,500,000 (about one-half of which will be utilized to fund
anticipated growth). It is presently anticipated that it will be
necessary for the Company to obtain additional funding from some
other source(s) in order to meet its expected working capital
needs during the next twelve months. Accordingly, it is
anticipated that management will be engaged in attempts to obtain
additional funds from one or more other outside sources (the
availability, terms and viability of which are currently
unknown).
4. Dependence on Management. The success of the Company
is and will continue to be substantially dependent on the efforts
of Xxx Xxxxxxxx, CEO and Xxxx Xxxxxxxx, President. Pursuant to
existing employment agreements, Messrs. Northrop devote
substantially all of their time to the Company's affairs. The
Company is wholly dependent, at present, upon the personal
efforts and abilities of certain of its officers and directors.
Loss of the services of these key employees would have a material
adverse effect on the Company. The Company carries key-man life
insurance in the amount of $1,500,000 on the lives of Xxxx
Xxxxxxxx, President, and Xxx Xxxxxxxx, CEO.
5. Conflicts of Interest. The Company and the Subsidiary
have entered into several agreements which were not negotiated at
arm's length. On March 23, 1990, the Company acquired through a
merger 100% of the outstanding stock of Biocycle, Ltd. and
Zabion, Ltd. (predecessor companies to one subsidiary, one of
which was at that time controlled by Xxxx Xxxxxxxx and Xxxxxx X.
Xxxxxxxx (father of Xxx and Xxxx Xxxxxxxx)), including their
patents and rights to certain proprietary knowledge. On July 12,
1993 the Company entered into employment agreements with Messrs.
Xxx Xxxxxxxx and Xxxx Xxxxxxxx. The Company believes that these
agreements were negotiated on terms at least as favorable to the
Company as those which could have been obtained from unaffiliated
persons.
6. Control by Management and Existing Shareholders. As of
the date of this offering, present management (together with
their affiliates) control approximately 52.7% of the Company's
outstanding Common Stock and can elect all of the Company's
directors, appoint its officers and control the Company's affairs
and operations. The Company's Articles of Incorporation do not
provide for cumulative voting.
7. Limited Development of Technology and Uncertain Market
Acceptance. The wastewater treatment systems developed and
marketed to date by the Company have been limited to certain
agricultural and food processing applications and have not yet
been expanded into other markets. The Company has not yet
completed the development of all of the wastewater treatment
system applications that will be necessary to address targeted
market applications and geographic areas and anticipates a
continuing need for the development of additional applications.
Although management believes that the Company's existing
technology is sufficient to support development of additional
commercial applications, no assurance can be given that new
applications can be developed or that existing and/or new
applications will achieve commercially viable sales levels. The
Company has conducted no formal market studies with respect to
its technology and services. It is anticipated that the
achievement of any significant degree of market acceptance for
the Company's wastewater treatment systems and products will
require substantial marketing efforts and the expenditure of
significant amounts of funds to inform potential customers of the
distinctive characteristics and benefits of such products. There
can be no assurance that the Company's proposed products will
ultimately be accepted by targeted industries, and there can be
no assurance that substantial revenues will ever be realized from
sales of the Company's products.
8. Competition. Although the Company believes that its
systems offer many significant advantages over other competing
technologies or systems, competition in the biological wastewater
treatment industry is intense. The Company is in direct
competition with local, regional and national engineering and
environmental consulting firms and soils products companies, and
some of these companies may be capable of developing soils
products or wastewater treatment systems similar to those being
developed by the Company or based on other technologies that are
competitive with the Company's products. Many of those companies
are well-established and have substantially greater financial and
other resources than the Company.
9. Obsolescence and Technological Change. The Company's
business is susceptible to changing technology. Although the
Company intends to continue to develop and improve its wastewater
treatment systems, there can be no assurance that funds for such
expenditures will be available or that the Company's competitors
will not develop similar or superior capabilities.
10. Potential Lack of Adequate Patent and Trade Secret
Protection. The Company has limited patent protection on certain
aspects of its technology for its wastewater treatment systems
and soils products and it possesses certain proprietary
processes. The Company intends to obtain additional patents or
other appropriate protection for its technology. Additionally,
the Company uses nondisclosure contract provisions and license
arrangements which prohibit the disclosure of the Company's
proprietary processes. However, there can be no assurance that
the Company can effectively protect against unauthorized
duplication or the introduction of substantially similar
products. The Company's ability to compete effectively with
other companies is materially dependent upon the proprietary
nature of the Company's patents and technologies. There can be
no assurance that the Company will be able to obtain any
additional key patents or other protection for its technology.
In addition, the invalidation of key patents or proprietary
rights owned by the Company could have an adverse effect on the
Company and its business prospects.
11. Governmental Regulations. As the Company does not
itself discharge any substantial waste of any kind during the
normal course of its business (and does not itself discharge any
wastewater into the environment) it is not itself subject to
governmental regulation. However, the Company is in the business
of helping its customers solve problems associated with their
discharge of wastewater into the environment, and most of the
Company's systems and services are subject (both directly and
indirectly) to federal, state and local government regulation,
and many are subject to extensive testing procedures. The
effects of regulatory bodies could delay the Company's marketing
efforts for a considerable time and ultimately could prevent the
completion of projects. The regulations pertaining to the
environment which may impact on the Company's systems are
continually changing. While the Company believes that such
regulatory changes are favorable to the Company's business since
such regulations may require the use of the Company's systems (or
similar systems), there can be no assurance that, in the future,
such regulations will not cause the Company additional economic
expenses.
12. Use of Proceeds Not Certain. The proceeds of this
offering have been allocated by the Company to working capital
for general corporate purposes. Specific uses of investor's
funds will depend upon the business judgment of management.
Investor must therefore rely on management's judgment with only
limited information about management's specific intentions.
13. Determination of Offering Price of Shares. The price
of the Shares offered hereby has been established by management
of the Company. Accordingly, investors are cautioned that the
offering price of the Shares does not have any direct
relationship to the Company's current assets, earnings, book
value or any other objective criteria of value, and in no event
should such price be regarded as an indication of any future
value of the securities.
14. Shares Available for Resale. Of the Company's
presently outstanding shares of Common Stock, approximately
870,836 shares are "restricted securities" which may in the
future be sold upon compliance with Rule 144 adopted under the
Securities Act of 1933, as amended (the "Act"). Generally, Rule
144 provides that a person holding "restricted securities" for a
period of at least two years may sell every three months, in
brokerage transactions, an amount equal to the greater of one
percent of the Company's outstanding shares of Common Stock or
the average weekly reported volume of trading for the securities.
There is no limitation on the amount of "restricted securities"
which may be sold by a person who has been the beneficial owner
of such restricted securities for more than three years, and who
is not an "affiliate" (and has not been an "affiliate" for at
least 90 days prior to the date of such sales). The currently
outstanding restricted securities of the Company were issued
between April 1992 and November 30, 1996, and such restricted
securities will become available for resale pursuant to Rule 144
on dates from April 1994 through November 30, 1999. Investors
should be aware that such sales under Rule 144 may, in the
future, have a depressive effect on the price of the Company's
Common Stock.
15. No Dividends and None Anticipated. The investor is
cautioned that the Company has never paid any dividends on any
class of stock in its past, and that because of its present
financial status and its contemplated financial requirements, it
does not anticipate paying any cash dividends upon any class of
its stock in the immediately foreseeable future.
16. Potential Liabilities and Lack of Insurance Coverage
for Damage to the Environment. The Company is in the business of
helping its customers solve problems associated with their
discharge of wastewater into the environment. As the Company
does not itself discharge any substantial waste of any kind
during the normal course of its business (and does not itself
discharge any wastewater into the environment), it does not
consider the risk of potential liability associated with damage
to the environment to be substantial, and does not have any
insurance coverage with respect to such risks. The Company
presently carries only nominal amounts of insurance coverage to
cover relatively standard business risks, which coverage
management deems to be adequate for the Company's current
operations. It is possible, however, that circumstances might
potentially exist whereby the Company could be held liable for
damage to the environment (i.e., the negligent design of a system
resulting in the aggravation of, as opposed to the resolution of,
an existing wastewater problem), or for other liabilities
resulting from other business risks in excess of its current
policy amounts (i.e., personal injury to an employee, breach of
contract, etc.). Any such liability, if imposed, could be
substantial and would, in all likelihood, cause the business of
the Company to be materially and adversely affected.
