Exhibit 2.1
TRANSCRIPTION OF HAND-WRITTEN FAX COMMUNICATION DATED 12/24/97.
MARK A. SMITH
ATTORNEY AT LAW
2305 BROADWAY
BOULDER, COLORADO 80304-4106
Telephone: (303) 444-1713
FAX: (303) 449-2198
December 24, 1997 VIA FAX
To: Jon Northrop, CEO, Bion Environmental Technologies, Inc. ("BION")
From: Mark A. Smith
Fax No: 303-294-0983 No. of Pages (excluding this page): 10
Re: BION Warrant Exchange ("EXCHANGE")
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Dear Mr. Northrop:
Below find a summary of the terms for an exchange of BION warrants for
restricted BION common shares and a new class of BION warrants ("Z Warrants").
Based on the items set forth below, my clients Dublin Holding, Ltd. and
LoTayLingKyur, Inc., my wife, Kelly Moone, and I (together with our children
and others who have been our donees of BION warrants) agree to participate in
the EXCHANGE:
1) The EXCHANGE, which results from an offer which we first made on
11/23/97, has been subject to ongoing negotiations which culminated in an oral
agreement reached yesterday afternoon during our meeting in Golden, Colorado;
2) The purpose of the EXCHANGE is to restructure the capital structure of
BION in order to:
a) address the repeatedly made concerns of investment bankers and stock
brokers, including without limitation individuals at: 1) at least 2 North
Carolina brokerage firms; 2) Global Financial Group; 3) Sauceda & Granville;
and, as recently as this past Monday, 4) Cohig that the capital structure was
too complex, contained too many warrants exercisable at prices, below and/or
near current market prices and looked too much like the capital structures
found in old fashioned "blind pool" scam deals;
b) remedy the fact that the stock of BION was already being priced as if
10,000,000 shares of stock were outstanding;
c) facilitate NASDAQ application process under rules promulgated in the
last six months;
d) make the stock of BION more attractive to brokerage firms (and
individual brokers) so that they will become involved with BION; and
e) properly posture BION with investment bankers with regard to additional
funding in the public and private markets which BION intends to pursue during
1998.
3) The EXCHANGE shall be effective on January 1, 1998 subject to the
contingencies set forth herein:
a) the transaction shall be "tax-free" pursuant to 351 of IRC (and/or
other applicable provisions) except as to "boot" reflecting the value of the Z
Warrants which BION and the EXCHANGE participants agree have nominal value;
BION shall provide a tax opinion regarding this condition as a condition
precedent to closing;
b) all holders of BION Class E1 and/or Class X warrants shall participate
in the EXCHANGE and shall exchange all warrants of all classes of BION which
they own; BION may include other holders of classes of warrants which are
owned by persons who also own Class E1 or X Warrants (for example, if a holder
of Class E1 or X Warrants also owns Class A Warrants which are included in the
EXCHANGE, BION may allow other holders of Class A Warrants to participate in
the EXCHANGE); additionally, BION may allow employees of BION who do not own
Class E1 or X Warrants to participate so long as such employees own (and
exchange) not less than 100,000 BION warrants, inaggregate;
c) all newly issued BION securities results from the EXCHANGE shall be
issued as restricted shares and all persons who receive 65,000 or more BION
shares in the EXCHANGE shall take the BION shares subject to a two year
holding period prior to public resale;
d) BION shall indemnify and hold harmless all participants in the EXCHANGE
from any and all liability under 16(b) ("short swing profits") derived from
matching the EXCHANGE transactions with any other transactions;
e) definitive documentation concerning language of warrants, voting
rights, resale restrictions, registration rights, etc.
4) For calculation purposes and to equate various classes of warrants to
one another, an aggregate "exchange value" ("EV") shall be calculated as set
forth below. BION and the participants agree and acknowledge that EV does not
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equal fair market value or price or any equivalent for the warrants to be
exchanged or to be issued in the EXCHANGE. EV has been calculated to make
"apples and orange and pears, etc." equivalent to one another only:
a) The EV of each warrant to participate in the EXCHANGE shall be
determined as set for at Exhibit A hereto (8 pages) which contains
Black-Scholes values for each class of BION warrants anticipated to
participate as of the stock market close ($7 3/8 per share) on 12/15/97 as
calculated by BION's accounting firm (EKS&H) based on closing market price,
BION stock volatility and applicable terms and exercise prices of warrants;
b) Each participant's total Participant Exchange Value ("PEV") shall be
calculated by multiplying the number of warrants owned by participant in each
class by the Black-Scholes values in Exhibit A;
c) Each participant shall be issued a number of BION restricted common
shares calculated by dividing his PEV by $7.375;
d) Thereafter, for each participant's shares to be issued shall be
multiplied by $5.50 to yield an intermediate value ("IV") which shall be
subtracted from each PEV with the resulting number ("ZV") to be used to
calculate issuance to the participant of Z Warrants. The number of Z Warrants
to be issued to each participant shall equal ZV divided by $2.88. The Z
Warrant shall be exercisable at $15.00 per share until 12/31/01.
e) Although $7.375 has been used to calculate the number of BION shares to
be received by each participant, the participants and BION agree and
acknowledge that this greatly overstates the current value of BION shares in
the quantities being issued in the EXCHANGE as it represents "free trading",
unrestricted BION shares priced by a "thin", limited trading market and that
$7.375 has been used for the purposes of the EXCHANGE because it was the
"value"/"price" embedded in the Black-Scholes calculations, further, the
participants and BION agree and acknowledge that the $2.88 Black-Scholes value
for the Z Warrants is only a calculational number and does not represent the
economic or fair market value of the Z Warrants which the participants and
BION believe to be of nominal value only in light of the financial condition
of BION and the large multiple of Z Warrant exercise price to large negotiated
transactions in BION restricted stock during the past year.
5) To simplify closing of the EXCHANGE, the EXCHANGE shall be effective
upon meeting the contingencies set forth above and the return (for exchange)
to BION of warrant certificates of sufficient quantity so that after the
EXCHANGE the participants own not less than 80% of the common stock of BION
provided, however, that the effective date shall be not earlier than January
1, 1998 nor later than January 15, 1998. Thereafter, BION shall issue the
BION shares and Z Warrants as required by the EXCHANGE.
/s/ Mark A. Smith
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Mark A. Smith