EXHIBIT
10.3
THIS NOTE IS NOT TRANSFERABLE WITHOUT THE EXPRESS WRITTEN CONSENT
OF BION
ENVIRONMENTAL TECHNOLOGIES, INC. ("BION"). THE SECURITIES
REPRESENTED BY THIS
NOTE OR TO BE ISSUED UPON CONVERSION OF 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. 2007A-3
2007 Series A Convertible Promissory Note
$379,389.04
March 31, 2007
Bion
Environmental Technologies, Inc., a Colorado corporation
("Bion"),
for value received, hereby promises to pay to Salvatore Zizza or
registered
assigns (the "Holder"), the principal sum of Three Hundred Seventy
Nine
Thousand Three Hundred Eighty Nine and 04 cents ($379,389.04), with
interest
from the original date of issuance of this 2007 Series A
Convertible
Promissory Note ('Note' or 'Notes') on the unpaid principal balance
at a
simple rate equal to six percent (6%) per annum, on July 1, 2008
(the
"Maturity Date"). Interest shall be accrued. Payment shall be made at such
place as designated by the Holder upon surrender of this 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
Note is the first of what may become a multiple series of duly
authorized issues of Bion's 2007 Convertible Promissory Notes.
The
conversion prices and other terms of the various series of 2007
Convertible
Promissory Notes may be different from each other, but all of the
amounts due
under all of the series of the 2007 Convertible Promissory Notes
are intended
to be of equal priority and seniority. The maximum aggregate
principal amount
of the 2007 Series A Convertible Promissory Notes combined is
$5,000,000.
Each
2007 Series A Convertible Promissory Note is individually
referred
to herein as a "Note" and collectively as the "Notes."
SECTION 1.
Prepayment.
This
Note (including interest accrued on the principal hereof) may
not
be prepaid in cash by Bion without the written consent of the
Holder of the
Note except as expressly provided herein, but may be converted to
equity by
the Holder at any time during its term at the Conversion Price set
forth in
Section 2 below.
SECTION 2. Conversion
and Exchange.
(a)
This Note shall be
convertible, in whole or in part, into shares of
Bion's Common Stock at the price of $4.00 per share ("Conversion
Price") at
any time at election of Holder.
(b)
In addition, the
Holder shall have the option to elect to exchange
this Note, at its initial principal amount plus accrued interest,
into
securities that are substantially identical to securities that the
Company
sells in any offering prior to an offering in which the Company
raises more
than $3,000,000;
(c)
The Company shall have
the right to exchange this Note, at its
initial principal amount plus accrued interest, into its Common
Stock at the
lower of $4.00 per share or the price of an offering which raises
$3,000,000
or more, upon completion of such offering;
(d)
Conversion
Procedures.
(i) In the event that
this entire Note is converted into Stock,
Bion's debt obligation under this Note shall cease, but Bion shall
not be
required to deliver stock certificates to the Holder until such
time as such
Holder surrenders the Note at Bion's offices together with
irrevocable
written notice to Bion specifying the name or names (with address)
in which a
certificate or certificates evidencing shares of Stock are to be
issued. Bion
shall thereupon deliver to the Holder of the Note, 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,
within
three (3) business days of the date of conversion. In the event that less
than all of this Note is converted, whether mandatory or elective
conversion,
into Stock, this Note shall remain outstanding with a reduced
principal
balance reflecting the partial conversion and Bion shall deliver to
the
Holder of the Note, or the nominee or nominees of such person,
certificates
evidencing the number of full shares of Stock to which such person
is
entitled as aforesaid, within three (3) business days of the date
of
conversion.
Irrespective of the date of delivery of Bion stock
certificates,
such conversion shall be deemed to have occurred as of Bion's
record date of
the conversion and the person or persons entitled to receive
Stock
deliverable upon conversion of such Note shall be treated for all
purposes as
the record holder or holders of such Stock on such date.
(ii) In the event that
the Note is converted into Stock as set
forth above, Bion shall pay any and all issue or other taxes that
may be
payable in respect of any issue or delivery of shares of their
stock on such
conversion.
Bion, however, shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issue or
delivery of
their stock (or other securities or assets) in a name other than
that in
which the Note so converted was registered, and no such issue or
delivery
shall be made unless and until the person requesting such issue has
paid to
Bion, as appropriate, the amount of such tax or has established, to
the
satisfaction of Bion, that such tax has been paid.
(e)
Protection in Case of
a Merger of Bion. In case of any
capital
reorganization or reclassification, or any consolidation or merger
to which
Bion is a party other than a merger or consolidation in which Bion
is the
continuing corporation, or in case of any sale or conveyance to
another
entity of the property of Bion as an entirety or substantially as a
entirety,
or in the case of any statutory exchange of securities with
another
corporation (including any exchange effected in connection with a
merger of a
third corporation into Bion), the Holder of this Note shall have
the right
thereafter to receive on the conversion of this Note into Bion
Stock 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 Bion 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
(e) shall
similarly apply to successive reorganizations,
reclassifications,
consolidations, mergers, statutory exchanges, sales or conveyances.
Bion
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 Bion
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 Holder of the Note not less than 10
days
prior to such event. A sale of all or substantially all of the
assets of Bion
for a consideration consisting primarily of securities shall be
deemed a
consolidation or merger for the foregoing purposes.
(f)
Reservation of Shares;
Transfer Taxes; Etc. Bion 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.
Bion
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 that Bion intends to offer Stock other than
Common Stock,
they shall authorize the issuance of sufficient shares of such
stock to
permit the conversion of all the then-outstanding Notes.
SECTION 3. Fractional
Shares
Bion
shall not be required to issue fractions of shares of Common
Stock
or other stock upon the conversion of the Note. If any fraction of
a share
would be issuable on the Conversion of the Note, Bion shall
purchase such
fraction for an amount in cash equal to its fair market value, as
determined
in good faith by the Board of Directors of Bion.
SECTION 4.
Registration Rights
(a)
If at any time
following January 15, 2008 (the "Effective Time")
until the two (2) year anniversary of the initial issuance of the
Notes, Bion
files a registration statement with the United States Securities
and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the
"Act"), or
pursuant to any other act passed after the date of this Note, which
filing
provides for the sale of securities of Bion to the public for its
own account
or the account of others, Bion shall offer to the Holders of the
Note the
opportunity to register or qualify the shares of Common Stock into
which the
Note may be converted (the "Registrable Securities") at Bion's sole
expense.
Notwithstanding anything to the contrary, this subsection (a) shall
not be
applicable to a registration statement on Forms S-4, S-8 or their
then
equivalents relating to equity securities to be issued solely in
connection
with any acquisition of any entity or business or equity securities
issuable
in connection with stock option or other employee benefit plans, or
any other
inappropriate forms filed by the Corporation with the United
States
Securities and Exchange Commission.
Bion
shall deliver written notice to the Holders of all of the 2007
Series A Convertible Promissory Notes of its intention to file a
registration
statement under the Act at least 30 days prior to the filing of
such
registration statement, and the Holders shall have 10 days
thereafter to
request in writing that Bion register or qualify the Registrable
Securities
in accordance with this subsection (a). Upon the delivery of such a
written
request within the specified time, Bion shall be obligated to
include in its
contemplated registration statement all information necessary or
advisable to
register or qualify the Registrable Securities for a public
offering, if Bion
does file the contemplated registration statement; provided,
however, that
neither the delivery of the notice by Bion nor the delivery of a
request by a
Holder shall in any way obligate Bion to file a registration
statement.
Furthermore, notwithstanding the filing of a registration
statement, Bion
may, at any time prior to the effective date thereof, determine not
to offer
the securities to which the registration statement or offering
statement
relates, other than the Registrable Securities. In the event that Bion has
engaged an underwriter for sale of its securities, inclusion of
the
Registrable Securities in such registration statement shall be
conditioned
upon the approval of such underwriter with respect to any portion
of the
Registrable Securities which would exceed ten percent (10%) of the
total
number of shares of Common Stock to be included in such
registration
statement.
Bion
shall comply with the requirements of this subsection
