There is something that may be important about the Lind agreements that hasn't been discussed. There also may have been some incorrect or incomplete guidance or disclosure given by Bioasis about the agreements.
Just follow me for a moment and I'll get to the nub of it.
As you recall, with respect to the Midatech deal, Bioasis signed promissory notes with Lind and Midatech. Bioasis also has the original convertible security funding
agreement (CSFA) for C$3 million that was completed in June, 2021. Under that first agreement, the CSFA, Bioasis did not pledge its assets to Lind if the company defaulted on its payments.
However, under the terms of the more recent promissory notes, Bioasis has pledged its assets (xB3 platform, pipeline projects, deals, patents, EGF, etc.) to Lind (1st call) and Midatech (2nd call) and could lose them if Bioasis defaults on these new loans.
In its press release of January 23 announcing that Midatech had voted the deal down, Bioasis stated that the company
should be able to operate until March, 2023. The press release states in the same paragraph that the recent Bridge and Holiday Loans, backed by the company's assets, all mature and become payable in full on June 30, 2023.
Here's where the problem starts.
According to the Information Circular, starting on Page 17, all of these recent promissory notes are "...payable on the earlier of (i) an event of default, (ii) June 30, 2023 or (iii) the completion of the Arrangement."
So under what conditions might Lind acquire the Bioasis assets? The problem is with the phrase, "(i) an event of default." I've been troubled by that phrase since I first read it. How can you default on a loan earlier than its due date? Because Bioasis can lose its assets upon the "earliest" of those three conditions, it becomes very important to understand the definition of "an event of default."
It turns out that phrase has a very broad definition. It is defined in the Information Circular, Schedule D, starting on page Page 352. It reads as follows, with the part relevant to this discussion in bold print:
Schedule D
Events of Default
The occurrence of any one or more of the following events (each such event being herein referred to as an "Event of Default") shall constitute an event of default under this Promissory Note:
(a) if any Borrower Group Member, as applicable, fails to pay the Principal Amount or any amount of interest or other amounts owing under this Promissory Note or any other Credit Document to which it is party when due and payable; (Emphasis by author. Also, see definition of "Credit Document" under "Notes," below.)
(b) if any Borrower Group Member makes any certification, representation or warranty under this Promissory Note which is incorrect, misleading or incomplete when made or deemed to be made;
(c) if the Borrower Group Members shall, or shall permit any of their Subsidiaries, as the case may be, to, default in the observance or performance of any agreement, covenant or condition contained in Schedule B or Schedule C hereto;
(d) the occurrence of an Event of Default under any other Credit Documents (as defined therein, respectively); (Emphasis by author)
(e) if any of the Borrower Group Members shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally as they become due or shall make a general assignment, composition, compromise or arrangement for the benefit of any of its creditors; or any corporate action, legal proceeding or other procedure or step shall be instituted by or against any of the Borrower Group Members seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, dissolution, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a liquidator, administrator, administrative receiver, compulsory manager, receiver, trustee or other similar official for it or for any substantial part of its property or for the purpose of enforcing any Liens on any property or assets of the Debtor or the other Borrower Group Members or, in each case any analogous procedure or step is taken in any jurisdiction and, in the case of any such proceeding instituted against it (but not instituted by it), any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against it or the appointment of a receiver, trustee, custodian, liquidator, administrator, administrative receiver, compulsory manager or other similar official for it or for any substantial part of its property) shall occur; or any of the Borrower Group Members shall take any action to authorize any of the actions set forth above in this Section (e);
(f) any material provision of any Credit Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by any Borrower Group Member or any Governmental Authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or any Borrower Group Member shall deny in writing that it has any liability or obligation purported to be created under any Credit Document; or
(g) any Security Document shall for any reason fail or cease to create a separate valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on the Collateral (as defined in the Security Documents) in favor of the Lender (or any of its Affiliates).
***** End of Schedule D *****
Notes:
(1) Schedule D references Schedules B and C on pages 348 and 350, respectively.
(2) "Credit Documents" means all loan and credit documents among the Lender (or any of its Affiliates) and any Borrower Group Member, including without limitation, this Promissory Note and the Security Documents and any guarantees delivered in connection herewith."
(3) "Borrower Group Member" means the Debtor and any Subsidiaries of the Debtor. (Bioasis and its subsidiaries)
What It May Mean
The bolded phrasings in Appendix D and the definition of "Credit Documents," together, seem to state that a default under any Credit Document between Lind and Bioasis will cause the promissory notes to be immediately payable, including earlier than June 30, 2023.
Stated another way, this seems to mean that if Bioasis has funding only until March, and if there is a default on the original convertible security funding agreement, then Lind can foreclose on Bioasis assets. Researching the phrase, "including without limitation," it seems that the phrase is problematic because it can cause determination of a contract's intent to be avoided in court.
Is it a small thing? Maybe. But if it does allow Lind to foreclose and capture Bioasis assets earlier than June 30, 2023 then that would be a bigger problem that could happen sooner than the company has disclosed. Bioasis shareholders have long understood that the original loan, the convertible security funding agreement, was not secured by the company's assets. Now, default on that loan may cause the loss of assets.
The meaning of "an event of default" as described in schedules D, B and C seems to give Lind more opportunity to capture xB3 and other Bioasis assets sooner and under broader conditions than we thought they could.
jd