HYPOTHEC AGREEMENT
BY AND BETWEEN
BUSINESS DEVELOPMENT BANK OF CANADA
AND
BIO SYNTECH CANADA INC.
June 26, 2002
TABLE OF CONTENTS
Page
1. THE INDEBTEDNESS.......................................................1
2. HYPOTHEC...............................................................2
3. ADDITIONAL HYPOTHEC....................................................3
4. DEBTOR'S DECLARATIONS..................................................3
5. COVENANTS..............................................................4
6. ENVIRONMENT............................................................6
7. RIGHTS OF BDC..........................................................7
8. DEFAULTS AND RECOURSES.................................................7
9. GENERAL PROVISIONS.....................................................9
* * *
HYPOTHEC AGREEMENT
THIS AGREEMENT is made and entered into this June 26 th day of June, 2002.
BY AND BETWEEN: BUSINESS DEVELOPMENT BANK OF CANADA, a bank
corporation continuing as a body corporate the
Federal Business Development Bank under an Act of
the Parliament of Canada, 42-43-44 Xxxxxxxxx XX,
(1994-1995), sanctioned on July 13, 1995, having
its head office in the city of Montreal, 0 Xxxxx
Xxxxx-Xxxxx, xxxxx 0000, X0X 0X0, Xxxxxxxx of
Quebec, herein acting and represented by Xxxxxx
Xxxxxxx, its Assistant V-P, Operations, Venture
Capital, hereunto duly authorized by resolution
passed on July 18, 1996, himself represented by
Xxxx Xxxxxxxxx under a power of attorney under
private signature, on the 20th of June, 2002, the
said resolution and the said power of attorney are
annexed to the original of the minute, after
having been acknowledged as true and signed for
identification by the representative with and in
the presence of the undersigned notary;
(hereinafter referred to as: "BDC")
AND: BIO SYNTECH CANADA INC., a corporation
incorporated under the Canada Business
Corporations Act and having its head office at 000
Xxxxxx-Xxxxxxxx Xxxx., Xxxxx, Xxxxxxxx xx Xxxxxx,
X0X 0X0;
(hereinafter referred to as: the "Debtor")
PREAMBLE
--------
In consideration of the above premises and covenants and agreements herein
contained, the Parties hereto declare and agree as follows:
1. THE INDEBTEDNESS
----------------
1.1 BDC has granted to the Debtor a loan in the amount of two million
five hundred thousand dollars ($2,500,000) under a loan agreement
(the "Loan Agreement") dated the June 26, 2002. Copy of the Loan
-2-
Agreement is attached hereto as Schedule 1.1 to have effect as if
stated at length.
1.2 This loan bears interest and is repayable at the interest rate and
in accordance with the terms set forth in the Loan Agreement. This
Loan Agreement and all future modifications or amendments thereto,
are hereafter referred to as the "Loan". All sums owing and to be
owed by the Debtor as a result of the Loan, in principal, interest
and otherwise, are hereinafter referred to as the "Indebtedness".
2. HYPOTHEC
--------
2.1 To secure the payment of the Indebtedness and the performance of its
obligations under the present Hypothec as well as under the Loan,
the Debtor hypothecates and creates a security interest in the
following property (the "Hypothecated Property") for the sum of two
million five hundred thousand Canadian dollars ($2,500,000), with
interest at the rate of ten percent (10%) per annum, compounded
monthly, from the date thereof (the "Hypothec"):
Description of Hypothecated Property
------------------------------------
The Hypothec constitutes a hypothec on the universality of the
present and future movable and immovable property, corporeal or
incorporeal wherever situated, of the Debtor, including without
limitation:
2.1.1 Intangibles
All intangible property including without limitation, all
contractual rights and insurance claims, trademarks, trade names,
goodwill, copyrights and other industrial property of the Debtor,
excluding patents (hereinafter collectively referred to as the
"Intangibles");
2.1.2 Equipment
All tools, machinery, equipment, furniture, plants, fixtures, and
other tangible personal property, vehicles and fixed goods other
than Inventory (as hereinafter defined) (hereinafter, together with
the items listed in Schedule 2.1, collectively referred to as the
"Equipment");
-3-
2.1.3 Inventory
All movable property now or hereafter forming part of the inventory
of the Debtor's of whatever kind and wherever located, including
without limitation all raw material, work in process, finished goods
whether for sale, lease or resale, or furnished or to be furnished
under contracts for service or used or consumed in the business of
the Debtor (hereinafter collectively referred to as the
"Inventory");
The Hypothec also constitutes a hypothec on the specific tools,
machinery, equipment, furniture, plants, fixtures, and other
tangible personal property, vehicles and fixed goods identified in
Schedule 2.1.
2.2 The following property constitutes "Hypothecated Property" and, to
the extent that it is not already included in the description in
Section 2.1 above, is also charged by the Hypothec and security
interest constituted hereunder; therefore, the terms "Hypothecated
Property" also include the following property:
2.2.1 the proceeds of any sale, lease or other disposition of
the property described in Section 2.1, any debt
resulting from such sale, lease or other disposition, as
well as any property acquired to replace the
Hypothecated Property;
2.2.2 any insurance or expropriation proceeds payable in
respect of the Hypothecated Property;
2.2.3 the principal and income of the Hypothecated Property as
well as any rights attached to the Hypothecated
Property;
2.2.4 where the property described in Section 2.1 includes
shares or securities, all other shares and securities
issued in replacement of these shares or securities; and
2.2.5 all deeds, documents, registers, invoices and books of
account evidencing the mortgaged property or relating
thereto.
3. ADDITIONAL HYPOTHEC
-------------------
To secure the payment of interest and expenses not already secured
by the Hypothec created in Article 2 and to further secure the
performance of its obligations hereunder, the Debtor hypothecates
all of the property described in Article 2 for an additional amount
equal to twenty percent (20%) of the principal amount of the
Hypothec created in Article 2.
4. DEBTOR'S DECLARATIONS
---------------------
The Debtor represents and warrants the following:
4.1 The Debtor is in compliance with all applicable laws, ordinances,
regulations and policies, the breach of which could have an adverse
effect on the Debtor's business or its ability to perform its
-4-
obligations under the Loan and this Agreement, including
environmental laws and regulations.
4.2 The Debtor owns the Hypothecated Property and the Hypothecated
Property is free and clear of all real rights, hypothecs or security
other than those described in attached Schedule 4.2.
4.3 The Hypothecated Property is situated in the Province of Quebec,
except for the property described in attached Schedule 4.3.
4.4 The Debtor's head or registered office (or domicile, if the Debtor
is an individual) is located at the address indicated in attached
Schedule 4.4.
5. COVENANTS
---------
5.1 The Debtor shall inform BDC without delay of any change to its name
or to the contents of the representations made in Article 4. He
shall provide on BDC's request, all the original documents to
protect BDC's rights.
5.2 The Debtor shall pay, when due, all duties, taxes and charges
relating to the Hypothecated Property, as well as any debt which
could rank prior to the Hypothec and security interest constituted
hereunder and shall provide to BDC, on demand, evidence that the
payments described herein have been made.
5.3 The Debtor shall insure the Hypothecated Property and keep it
constantly insured for its full insurable value against damage
caused by theft, fire and all other risks against which a prudent
administrator would insure the Hypothecated Property. BDC is hereby
designated as the beneficiary of the indemnities payable under these
policies and the Debtor shall cause such designation to be inscribed
in the policies. The Debtor shall provide BDC with a copy of each
policy and, at least thirty (30) days prior to the expiration or
cancellation of a policy, a copy of the renewal or replacement
thereof. Receipt by BDC of such proceeds, whether or not remitted to
or endorsed by the Debtor shall not reduce BDC's rights and
privileges unless said proceeds are applied expressly as a reduction
of any outstanding balance and shall not in any case constitute
novation.
5.4 The Debtor shall do all things and sign all documents necessary for
the Hypothec and security interest constituted hereunder to have
full effect and be perfected and constantly enforceable against
third parties.
5.5 The Debtor shall protect and adequately maintain the Hypothecated
Property and exercise its activities in such a manner as to preserve
its value. The Debtor shall fully comply with all laws and
regulations applicable to the operation of its business and to the
Hypothecated Property, including without limitation environmental
laws and regulations.
5.6 The Debtor shall keep all books, records and accounts which a
prudent administrator would keep with respect to the Hypothecated
Property and shall permit BDC to examine said books records and
accounts and obtain copies of same.
-5-
5.7 The Debtor shall keep the Hypothecated Property free of all real
rights, hypothecs or security, save those which BDC has consented to
in writing. The Debtor shall not give grant, assume or permit to
exist, any lien, hypothec, mortgage, security interest or other
encumbrance on any of its assets that are subject to the security
other than encumbrances agreed to in writing by BDC.
5.8 The Debtor shall not dispose of the Hypothecated Property or lease
same, including without limitation, the licensing of any
intellectual propertyunless BDC consents thereto in writing.
However, it is agreed that the Debtor may dispose of intellectual
property as permitted in the Loan Agreement without such consent.
However, if not in default hereunder, the Debtor may sell or lease
its inventory at market conditions in the ordinary course of its
business. Moreover, if a disposition is made without BDC's prior
consent, BDC shall be entitled to demand immediate repayment of the
Indebtedness, even if it is not yet due.
5.9 The Debtor shall not change the use, destination or nature of the
Hypothecated Property nor remove the Hypothecated Property from its
present location, unless BDC consents thereto in writing.
5.10 If the Debtor is a corporation, the Debtor shall not amalgamate with
another person nor commence dissolution or liquidation proceedings,
without the written consent of BDC.
5.11 Where the Hypothecated Property includes inventory and accounts
receivable, the Debtor shall provide BDC quarterly with a statement
(by category) of the value of its inventory (calculated at the
lesser of cost or market value) and a list of its accounts
receivable (indicating their amount and age).
5.12 The Debtor shall provide BDC with all information reasonably
required by it to verify if the Debtor is in compliance with the
covenants and obligations contained herein. The Debtor shall inform
BDC of any fact or event which could adversely affect the value of
the Hypothecated Property or the financial condition of the Debtor.
5.13 The Debtor shall pay all costs incurred by BDC with respect to this
Agreement and to any release relating thereto, including the fees of
BDC's legal counsel and fees incurred in order to render BDC's
rights opposable to third parties.
5.14 On demand, the Debtor shall pay the amount of any loss suffered by
BDC due to the repayment before maturity of the Indebtedness,
whatever may be the cause of such repayment (including where a
repayment is made further to an event of default). The amount of
this loss shall form part of the Indebtedness.
5.15 The Debtor shall reimburse BDC for all costs and expenses incurred
by it to exercise its rights or to fulfill the obligations of the
Debtor, with interest at the annual rate then applicable to the
principal of the Indebtedness under the Loan. The Hypothec and
-6-
security interest granted hereby under Section 2.1 hereof shall also
secure the reimbursement of said costs and expenses as well as the
payment of said interest.
5.16 The Debtor shall at all times pay BDC, at the latter's request, all
judicial fees, charges or other legal expenses as well as extra
judicial fees in accordance with the tariffs established under the
Bar Act and its ensuing regulations, the expenses and fees of an
agent or trustee, or any costs incurred in the course of ensuring
fulfillment of all of the Debtor's obligations hereunder, protecting
and realizing the assets given as security for this Loan, or
appraising the assets during the life of the Loan or in the event of
their liquidation.
In addition, the Debtor covenants to pay the costs of any appraiser
and any environmental investigator engaged by the Lender to effect
any inspection, appraisal, investigation or environmental audit of
the secured assets during the life of the Loan or in the event of
their liquidation, and the cost of any environmental rehabilitation,
removal, or repair necessary to protect, preserve or remediate the
secured assets, including any fine or penalty the Lender is obliged
to incur by reason of any statute, order or direction by competent
authority.
6. ENVIRONMENT
-----------
The Debtor represents and agrees that:
6.1.1 it operates and will continue to operate in conformity
with all environmental laws and will ensure its staff is
trained as required for that purpose;
6.1.2 its assets are and will remain free of environmental
damage or contamination;
6.1.3 there has been no complaint, prosecution, investigation
or proceeding with respect to the Debtor's business or
assets;
6.1.4 it will advise BDC immediately upon becoming aware of
any environmental problem;
6.1.5 it will provide BDC with copies of all communications
with environmental officials and all studies or
assessments prepared for the Debtor and does consent to
BDC contacting and making inquiries of officials or
assessors.
-7-
7. RIGHTS OF BDC
-------------
7.1 BDC may inspect or have the Hypothecated Property appraised from
time to time at the Debtor's expense and, for that purpose, shall be
permitted access to the premises where the Hypothecated Property is
located and to the Debtor's places of business for that purpose. The
Debtor shall also allow BDC to examine and obtain copies of all
books of account and documents relating to the Hypothecated
Property.
7.2 BDC may inspect and copy the Debtor's Books and Records, either at
the Debtor's premises or at the financial advisor's premises. BDC
may contact and make inquiries with the Debtor's lessors as well as
environmental officials, assessors, municipal authorities and any
taxing body.
In addition to the reporting requirements set out herein, BDC may
require the opinion of an independent qualified auditor.
7.3 BDC may, without being bound to do so, fulfill any or all of the
obligations of the Debtor hereunder.
7.4 The Debtor may collect all debts forming part of the Hypothecated
Property until BDC withdraws its authorization to the Debtor to do
so. Upon such withdrawal, BDC may collect such debts and shall be
entitled to a reasonable commission which it may deduct from any
amount collected.
7.5 Where the Hypothecated Property includes shares or securities, BDC
may, without being bound to do so, cause itself to be registered as
the holder of these shares or securities and exercise any right
attached thereto, including any right to vote and any right of
conversion or redemption.
7.6 If BDC has possession of the Hypothecated Property, it shall have no
obligation to maintain the use for which the Hypothecated Property
is normally intended nor to make it productive nor to continue its
use or operation. However, BDC may, without being bound to do so,
sell the Hypothecated Property in its possession where the
Hypothecated Property is likely to perish, depreciate or decrease in
value.
7.7 The Debtor constitutes and appoints BDC as its irrevocable attorney,
with full power of substitution, in order to do any act and to sign
any document necessary or useful to the exercise of the rights
conferred on BDC hereunder.
7.8 The rights conferred on BDC under this Article 7 may be exercised by
BDC irrespective of whether the Debtor is or is not in default
hereunder.
8. DEFAULTS AND RECOURSES
----------------------
8.1 The Debtor shall be in default in each and every one of the
following events:
-8-
8.1.1 If any or all of the obligations secured under this
Agreement are not paid or performed when due;
8.1.2 If any of the representations made in Article 4 or
warranty made herein is inaccurate or ceases to be
accurate;
8.1.3 If the Debtor does not fulfill any one of its covenants
hereunder;
8.1.4 If the Debtor is in default under the Loan;
8.1.5 If the Debtor is in default under any other contract or
agreement between it and BDC or under any other hypothec
or security affecting the Hypothecated Property;
8.1.6 If the Debtor ceases to carry on its business, becomes
insolvent or bankrupt; or
8.1.7 If any or all of the Hypothecated Property is seized or is
subject to a taking of possession by a creditor, a
receiver or any other person performing similar functions.
8.1.8 An order of execution against the Debtor's assets or any
part thereof remains unsatisfied for a period of ten (10)
days.
8.1.9 The Lessor under any lease to the Debtor of any
immovable/real or moveable/personal property, taken any
steps to or threatens to terminate such lease, or
otherwise exercise any of its remedies under such lease as
a results of any default thereunder by the Debtor.
8.1.10 The Debtor causes or allows hazardous materials to be
brought upon any land or premises occupied by the Debtor
or incorporated into any of its assets without BDC's prior
consent, or if the Debtor causes, permits or fails to
remedy any environmental contamination upon, in or under
any of its lands or assets, or fails to comply with any
abatement or remediation order given by a responsible
authority.
8.1.11 Default under any operating permit, lease of land or
personal property or in arrears of payment to any taxing
authority.
8.2 Upon the Debtor's default, BDC may terminate any obligation it may
have had to grant credit or make advances to the Debtor and declare
exigible all obligations of the Debtor which are not yet due. Upon
such default, BDC may also exercise all recourses available to it
under applicable law and may realize on its Hypothec and security
interest, including enforcing the hypothecary rights provided in the
Civil Code of Quebec.
8.3 In order to realize on its Hypothec and security interest, BDC may
use the premises where the Hypothecated Property and other property
of the Debtor are situated at the expense of the Debtor. Where the
-9-
Hypothecated Property includes debts, BDC may compromise or transact
with the debtors of these debts and may grant releases and
discharges in respect of same. Where the Hypothecated Property
includes inventory, BDC may complete the manufacture of such
inventory and do all things necessary or useful to its sale.
9. GENERAL PROVISIONS
------------------
9.1 The Hypothec and security interest created hereby are in addition to
and not in substitution for any other hypothec or security held by
BDC.
9.2 This Hypothec and security interest are continuing security and
shall subsist notwithstanding the payment from time to time, in
whole or in part, of any of the obligations secured hereunder. The
Debtor shall not, without BDC's written consent, subrogate third
parties in the Hypothec or BDC's rights hereunder.
9.3 In each case provided in Section 8.1 of Article 8, the Debtor shall
be in default by the mere lapse of time, without the necessity of
any notice or demand.
9.4 Where this Hypothec and security interest are granted by more than
one person, each such person shall be jointly and severally liable
to BDC for the performance of all obligations provided herein.
9.5 Any sum collected by BDC in the exercise of its rights may be held
by BDC, as Hypothecated Property, or may be applied to the payment
of the obligations secured hereunder, whether or not yet due. BDC
shall have discretion as to how any such collected sum shall be
applied.
9.6 The exercise by BDC of any of its rights shall not preclude BDC from
exercising any other right; all the rights of BDC are cumulative and
not alternative. The failure of or forbearance by BDC to exercise
any of its rights resulting from this Agreement shall not constitute
a renunciation to the later exercise of such right. BDC may exercise
its rights resulting from this Agreement without being required to
exercise any right against the Debtor or against any other person
liable for the payment of the obligations secured hereunder or to
realize on any other security held for the payment of such
obligations. No action or omission on the part of BDC shall
constitute or imply a renunciation of its rights to decide the
Debtor is in default or to avail itself of its rights pursuant to
such default, unless BDC explicitly declares other wise after the
default has occurred.
9.7 BDC shall only be required to exercise reasonable care in the
exercise of its rights and the performance of its obligations and,
in any event, shall only be liable for its intentional fault or
gross negligence.
9.8 BDC may delegate to another person the exercise of its rights or the
performance of its obligations resulting from this Agreement. In
such a case, BDC may provide that person with any information it may
have concerning the Debtor or the Hypothecated Property.
-10-
9.9 The rights of BDC hereunder shall benefit any successor of BDC,
including any person resulting from the amalgamation of BDC with any
other person.
9.10 Any notice to the Debtor may be given at the address indicated
hereinbefore or any other address communicated in writing by the
Debtor to BDC.
9.11 This Agreement shall be governed and interpreted by the law in force
in the Province of Quebec.
9.12 The parties hereto have expressly required that this Agreement be
drafted in English. Les parties aux presentes ont expressement exige
que la presente entente soit redigee en anglais.
[Remainder of this page intentionally left blank. The next page is the signature page.]
SIGNATURES
----------
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
on its behalf by a duly authorised officer all as of the date first written
above.
(BDC) BUSINESS DEVELOPMENT BANK OF CANADA
Per: /s/ Xxxx Xxxxxxxxx
-----------------------------
Name: Xxxx Xxxxxxxxx
Title: Director
(Debtor) BIO SYNTECH CANADA INC.
Per: /s/ Amine Selmani
------------------------------
Name: Amine Selmani
Title: President
SCHEDULE 1.1
COPY OF THE LOAN AGREEMENT
[See attached Document]
-2-
SCHEDULE 2.1
LIST OF EQUIPMENT
-3-
SCHEDULE 4.2
OTHER RIGHTS AND SECURITIES
-4-
SCHEDULE 4.3
PROPERTY LOCATED OUTSIDE OF THE PROVINCE OF QUEBEC
-5-
SCHEDULE 4.4
REGISTERED OFFICE OF DEBTOR
000 Xxxxxx-Xxxxxxxx Xxxxxxxxx
Xxxxx, Xxxxxx
X0X 0X0
