**Exhibit 4.44**

 

**AMENDEDAND RESTATED LOAN AGREEMENT**

 

**DRAXIS HEALTH INC.,as Borrower**

 

**- and -**

 

**NATIONALBANK OF CANADA,as Lender**

 

 

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**CreditFacility**

 

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Made as of June 10, 2004

 

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**TABLE OFCONTENTS**

 
|       | **ARTICLE 1  INTERPRETATION**            |                                       |
|------------|-----------------------------------------------|--------------------------------------------|
|       |                                          |                                       |   |
| 1.1        |                                          | Definitions                                |   |
| 1.2        |                                          | Headings                                   |   |
| 1.3        |                                          | Extended Meanings                          |   |
| 1.4        |                                          | References to Lender                       |   |
| 1.5        |                                          | Accounting Terms and Practices             |   |
| 1.6        |                                          | Non-Business Days                          |   |
| 1.7        |                                          | References to Time of Day                  |   |
| 1.8        |                                          | Severability                               |   |
| 1.9        |                                          | Currency                                   |   |
| 1.10       |                                          | References to Statutes                     |   |
| 1.11       |                                          | References to Agreements                   |   |
| 1.12       |                                          | Consents and Approvals                     |   |
| 1.13       |                                          | Schedules                                  |   |
|       |                                          |                                       |   |
| ** ** | **ARTICLE 2  THE FACILITIES**            | ** **                                 |
|       |                                          |                                       |   |
| 2.1        |                                          | Original Loan Agreement                    |   |
| 2.2        |                                          | The Facilities                             |   |
| 2.3        |                                          | Purposes                                   |   |
| 2.4        |                                          | Term and Availability of Advances          |   |
| 2.5        |                                          | Repayment of Operating Facility            |   |
| 2.6        |                                          | Repayment of Term Facility                 |   |
| 2.7        |                                          | Cancellation or Reduction of Facilities    |   |
| 2.8        |                                          | Interest on Prime Rate Advances            |   |
| 2.9        |                                          | Interest on U.S. Base Rate Advances        |   |
| 2.10       |                                          | Libor Advances                             |   |
| 2.11       |                                          | Method and Place of Payment                |   |
| 2.12       |                                          | Fees                                       |   |
| 2.13       |                                          | Conversion Options                         |   |
| 2.14       |                                          | Execution of Notices                       |   |
| 2.15       |                                          | Evidence of Indebtedness                   |   |
| 2.16       |                                          | Interest on Unpaid Costs and Expenses      |   |
| 2.17       |                                          | Criminal Rate of Interest                  |   |
| 2.18       |                                          | Compliance with the Interest Act (Canada)  |   |
| 2.19       |                                          | Nominal Rate of Interest                   |   |
|       |                                          |                                       |   |
|       | **ARTICLE 3  LETTER OF CREDIT FACILITY** |                                       |
|       |                                          |                                       |   |
| 3.1        |                                          | Establishment of Letter of Credit Facility |   |

 

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| 3.2        |                                                             | Term and Availability                      |   |
|------------|------------------------------------------------------------------|--------------------------------------------|--------|
| 3.3        |                                                             | Reimbursement                              |   |
| 3.4        |                                                             | Obligations Absolute                       |   |
| 3.5        |                                                             | Indemnity for Costs                        |   |
| 3.6        |                                                             | Fees                                       |   |
| 3.7        |                                                             | Refund of Overpayments                     |   |
|       |                                                             |                                       |   |
| ** ** | **ARTICLE 4  BANKERS’ ACCEPTANCES**                    | ** **                                 |
|       |                                                             |                                       |   |
| 4.1        |                                                             | Form of Bankers’ Acceptance Advance   |   |
| 4.2        |                                                             | Minimum Amount                             |   |
| 4.3        |                                                             | Term and Interest Periods                  |   |
| 4.4        |                                                             | Purchase of Drafts and Acceptance Fee      |   |
| 4.5        |                                                             | Payment on Maturity                        |   |
| 4.6        |                                                             | Waiver of Days of Grace                    |   |
| 4.7        |                                                             | No  Market                                 |   |
|       |                                                             |                                       |   |
| ** ** | **ARTICLE 5  CHANGE OF CIRCUMSTANCES  AND INDEMNIFICATION** | ** **                                 |
|       |                                                             |                                       |   |
| 5.1        |                                                             | Increased Costs                            |   |
| 5.2        |                                                             | Illegality                                 |   |
|       |                                                             |                                       |   |
| ** ** | **ARTICLE 6  CONDITIONS PRECEDENT TO DRAWDOWN**             | ** **                                 |
|       |                                                             |                                       |   |
| 6.1        |                                                             | Conditions for Closing                     |   |
| 6.2        |                                                             | Conditions for Subsequent Drawdowns        |   |
|       |                                                             |                                       |   |
| ** ** | **ARTICLE 7  REPRESENTATIONS AND WARRANTIES**               | ** **                                 |
|       |                                                             |                                       |   |
| 7.1        |                                                             | Representations and Warranties             |   |
| 7.2        |                                                             | Survival of Representations and Warranties |   |
|       |                                                             |                                       |   |
| ** ** | **ARTICLE 8  COVENANTS**                                    | ** **                                 |
|       |                                                             |                                       |   |
| 8.1        |                                                             | Affirmative Covenants                      |   |
| 8.2        |                                                             | Negative Covenants                         |   |
| 8.3        |                                                             | Financial Covenants                        |   |

 

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| ** ** | **ARTICLE 9  SECURITY**                             | ** **                                                                     |
|------------|----------------------------------------------------------|--------------------------------------------------------------------------------|
|       |                                                     |                                                                           |   |
| 9.1        |                                                     | Guarantors to Provide Guarantees                                               |   |
| 9.2        |                                                     | Borrower’s Security Documents                                             |   |
| 9.3        |                                                     | Guarantors’ Security Documents                                            |   |
| 9.4        |                                                     | Additional Security Documents                                                  |   |
|       |                                                     |                                                                           |   |
| ** ** | **ARTICLE 10  DEFAULT AND ACCELERATION**            | ** **                                                                     |
|       |                                                     |                                                                           |   |
| 10.1       |                                                     | Events of Default                                                              |   |
| 10.2       |                                                     | Acceleration                                                                   |   |
| 10.3       |                                                     | Remedies Cumulative and Waivers                                                |   |
| 10.4       |                                                     | Suspension of Lender’s Obligations                                        |   |
| 10.5       |                                                     | Application of Payments and Proceeds of  Realization After an Event of Default |   |
| 10.6       |                                                     | Disclosure of Information                                                      |   |
|       |                                                     |                                                                           |   |
|       | **ARTICLE 11  SUCCESSOR COMPANIES**                 |                                                                           |
|       |                                                     |                                                                           |   |
| 11.1       |                                                     | Certain Requirements in Respect of Merger,  Etc.                               |   |
| 11.2       |                                                     | Vesting of Powers in Successor                                                 |   |
|       |                                                     |                                                                           |   |
| ** ** | **ARTICLE 12  COSTS, EXPENSES AND INDEMNIFICATION** | ** **                                                                     |
|       |                                                     |                                                                           |   |
| 12.1       |                                                     | Costs and Expenses                                                             |   |
| 12.2       |                                                     | Indemnification by the Borrower                                                |   |
| 12.3       |                                                     | Funds                                                                          |   |
| 12.4       |                                                     | General Indemnity                                                              |   |
| 12.5       |                                                     | Environmental Claims                                                           |   |
|       |                                                     |                                                                           |   |
| ** ** | **ARTICLE 13  GENERAL**                             | ** **                                                                     |
|       |                                                     |                                                                           |   |
| 13.1       |                                                     | Term                                                                           |   |
| 13.2       |                                                     | Survival                                                                       |   |
| 13.3       |                                                     | Benefit of the Agreement                                                       |   |
| 13.4       |                                                     | Notices                                                                        |   |
| 13.5       |                                                     | Amendment and Waiver                                                           |   |
| 13.6       |                                                     | Governing Law                                                                  |   |
| 13.7       |                                                     | Further Assurances                                                             |   |
| 13.8       |                                                     | Enforcement and Waiver by the Lender                                           |   |
| 13.9       |                                                     | Execution in Counterparts                                                      |   |
| 13.10      |                                                     | Assignment by the Borrower                                                     |   |
|            |                                                          |                                                                                |  |  |

 

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| 13.11 |   | Assignments and Transfers by the Lender |   |
|-------|--------|-----------------------------------------|--------|
| 13.12 |   | Set-Off                                 |   |
| 13.13 |   | Time of the Essence                     |   |
| 13.14 |   | Judgment Currency                       |   |
| 13.15 |   | No  Novation                            |   |
| 13.16 |   | Consent                                 |   |

 

**SCHEDULES**

 
| Schedule A      |   | – |   | Applicable Margin, Appplicable Libor  Margin, Aplicable BA Stamping Fee, LC Fee and Standby Fee |
|----------------------|--------|--------|--------|-------------------------------------------------------------------------------------------------|
| Schedule B      |   | – |   | Borrowing Base Certificate                                                                      |
| Schedule C      |   | – |   | Conversion Notice                                                                               |
| Schedule D      |   | – |   | Drawdown Notice                                                                                 |
| Schedule E      |   | – |   | Rollover Notice                                                                                 |
| Schedule F      |   | – |   | Transfer Certificate                                                                            |
| Schedule G      |   | – |   | Compliance Certificate                                                                          |
| Schedule 7.1(h) |   | – |   | Outstanding  Litigation                                                                         |
| Schedule 7.1(i) |   | – |   | Licenses                                                                                        |
| Schedule 7.1(j) |   | – |   | Non-Compliance  Matters                                                                         |
| Schedule 7.1(p) |   | – |   | Real  Property                                                                                  |
| Schedule 7.1(q) |   | – |   | Subsidiaries                                                                                    |
| Schedule 7.1(u) |   | – |   | Bank  Accounts                                                                                  |

 

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**AMENDEDAND RESTATED LOAN AGREEMENT**

 

**MEMORANDUM OFAGREEMENT**made as of the 10th day of June, 2004,

 

B E T W E E N:

**DRAXIS HEALTH INC.,**a corporation incorporated under the laws of Canada,

 

(hereinafter referred to as the “**Borrower**”),

 

- and –

 

**NATIONAL BANK OFCANADA**a Canadian chartered bank

 

(hereinafter referred to as the “**Lender**”).

 

WHEREAS pursuant to a loan agreement made asof December 31, 2002, the Lender agreed to provide to the Borrower (i) arevolving credit facility; and (ii) a term credit facility upon and subject tothe terms and conditions set forth therein (the “**Original****Loan Agreement**”);

 

AND WHEREAS the Borrower and the Lender wishto amend and restate the Original Loan Agreement by executing and deliveringthis Agreement;

 

NOW THEREFORE THIS AGREEMENT WITNESSES that,in consideration of the premises, the covenants herein contained and othervaluable consideration, the parties hereto agree as follows:

 

**ARTICLE 1 INTERPRETATION**

 

**1.1****                                                                               Definitions**

 

In this Agreement:

 

“**AcceptanceFee**” means, with respect to each Bankers’ Acceptance drawn by theBorrower hereunder, an amount equal to the product of (i) the Applicable BAStamping Fee, (ii) the Face Amount of such Bankers’ Acceptance and (iii) afraction (x) the numerator of which is the number of days in the term tomaturity of such Bankers’ Acceptance and (y) the denominator of which is 365days (or 366 days in the case of a Bankers’ Acceptance which matures in a leapyear);

 

“**Acquisition**”means, with respect to any Person, any transaction or series of transactionsfor the direct or indirect (i) acquisition of all or substantially all of theassets or business

 

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or a division of any other Person, or (ii)acquisition of any shares, interests or participations of or in any otherPerson;

 

“**Acquisitionof Control**” means the occurrence of any of the following events: (i)any Person or group of Persons acting jointly, acquires directly or indirectly,more than 50% of the votes attached to the Borrower’s securities entitled tovote for the election of the Borrower’s board of directors; (ii) any suchPerson or Person’s designees represent a majority of the Borrower’s board ofdirectors; or (iii) any sale, exchange or other transfer (in one transaction orseries of related transactions) of all or substantially all of the Borrower’sproperty and assets to a Person other than a wholly-owned Subsidiary of theBorrower;

 

“**AdditionalCompensation**” has the meaning specified in Section 5.1;

 

“**AdjustedEBITDA**” means EBITDA less Taxes and Unfunded Capital Expenditures**;**

 

“**Advance**”means a Prime Rate Advance, a U.S. Base Rate Advance, a Bankers’ AcceptanceAdvance, a Libor Advance or the issue of a Letter of Credit and “**Advances**” means all of them;

 

“**Affiliate**”means an affiliated body corporate, partnership, joint venture or other entityand, for the purposes of this Agreement, (i) one body corporate, partnership,joint venture or other entity is affiliated with another if one such body corporate,partnership, joint venture or other entity is the Subsidiary of the other orboth are Subsidiaries of the same body corporate, partnership, joint venture orother entity or each of them is controlled by the same Person and (ii) if twobodies corporate, partnerships, joint ventures or other entities are affiliatedwith the same body corporate, partnership, joint venture or other entity at thesame time, they are deemed to be affiliated with each other;

 

“**Agreement**”means this agreement and all Schedules attached hereto as the same may beamended, restated, replaced or superseded from time to time;

 

“**AgreementCurrency**” has the meaning specified in Section 13.14;

 

“**AnnualPlan**” has the meaning specified in Section 8.1(a)(vi);

 

“**ApplicableBA Stamping Fee**” has the meaning specified in Schedule A;

 

“**ApplicableLaw**” means, with respect to any Person, property, transaction or event,all present or future applicable laws, statutes, regulations, rules, orders,codes, treaties, conventions, judgments, awards, determinations and decrees ofany governmental, regulatory, fiscal or monetary authority or court ofcompetent jurisdiction in any applicable jurisdiction;

 

“**ApplicableLibor Margin**” has the meaning specified in Schedule A;

 

“**ApplicableMargin**” has the meaning specified in Schedule A;

 

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“**Arm’sLength**” has the meaning ascribed thereto for the purposes of the *Income Tax Act* (Canada) in effect as ofthe date hereof;

 

“**Authorizations**”has the meaning specified in Section 7.1(i);

 

“**AvailableAmount**” means, (i) in respect of the Operating Facility, at anytime, the lesser of (a) the Committed Operating Amount, and (b) the BorrowingBase, and (ii) in respect of the Term Facility, at any time, the Committed TermAmount;

 

“**BAPurchase Price**” means, in the case of a Bankers’ Acceptance to bepurchased by the Lender, the difference between (i) the result (rounded to thenearest whole cent, with one-half of one cent being rounded up) obtained bydividing the Face Amount of such Bankers’ Acceptance by the sum of one plus theproduct of (x) the BA Reference Discount Rate multiplied by (y) a fraction, thenumerator of which is the number of days in the term to maturity of suchBankers’ Acceptance, and the denominator of which is 365 or 366 in the case ofa Bankers’ Acceptance maturing in a leap year and (ii) the Acceptance Fee;

 

“**BAReference Discount Rate**” means, in respect of Bankers’ Acceptancesto be purchased by the Lender, the average rate for Canadian Dollar bankers’acceptances for a period approximately equal to the term to maturity for suchBankers’ Acceptances which appears on the Reuters CDOR page on or about 10:00a.m. on the Drawdown Date; provided that if such rate does not appear thereon,the rate will be equal to the discount rate at approximately 10:00 a.m. atwhich the Lender would purchase, on the relevant Drawdown Date, its own bankers’acceptances or drafts having an aggregate Face Amount equal to and with a termto maturity the same as the Bankers’ Acceptances to be purchased by the Lenderon such Drawdown Date;

 

“**Bankers’Acceptances**” means a draft or other bill of exchange in CanadianDollars drawn by the Borrower and accepted by the Lender in accordance with Article 4;

 

“**Bankers’Acceptance Advances**” means the advance of funds to the Borrower byway of creation and issuance of Bankers’ Acceptances in accordance with theprovisions of Article 4;

 

“**Base Rate**”means the greater of (i) the variable rate of interest *per annum*, expressed on the basis of ayear of 365 or 366 days, as the case may be, established or quoted from time totime by the Lender as the reference rate of interest then in effect fordetermining interest rates on United States Dollar denominated commercial loansmade by it in Canada; and (ii) the Federal Funds Effective Rate multiplied by afraction, the numerator of which is the actual number of days in the year andthe denominator of which is 360, plus 1/2 of 1% *per annum*;

 

“**Borrower**”means Draxis Health Inc., a corporation existing under the *Canada Business Corporations Act*, and itssuccessors and permitted assigns;

 

“**BorrowingBase**” means, at any time, an amount equal to the sum of: (i) 80% ofEligible Canadian Accounts Receivable; (ii) 75% of Eligible U.S. AccountsReceivable;

 

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and (iii) 50% of Eligible Inventory less (iv)Priority Claims. For purposes of calculating the Borrowing Base, EligibleAccounts Receivable of the Borrower and Guarantors shall be expressed in CanadianDollars based on the Equivalent Amount in Canadian Dollars of any EligibleAccount Receivable denominated in United States Dollars;

 

“**BorrowingBase Certificate**” means a certificate to be executed by the Borrowerand delivered by the Borrower to the Lender from time to time substantially inthe form attached to this agreement as Schedule B;

 

“**Borrower’sSecurity**” has the meaning specified in Section 9.2;

 

“**Borrower’sSecurity Documents**” has the meaning specified in Section 9.2;

 

“**Business**”means, in the case of all Obligors except DAHI, the development, production,marketing and distribution of radiopharmaceuticals and the provision of contractpharmaceutical manufacturing services and, in the case of DAHI, means thebusiness of receiving royalty payments in respect of Anipryl®;

 

“**BusinessDay**” means a day, other than a Saturday or a Sunday or other day onwhich banks are required or authorized to close in Toronto or Montreal, Canadaand, where used in the context of (i) a Libor Advance, which is also a day onwhich banks are not required or authorized to close in either New York, NewYork or London, England and dealings are carried on in the London interbankmarket, and (ii) a U.S. Base Rate Advance, which is also a day on which banksare not required or authorized to close in New York, New York;

 

“**CanadianDollars**” and “**Cdn. $**”mean the lawful currency of Canada in immediately available funds;

 

“**CapitalExpenditures**” means, with respect to any Person, any and allexpenditures of money or money’s worth made or committed to be made by suchPerson for or in connection with the acquisition, repair, improvement orextension of capital property or assets (other than an Acquisition), whether byway of purchase, lease or otherwise and which, according to GAAP, should becapitalized by such Person excluding, however, the amount of any CapitalExpenditures paid for or to be paid for with proceeds of casualty insurance,condemnation awards or indemnity payments or any government grants received forthat purpose;

 

“**Capital Lease**”means any lease (i) which is required to be capitalized on a balance sheet ofthe lessee in accordance with GAAP, or (ii) for which the amount of the assetand liability thereunder should be disclosed in a note to such balance sheet asif so capitalized in accordance with GAAP;

 

“**change in law**”has the meaning specified in Section 5.1;

 

“**Charge**”means any right to any property, or the income or benefits flowing therefrom,which secures an obligation due to a Person or a claim of such Person, whethersuch interest is based on the common law, statute or contract, and includes anysecurity

 

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interest, hypothec, pledge, pawn, mortgage,privilege, prior claim, lien, charge, assignment, transfer, cession,encumbrance, Capital Lease, Synthetic Lease, instalment sale, conditional saleor trust receipt or a consignment or bailment for security purposes.  The term “**Charge**”shall include reservations, exceptions, encroachments, easements, servitudes,rights-of-way, covenants, conditions, restrictions and other title exceptionsand encumbrances (including, with respect to stock, stockholder agreementshaving the effect of restricting the ability, in any material respect, of aPerson to fulfill its obligations hereunder, voting trust agreements and allsimilar arrangements) affecting property. Solely for the purposes of determining whether a Charge exists for thepurposes of this Agreement, a Person shall be deemed to be the owner of anyproperty which it has acquired or holds subject to a conditional saleagreement, Capital Lease or other arrangement pursuant to which title to theproperty has been retained by or vested in some other Person for securitypurposes and such retention or vesting shall constitute a Charge;

 

“**Claims**”has the meaning specified in Section 12.4(a);

 

“**ClosingDate**” means June 10, 2004;

 

“**Collateral**”means the property described in and subject to the Charges, privileges andsecurity interests purported to be created by the Security Documents;

 

“**Commitment**”means the commitment of the Lender to loan to the Borrower the aggregate amountof the Facilities;

 

“**CommittedOperating Amount**” means the amount of Cdn. $15,000,000, as reducedfrom time to time pursuant to Section 2.7;

 

“**CommittedTerm Amount**” means the amount of Cdn. $10,000,000, as reduced fromtime to time pursuant to Section 2.7;

 

“**ComplianceCertificate**” means a certificate to be executed by the Borrower anddelivered by the Borrower to the Lender from time to time substantially in theform attached to this agreement as Schedule G;

 

“**Confirmation**”means the Confirmation Agreement dated June 10, 2004 made by the Borrower,DI and DAHI in favour of the Lender;

 

“**ConsolidatedWorking Capital Ratio**” means the ratio of current assets to currentliabilities, each as reflected in the Borrower’s most recent audited financialstatements or unaudited quarterly financial statements determined in accordancewith GAAP but shall, in the case of current assets, exclude any intercompanyadvances, deferred costs or any other assets of an intangible nature asdetermined by the Lender.  Currentliabilities shall include the current portion of Long-Term Debt and amountsoutstanding under the Facilities;

 

“**Control**”and its derivatives means, with respect to control of a corporation by aPerson, the holding (other than by way of security only) by or for the benefitof that Person, or

 

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affiliates of that Person or others with whomthat Person does not deal at Arm’s Length of securities of such corporation orthe right to vote or direct the voting of securities of such corporation towhich, in the aggregate, are attached more than 50% of the votes that may becast to elect directors of the corporation, provided that the votes attached tothose securities are sufficient, if exercised, to elect a majority of thedirectors of the corporation and means, with respect to control of a Personother than a corporation, the power to direct or cause the direction of themanagement and policies of such Person, directly or indirectly, and whetherthrough the ownership or control of voting securities, voting rights, contractor otherwise, without the cooperation of others;

 

“**Conversion**”means the conversion of one type of Advance into another type of Advancepursuant to Section 2.13;

 

“**ConversionNotice**” means a notice substantially in the form set out in Schedule C;

 

“**Counsel tothe Borrower**” means McCarthy Tétrault LLP, Toronto, Ontario or suchother firm of legal counsel as the Borrower may from time to time designatewith the approval of the Lender, such approval not to be unreasonably withheld;

 

“**DAHI**”means Deprenyl Animal Health Inc., a corporation existing under the laws ofLouisiana;

 

“**DI**”means Draximage Inc., a corporation existing under the laws of Canada;

 

“**DPI**”means Draxis Pharma Inc., a corporation existing under the laws of Canada;

 

“**Debt**”means, for any Person (without duplication),

 

(i)            obligationsin respect of borrowed money, whether or not represented by notes, bonds,debentures or indentures;

 

(ii)           PurchaseMoney Obligations;

 

(iii)          obligations,whether or not assumed, which are secured by Charges on the property belongingto such Person or payable out of the proceeds flowing therefrom;

 

(iv)          obligationsunder Capital Leases and Synthetic Leases;

 

(v)           obligationsunder letters of credit (other than documentary letters of credit contemplatingpayment against delivery of property), letters of guarantee or bankers’acceptances;

 

(vi)          redeemableshares of its capital stock which are either redeemable at the option of theholder thereof, are redeemable at a fixed date or are redeemable during fixedintervals for cash or property (other than property consisting of shares in thecapital of such Person that cannot be converted into cash or such otherproperty) (the amount of Debt for borrowed money

 

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of any suchcapital stock shall be the maximum fixed redemption or repurchase pricetherefor);

 

(vii)         foreignexchange liabilities and other derivative liabilities;

 

(viii)        allother obligations of such Person which in accordance with GAAP should beclassified upon a balance sheet of such Person as liabilities of such Personother than (a) trade payables and accrued liabilities that are currentliabilities incurred in the ordinary course of business, (b) unearned revenue,and (c) current and deferred Taxes; and

 

(ix)           obligationsunder Guarantees provided by such Person in respect of the obligations ofanother Person contemplated in clauses (i) through (viii) above;

 

“**Default**”means an event or circumstance, the occurrence or non-occurrence of whichwould, with the giving of a notice, lapse of time or a combination thereof,constitute an Event of Default unless remedied within the prescribed delays orwaived in writing by the Lender;

 

“**Distribution**”means any payment, loan, contribution or other transfer of funds or property tothe beneficial holder of any security issued by the Borrower (where securityhas the meaning assigned to it in the *SecuritiesAct* (Ontario)), including preference shares, or to any Affiliate ofthat holder, either directly or indirectly, and includes management, consultingor servicing fees, bonuses, dividends, repayment of any loans or theredemption, retraction or purchase of any of those securities;

 

“**Drawdown**”means a drawdown of an Advance;

 

“**DrawdownDate**” means, in relation to any Advance, that date, which shall be aBusiness Day, on which a Drawdown of an Advance is made by the Borrower;

 

“**DrawdownNotice**” means a notice substantially in the form set out in Schedule D;

 

“**DraxisPharma Debt**” means Debt owed to National Bank of Canada by DPIpursuant to an offer of financing from National Bank of Canada dated June 9,1998 and accepted by DPI on June 12, 1998, as amended by letter agreementsdated February 16, 2000, February 18, 2000, June 12, 2001 and March 28,2002;

 

“**EBITDA**”means, for any Person on a consolidated basis and for any period, withoutduplication, the amount equal to net income, plus to the extent deducted fromnet income, interest expense, depreciation expense, amortization expense, othernon-cash expenses and income tax expenses; provided that extraordinarygains or losses, including gains or losses on the disposition of assets outsidethe ordinary course of business, shall not be included in EBITDA;

 

“**EligibleAccounts Receivable**” means, collectively, the Eligible Canadian AccountsReceivable and the Eligible U.S. Accounts Receivable;

 

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“**EligibleCanadian Accounts Receivable**” means the combined Canadian tradeaccounts of the Borrower and the Guarantors as determined in accordance withGAAP (net of all goods and services taxes, harmonized taxes and sales tax asand all concessions, offsets, deductions, contras, chargebacks orunderstandings with the account party that could be expected to adverselyaffect the payment of, or the amount of, such trade account), but excluding thefollowing:

 

(a)           anytrade account which is not evidenced by an invoice;

 

(b)           anytrade accounts which are outstanding for more than 90 days from the date ofinvoice, except any extended term accounts agreed by the Lender to be EligibleAccounts Receivable;

 

(c)           tradeaccounts if the account debtors are located in a jurisdiction other than Canadaor the United States;

 

(d)           tradeaccounts which are payable in a currency other than Canadian Dollars or U.S.Dollars;

 

(e)           tradeaccounts if the account debtors in respect thereof are Affiliates of theBorrower or any of the Guarantors;

 

(f)            tradeaccounts subject to a right of set-off if a claim of set-off has been assertedby the applicable account debtor;

 

(g)           doubtfulor disputed accounts or trade accounts which are not free from claims regardingrecission, cancellation or avoidance, whether by operation of law or otherwise;

 

(h)           theaccount party on such trade account is an individual or is the subject of anybankruptcy or insolvency proceeding, has had a trustee or receiver appointedfor any part of its property, has made an assignment for the benefit ofcreditors, has admitted its inability to pay its debts as they mature, hassuspended its business or has not become insolvent;

 

(i)            anyaccounts where the account debtor is a federal, provincial or municipalgovernment or an agency of any such government unless such account debtor hasspecifically consented to the assignment of such accounts; and

 

(j)            anyaccounts, including any account not specifically excluded above, determined bythe Lender in its sole discretion, not to be eligible;

 

“**EligibleInventory**” means the combined inventory of raw materials, finishedand semi-finished goods of the Obligors which meet such standards ofeligibility as the Lender may establish from time to time; provided that noinventory shall be deemed to be Eligible Inventory unless each of the followingstatements is accurate and complete:

 

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(a)           suchinventory shall be valued monthly in accordance with GAAP at the lower of costand fair market value and shall not include inventory that consists of displayitems, manufacturing supplies (other than raw materials) or replacement parts;

 

(b)           suchinventory is in good condition, meets all standards imposed by any GovernmentalAuthority having regulatory authority over it, its use and/or sale and is notobsolete and is either currently usable or currently saleable in the normalcourse of business of the applicable Obligor;

 

(c)           suchinventory is either (i) in possession of a Obligor and (A) located on realproperty owned or leased by such Obligor, and (B) within Canada or the UnitedStates (provided that if such inventory is located on real property leased bysuch Obligor, the landlord of such real property shall have executed anddelivered to the Lender a landlord waiver agreement in form and substancesatisfactory to the Lender) or (ii) in the possession of a bailee and suchbailee shall have executed and delivered to the Lender a bailee letter in formand substance satisfactory to the Lender or (iii) in transit in Canada or theUnited States (provided that the Canadian or U.S. jurisdiction in question is ajurisdiction where the liens of the Lender in such inventory are validlyperfected first-priority liens) and between Obligors, and upon arrival at itsdestination, will comply with either paragraph (i)(A) or (i)(B) above;

 

(d)           suchinventory does not include goods that are not owned by the applicable Obligoror that are held by the applicable Obligor pursuant to a consignment agreement;

 

(e)           suchinventory does not consist of goods that are returned or repossessed or usedgoods taken in trade;

 

(f)            anyportion of the value of such inventory which results from a profit or gainresulting from an inter-company sale or other disposition of such inventoryshall be excluded;

 

(g)           suchinventory is not evidenced by negotiable documents of title unless delivered tothe Lender with endorsements;

 

(h)           wheresuch inventory is not finished goods, such inventory does not constituteHazardous Substances provided that this paragraph (h) shall not excludeinventory which is handled at all times in accordance with Applicable Laws andin accordance with good industry practices;

 

(i)            suchinventory is covered by casualty insurance; and

 

(j)            theLender has not determined in its reasonable discretion that it may not sell orotherwise dispose of such inventory in accordance with the terms of theapplicable Security Documents without infringing upon the rights of anotherPerson or violating any contract with any other Person;

 

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“**EligibleU.S. Accounts Receivable**” means the combined United States tradeaccounts of the Borrower and the Guarantors as determined in accordance withGAAP (net of all goods and services taxes, harmonized taxes and sales tax asand all concessions, offsets, deductions, contras, chargebacks orunderstandings with the account party that could be expected to adverselyaffect the payment of, or the amount of, such trade account), but excluding thefollowing:

 

(a)           anytrade account which is not evidenced by an invoice;

 

(b)           anytrade accounts which are outstanding for more than 90 days from the date of invoice,except any extended term accounts agreed by the Lender to be Eligible AccountsReceivable;

 

(c)           tradeaccounts if the account debtors are located in a jurisdiction other than Canadaor the United States;

 

(d)           tradeaccounts which are payable in a currency other than U.S. Dollars;

 

(e)           tradeaccounts if the account debtors in respect thereof are Affiliates of theBorrower or any of the Guarantors;

 

(f)            accountssubject to a right of set-off if a claim of set-off has been asserted by theapplicable account debtor;

 

(g)           doubtfulor disputed accounts or trade accounts which are not free from claims regardingrecession, cancellation or avoidance, whether by operation of law or otherwise;

 

(h)           theaccount party on such trade account is an individual or is the subject of anybankruptcy or insolvency proceeding, has had a trustee or receiver appointedfor any part of its property, has made an assignment for the benefit ofcreditors, has admitted its inability to pay its debts as they mature, hassuspended its business or has not become insolvent;

 

(i)            anyaccounts where the account debtor is a federal, state or municipal governmentor an agency of any such government unless such account debtor has specificallyconsented to the assignment of such accounts;****and

 

(j)            anyaccounts, including any account not specifically excluded above, determined bythe Lender in its sole discretion, not to be eligible;

 

“**EnvironmentalClaims**” means any and all enforcement, clean-up, removal or othergovernmental or regulatory actions, orders, directions or proceedingsinstituted, pending or completed or to the best of the knowledge of theBorrower, threatened or anticipated pursuant to any Environmental Laws and allclaims made or, to the best of the knowledge of the Borrower, threatened, byany third party against the Borrower, any property of the Borrower or itsSubsidiaries or any party having charge, management or control of any propertyof the Borrower or its Subsidiaries relating to damage, contribution, cost

 

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recovery, compensation, loss or injuryresulting from any violation or alleged violation of Environmental Laws;

 

“**EnvironmentalLaws**” means any present or future applicable federal, provincial,state, municipal or other local law, statute, regulation or by-law, code,ordinance, decree, directive, standard, policy, rule, order, treaty,convention, judgment, award or determination for the protection of theenvironment or human health;

 

“**EquivalentAmount**” on any given date in one currency (the “**first currency**”) of any amount denominatedin another currency (the “**second currency**”)means the amount of the first currency which could be purchased with suchamount of the second currency at the rate of exchange quoted by the Lender at11:00 a.m. (Toronto time) on such date for the purchase of the first currencywith the second currency;

 

“**Event ofDefault**” means any of the events described in Section 10.1;

 

“**FaceAmount**” means, in respect of a Bankers’ Acceptance, the amountpayable to the holder thereof on the maturity thereof and means, in respect ofa Letter of Credit, the maximum amount payable to a beneficiary thereunder;

 

“**Facilities**”means, collectively, the Operating Facility and the Term Facility;

 

“**FederalFunds Effective Rate**” means, for any particular day, the variablerate of interest *per annum*,calculated on the basis of a 360-day year as determined by the Lender for theactual number of days elapsed, equal to:

 

(i)            theweighted average of the rates on overnight federal funds transactions withmembers of the Federal Reserve System arranged by federal funds brokers aspublished for such day (or, if such day is not a Business Day, for the nextpreceding Business Day) by the Federal Reserve Bank of New York, or

 

(ii)           forany Business Day on which such rate is not so published by the Federal ReserveBank of New York, the average of the quotations for such day for suchtransactions received by the Lender from three federal funds brokers ofrecognized standing selected by the Lender in consultation with the Borrower;

 

“**GAAP**”means the generally accepted accounting principles in the United States;

 

“**GovernmentalAuthority**” means the government of Canada, any other nation(including The United States of America) or any political subdivision thereof,whether provincial, state, territorial or local, and any agency,instrumentality, regulatory or public body, court, commission, board, bureau,agency, central bank, fiscal or monetary authority or other authority and anyother entity exercising executive, legislative, judicial, taxing, regulatory oradministrative powers or functions of or pertaining to government, includingthe Bank Committee on Banking Regulation and Supervisory Practices of the Bankof International Settlements;

 

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“**Guarantees**”by any Person means all obligations (other than endorsements in the ordinarycourse of business of negotiable instruments for deposit or collection) of suchPerson guaranteeing, or in effect guaranteeing, any Debt, dividend or otherobligation of any other Person (the “**PrimaryObligor**”) in any manner, whether directly or indirectly, includingall obligations incurred through an agreement, contingent or otherwise, by suchPerson: (a) to purchase such Debt or obligation on any property or assetsconstituting security therefor, (b) to advance or supply funds (i) for thepurchase or payment of such Debt or obligation, or (ii) to maintain workingcapital or other balance sheet condition or otherwise to advance or make availablefunds for the purchase or payment of such Debt or obligation, (c) to leaseproperty or to purchase securities or other property or services primarily forthe purpose of assuring the owner of such Debt or obligation against loss, or(d) otherwise to assure the owner of the Debt or obligation of the PrimaryObligor against loss in respect thereof. For the purposes of all computations made under this Agreement, aGuarantee in respect of any Debt, and a Guarantee in respect of any otherobligation or liability or any dividend, as of the date of any suchcomputation, shall be deemed to be an amount equal to (a) where such Guaranteeis unlimited in amount, the aggregate outstanding amount of the Debt beingGuaranteed and (b) where such Guarantee is limited in amount, the lesser of theaggregate outstanding amount of such Debt and the maximum amount that may beclaimed under such Guarantee;

 

“**Guarantors**”means, collectively, DI, DPI, DAHI and each Person who becomes a materialSubsidiary (as determined, from time to time, by the Lender in its sole andabsolute discretion acting in good faith) after the date hereof and “**Guarantor**” means any one of them;

 

“**Guarantors’****Security**” has the meaningspecified in Section 9.1;

 

“**Guarantors’Security Documents**” has the meaning specified in Section 9.3;

 

“**HazardousSubstance**” means any contaminant, pollutant or substance that causesharm or degradation to the surrounding environment or injury to human healthand, without restricting the generality of the foregoing, includes anypollutant, contaminant, waste, hazardous waste, deleterious substance ordangerous good present in such quantity or state that it contravenes anyEnvironmental Laws or gives rise to any liability or obligation under anyEnvironmental Law;

 

“**Indemnitee**”has the meaning specified in Section 12.4(a);

 

“**IndemnifyingParty**” has the meaning specified in Section 12.4(c);

 

“**InterestDate**” means the first day of each calendar month;

 

“**InterestPeriod**” means, with respect to a Libor Advance, a period commencing(i) in the case of the initial Interest Period for such Libor Advance, on thedate of such Libor Advance; and (ii) in the case of any subsequent InterestPeriod for such Advance, on the last day of the immediately preceding InterestPeriod applicable thereto and, in each case, ending on the last day of suchperiod as shall be selected by the Borrower pursuant to the provisions hereof;provided that if any Libor Advance arises as a result of a Conversion

 

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of another type of Advance pursuant to theprovisions hereof, the initial Interest Period for such Libor Advance aftersuch Conversion shall commence on the date of such Conversion;

 

“**Investment**”,with respect to any Person, means, directly or indirectly, any advance, loan orcapital contribution to, any *bona fide*accountsreceivable not collected from Affiliates, or the purchase of any shares,interests, participations or other equivalents (however designated) ofcorporate stock, bonds, notes, debentures or other securities, of any Person,or the making of any investment in any Person;

 

“**LC Fee**”has the meaning specified in Schedule A;

 

“**Lender**”means National Bank of Canada and its successors and permitted assigns;

 

“**Lender’sCounsel**” means the firm of Davies Ward Phillips & Vineberg LLP,Toronto, Ontario, or such other firm of legal counsel as the Lender may fromtime to time designate;

 

“**Letter ofCredit**” means a term letter of credit, sight letter of credit,standby letter of credit or documentary letter of credit issued by the Lenderat the request of the Borrower pursuant to Section 3.2;

 

“**Letter ofCredit Facility**” means the revolving credit facility forming part ofeach of the Operating Facility and the Term Facility and to be made availableto the Borrower hereunder by way of the issuance of Letters of Credit as setforth in Article 3;

 

“**LiborAdvance**” means a loan made by the Lender to the Borrower in, orConversion into, United States Dollars on which interest is payable at the LiborRate plus the Applicable Libor Margin;

 

“**Libor Rate**”means, for each Interest Period for each Libor Advance, a rate of interest perannum, calculated on the basis of a year of 360 days, equal to the Londoninterbank offered rate for United States Dollars, at 11:00 a.m. (London,England time) on the day that is two Business Days prior to the first day ofsuch Interest Period, and having a term equal to such Interest Period, as suchrate is reported on the display designated as “page 3750” (or any replacementpage) by “Telerate - the Financial Information Network” published by TelerateSystems, Inc. (or such other company or service as may be nominated by theBritish Bankers’ Association as the information vendor for the purpose ofdisplaying British Bankers’ Association Interest Settlement Rates for depositsin United States Dollars) and, if such rate is not available, then the rate ofinterest per annum, calculated on the basis of a year of 360 days, at which theLender is offered deposits in United States Dollars by prime banks in theLondon interbank market at approximately 11:00 a.m. (London, England time) twoBusiness Days prior to the first day of such Interest Period for a periodcomparable to such Interest Period and in an amount approximately equal to theamount of the Libor Advance to be outstanding during such Interest Period;

 

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“**LoanDocuments**” means, collectively, this Agreement, the Confirmation,the Borrower’s Security Documents and the Guarantors’ Security Documents and “**Loan Document**” means any one of them;

 

“**Long-TermDebt**” means Debt which, by its terms or on renewal or extension atthe option of the Borrower, has a term to maturity of more than 12 months;

 

“**Losses**”has the meaning specified in Section 12.4(a);

 

“**Material Adverse Change**” means an event, development orcircumstance that has had or could reasonably be expected to have a MaterialAdverse Effect;

 

“**Material Adverse Effect**”means a material adverse effect on (a) the business, assets, liabilities,financial position or operating results of the Borrower and its Subsidiaries,taken as a whole, or (b) the ability of the Borrower****toperform any of its obligations under this Agreement or any of the LoanDocuments, or (c) the ability of any Guarantor to perform its obligations underthe Subsidiary Guarantee or any of the Loan Documents, (d) the validity orenforceability of this Agreement or any of the Loan Documents or the rights andremedies of the Lender hereunder or (e) the amount which the Lender would belikely to receive (after giving effect to delays on payment and costs ofenforcement) upon the liquidation of the Collateral;

 

“**MaterialAgreement**” means any agreement, contract or document which ismaterial to the business, operations or financial condition of the Borrower andits Subsidiaries taken as a whole;

 

“**MaturityDate**” means in the case of the Operating Facility, June 10,2005, subject to extension pursuant to Section 2.4(c) and means, in thecase of the Term Facility, June 10 , 2007;

 

“**NetProceeds**” means with respect to: (i) the issuance or creation of anyDebt, whether public or private, of any Person, the amount equal to theaggregate amount received in cash in connection with such issuance or creationless all reasonable fees (including without limitation, reasonable legal fees),commissions and other out-of-pocket expenses incurred or paid for by suchPerson in connection with such creation or issuance; and (ii) with respect toany asset dispositions by any Person, an amount equal to the amount received incash (including any cash received by way of deferred payment pursuant to a notereceivable or other non-cash consideration but only as and when such cash isreceived) in connection with any such disposition less all reasonable fees,incurred or paid for by the Person in connection with the disposition and allsales, goods and services or similar taxes incurred in connection with thedisposition;

 

“**Non-ComplianceMatters**”****means thosematters described in Schedule 7.1(j);

 

“**Notice**”has the meaning specified in Section 3.3(a);

 

“**Notice ofAmount**” has the meaning specified in Section 5.1;

 

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“**NotificationDate**” has the meaning specified in Section 12.5(c);

 

“**Obligors**”means the Borrower and each Guarantor and “**Obligor**”means any one of them;

 

“**Officer’sCertificate**” means a certificate signed by any one of the Presidentand Chief Executive Officer, the Chief Financial Officer or the Vice President,Finance of the Borrower;

 

“**OntarioProperty**” means the real property leased by the Borrower at 6870Goreway Drive, Mississauga, Ontario, Canada;

 

“**OperatingFacility**” means the revolving credit facility, including the Letterof Credit Facility (specified as being part of the Operating Facility), in anaggregate principal amount of up to the Committed Operating Amount or itsEquivalent Amount in United States Dollars to be made available to the Borrowerhereunder as set forth in Article 2 and Article 3;

 

“**OriginalLoan Agreement**” has the meaning specified in the recitals to thisAgreement;

 

“**OutstandingOperating Amount**” has the meaning specified in Section 2.5(a);

 

“**OutstandingTerm Amount**” has the meaning specified in Section 2.6(a);

 

“**PermittedAcquisition**” means any Reorganization between or among any of theObligors and any of the Subsidiaries completed in accordance with Section 11.1or any Acquisition by an Obligor of one or more other Obligors or anySubsidiary;

 

“**PermittedCharge**” means, with respect to any Person:

 

(i)            anyCharge created by law that is assumed in the ordinary course of business and inorder to exercise same, which has not at such date been registered inaccordance with Applicable Laws against such Person, which relates toobligations which are not yet due, which is not related to any loan of money orobtaining of credit and which, in the aggregate, do not affect in a materialway the use, the income or the benefits flowing from the property so charged inthe conduct of the business of such Person; any Charge resulting from judgmentsor decisions which such Person has, at such date, appealed or in respect ofwhich it has sought revision and obtained a suspension of execution pending theappeal or the revision; any Charge for taxes, assessments or governmental claimsor other impositions not yet due or matured or in respect of which the validityat such date has been contested in good faith by such Person before a competenttribunal or other governmental body; or which relates to a deposit of monies orsecurities in the ordinary course of business with respect to any Chargereferred to in this paragraph, or to secure worker’s compensation, surety orappeal bonds or security for costs of litigation;

 

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(ii)           anyright of a municipality, governmental body or other public authority pursuantto any lease, licence, franchise, grant or permit obtained by such Person, orany right resulting from a legislative provision, to terminate such lease,licence, franchise, grant or permit, or requiring an annual or periodic paymentas a condition of its extension;

 

(iii)          anyreal right granted by such Person to a public body, or to a municipal orgovernmental authority or public utility, or which may be imposed by one or theother, when required by such body or authority with respect to the operationsof such Person in the ordinary course of its business;

 

(iv)          realrights granted in favour of municipal authorities or public utilities on realproperty and immovables acquired from time to time by such Person which do notadversely affect the value or marketability of such Person’s real and immovableproperty;

 

(v)           minortitle defects, homologated lines, zoning and building by-laws, ordinances,regulations and other governmental restrictions on the use of property, providedthat none of the foregoing adversely affects the value or marketability of suchPerson’s real or immovable property;

 

(vi)          Chargesto secure Debt to renew, extend, refinance or refund, in whole or in part, Debtsecured by any Charge referred to in this definition, so long as such Chargedoes not extend to any other property and the principal amount of Debt sorenewed, extended, refinanced or refunded, plus the amount of any premiumrequired to be paid in connection with such refinancing pursuant to the termsof the Debt refinanced or the amount of any premium reasonably determined bythe Borrower as necessary to accomplish such refinancing by means of a tenderoffer or privately negotiated repurchase, plus the expenses of the Borrower inconnection with such refinancing;

 

(vii)         thereservations in the original grant of an immovable or real property from theCrown; and

 

(viii)        anyCharge which is created, incurred, assumed or suffered to exist to secure aPurchase Money Obligation, the Debt secured by which does not, exceed $100,000;

 

“**Permitted Debt**”means

 

(i)            Debtto the Lender under the Facilities;

 

(ii)           Debtto trade creditors incurred in the ordinary course of business and not overdue;

 

(iii)          Debtarising from deposits made by customers with DPI in respect of work to beperformed or goods to be supplied by DPI to such customers; and

 

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(iv)          Debtincurred in the ordinary course, including in respect of Capital Leases in anamount not exceeding $50,000 in any one transaction and not exceeding $250,000in one fiscal year of the Borrower;

 

“**PermittedDisposition**” means, in respect of any Person, the disposition,transfer or sale of (i) inventory or assets in the ordinary course of itsbusiness and for the purpose of carrying on the same, (ii) such other assets orproperties provided that all proceeds received therefrom are used to repay theAdvances outstanding at such time, and (iii) assets which are obsolete,worn-out or no longer necessary provided that all proceeds in excess of Cdn.$250,000 received therefrom in any fiscal year are used to repay the Advancesoutstanding at such time;

 

“**PermittedInvestments**” means (i) Investments made by the Borrower in DPI; and(ii) any loan made by the Borrower to a Guarantor provided that such Guarantorhas executed and delivered a Guarantee in favour of the Lender and theGuarantors’ Security Documents, as applicable;

 

“**Person**”means an individual, company, partnership (whether or not having separate legalpersonality), corporation (including a business trust), joint stock company,trust, unincorporated association, joint venture or other entity, or aGovernmental Authority;

 

“**Prime Rate**”means the greater of (i) the variable rate of interest *per annum*, expressed on the basis of ayear of 365 or 366 days, as the case may be, established or quoted from time totime by the Lender as the reference rate of interest then in effect fordetermining interest rates on Canadian Dollar denominated commercial loans madeby it in Canada and (ii) the sum of (x) the rate *per annum* for Canadian Dollar bankers’ acceptances having aterm of 30 days that appears on the display page designated as the CDOR Page(or any replacement page) by Reuters Money Market Service (or its successor) asof 10:00 a.m. on the date of determination as reported by the Lender, and (y)0.50% per annum;

 

“**Prime RateAdvance**” means a loan made by the Lender to the Borrower in, orConversion into, Canadian Dollars on which interest is payable at the PrimeRate plus the Applicable Margin;

 

“**PriorityClaims**” means, at any time, the aggregate of any amounts due andpayable prior to such time, to the extent not paid by the Borrower or any ofthe Guarantors in respect of:

 

(a)           wages,salaries, commissions or other remunerations;

 

(b)           vacationpay;

 

(c)           deductionsat source for employees’ federal and provincial income taxes, Canadian PensionPlan and Employment Insurance;

 

(d)           GSTand PST (net input tax credits);

 

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(e)           Workers’Compensation Board premiums or similar premiums;

 

(f)            alltaxes under federal and state laws of the United States including, but notlimited to, all federal, state or local net or gross income, gross receipts,net proceeds, sales, use, ad valorem, value added, franchise, withholding,payroll, employment, excise, sales, use, property, alternative or add-onminimum, environmental or other taxes, assessments, duties, fees, levies orother governmental charges of any nature whatever, whether disputed or not,together with any interest, penalties, additions to tax or additional amountswith respect thereto;

 

(g)           allpayments in connection with an employee benefit plan, program and arrangementincluding, without limitation, any “employee benefit plan” as defined in Section 3(3)of the Employee Retirement Income Security Act of 1974, as amended (“**ERISA**”), maintained or contributed to bythe Borrower or any of the Guarantors, or any other applicable law coveringemployee benefit plans (including, without limitation, the Internal RevenueCode of 1986, as amended) or any applicable agreement controlling such employeebenefit plan(s);

 

(h)           allpayments in connection with workers’ compensation, workers’ disabilityinsurance, or any similar program as required by any applicable state orfederal law, such as, for example, the New York State “Workers’ CompensationLaw” (New York Consolidated Laws Chapter 67, §§1 et. seq.);

 

(i)            propertytaxes;

 

(j)            rent;

 

(k)           theaggregate value, determined in accordance with GAAP, of all Eligible Inventorywhich the Lender, acting reasonably, considers may be or may become subject toa right of a supplier to recover possession thereof under any Applicable Law,where such supplier’s right may have priority over the security interests ofthe Lender, including without limitation, Eligible Inventory subject to a rightof a supplier to repossess goods pursuant to Section 81.1 of the *Bankruptcy and Insolvency Act* (Canada);and

 

(l)            claimswhich may rank in priority to or pari passu with the Lender’s security interestin respect of accounts receivable or inventory;

 

“**PurchaseMoney Obligation**” means, with respect to any Person, any Debtincurred in respect of the cost of acquisition, including by way of conditionalsales contract, or leasing by way of a Capital Lease, of any property(including shares of capital stock or Debt) or of the cost of construction,improvement or extension of any property, acquired, constructed, improved orextended or leased by way of a Capital Lease, which Debt existed at the time ofacquisition, construction, improvement or extension or leasing by way of aCapital Lease or within 90 days after the completion thereof, excluding anytrade debt incurred in the ordinary course of business and without any extendedterms,

 

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and includes any extension, renewal orrefunding of any such Debt if the amount thereof outstanding on the date ofsuch extension, renewal or refunding is not increased;

 

“**QuebecProperty**” means the real property owned by DPI and located at 16751Trans Canada Highway, Kirkland, Quebec;

 

“**Release**”means any emission, deposit, issuance, discharge, transportation or disposal;

 

“**relevantperiod**” has the meaning specified in Section 2.12(a);

 

“**Reorganization**”has the meaning specified in Section 11.1;

 

“**Rollover**”means a rollover of a Libor Advance or a Bankers’ Acceptance pursuant to and inaccordance with Section 2.10 or Article 4, respectively;

 

“**RolloverNotice**” means a notice substantially in the Form of Schedule E;

 

“**Security**”means, collectively, the Borrower’s Security and the Guarantors’ Security;

 

“**SecurityDocuments**” means, collectively, the Borrower’s Security Documentsand the Guarantors’ Security Documents and “**SecurityDocument**” means any of them;

 

“**SecuritizationTransaction**” means any transaction providing for the sale,securitization or other asset-backed financing of (i) receivables of or owingto any Obligor or any of its Subsidiaries or (ii) any other assets of any Obligoror any of its Subsidiaries;

 

“**StandbyFee**” has the meaning specified in Section 2.12(a) and iscalculated in accordance with Schedule A;

 

“**SubordinatedDebt**” means any Debt of the Borrower or any Guarantor to any Person,in principal, interest and fees, which is expressly postponed and madesubordinate and junior in right of payment to the Advances (i) by its expressterms or (ii) pursuant to a subordination agreement, in each case on terms andconditions satisfactory to the Lender;

 

“**Subsidiary**”means any corporation more than 50% of the Voting Shares of which at the timeof determination are beneficially owned, directly or indirectly, by theBorrower or any corporation, joint venture, partnership or other Person whichis subject to the direct or indirect Control of the Borrower;

 

“**Subsidiary****Guarantee**” means, in respect ofthe each of the Guarantors (other than DPI), the guarantee made as of December 31,2002 in favour of the Lender, guaranteeing, *interalia*, the obligations of the Borrower under the Loan Documents andin the case of DPI means the guarantee made by DPI as of the Closing Date infavour of the Lender, guaranteeing, *interalia*, the obligations of the Borrower under the Loan Documents;

 

“**SuccessorCorporation**” has the meaning specified in Section 11.1;

 

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“**Synthetic Lease**”means any synthetic lease or similar off-balance sheet financing product underthe terms of which the lessee retains the tax benefits of ownership but treatsthe lease as an operating lease in accordance with GAAP;

 

“**Taxes**”includes all present and future income, corporation, capital gains, capital andvalue-added and goods and services taxes and all stamp and other taxes andlevies, imposts, deductions, duties, charges and withholdings whatsoevertogether with interest thereon and penalties with respect thereto, if any, andcharges, fees and other amounts made on or in respect thereof;

 

“**TermFacility**” means the revolving credit facility, including the Letterof Credit Facility (specified as being part of the Term Facility), in anaggregate principal amount of up to Cdn. $10,000,000 (or its initial EquivalentAmount in United States Dollars) made available to the Borrower hereunder asset forth in Article 2 and Article 3;

 

“**TotalFunded Debt**” means, with respect to the Borrower, on a consolidatedbasis without duplication, the sum of (i) all interest bearing Debt; (ii) allDebt referred to in paragraph (ix) of the definition Debt; and (iii) allCapital Leases;

 

“**TransferCertificate**” means a certificate substantially in the form of Schedule F;

 

“**Transferee**”has the meaning specified in Section 13.11;

 

“**UnitedStates Dollars**”, “**U.S. Dollars**”and “**U.S. $**” mean the lawfulcurrency of the United States of America in immediately available funds;

 

“**UnfundedCapital Expenditures**” means, for any period the amount of allCapital Expenditures less any Capital Expenditures funded by Permitted Debt,Subordinated Debt or by the proceeds of any equity issue of the Borrower;

 

“**U.S. BaseRate Advance**” means a loan made by the Lender to the Borrower in, orConversion into, U.S. Dollars on which interest is payable at the Base Rateplus the Applicable Margin;

 

“**VermontProperty**” means the real property leased by DI at Suite 50, 75Talcott Road, Williston, Vermont, U.S.A.; and

 

“**VotingShares**” means shares of any class of any corporation carrying votingrights under all circumstances, provided that, for the purpose of thisdefinition, shares which only carry the right to vote conditionally on thehappening of an event shall not be considered Voting Shares unless such righthas become exercisable.

 

**1.2****                                                                               Headings**

 

The division of this Agreement into Articlesand Sections and the insertion of an index and headings are for convenience ofreference only and shall not affect the construction or interpretationhereof.  The terms “**this Agreement**”, “**hereof**”, “**hereunder**”and similar expressions refer to this Agreement and not to any particularArticle, Section, paragraph or other

 

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portion hereof and include any agreement supplemental hereto.  Save as expressly provided herein, referencesherein to Articles, Sections and Schedules are to Articles and Sections of andSchedules to this Agreement.

 

**1.3****                                                                               ExtendedMeanings**

 

Words importing the singular number onlyshall include the plural and *vice versa*,and words importing any gender shall include all genders.  The term “including” means “including withoutlimitation”.

 

**1.4****                                                                               Referencesto Lender**

 

Any reference in this Agreement to the Lendershall be construed so as to include its permitted successors, transfers orassigns hereunder in accordance with their respective interests.

 

**1.5****                                                                               AccountingTerms and Practices**

 

Unless otherwise provided herein, allaccounting terms referred to herein shall be construed in accordance with GAAPon the date of this Agreement and all financial data submitted pursuant to thisAgreement shall be prepared in accordance with such principles, consistentlyapplied.

 

**1.6****                                                                               Non-BusinessDays**

 

Whenever any payment to be made hereundershall be stated to be due or any action to be taken hereunder shall be statedto be required to be taken on a day other than a Business Day, such paymentshall be made or such action shall be taken on the next succeeding Business Dayand, in the case of the payment of any monetary amount, the extension of timeshall be included for the purposes of computation of interest or fees thereon.

 

**1.7****                                                                               Referencesto Time of Day**

 

Except as otherwise specified herein, a timeof day shall be construed as a reference to Toronto, Canada time.

 

**1.8****                                                                               Severability**

 

In the event that one or more of theprovisions contained in this Agreement shall be invalid, illegal orunenforceable in any respect under any applicable law, the validity, legalityor enforceability of the remaining provisions hereof shall not be affected orimpaired thereby.

 

**1.9****                                                                               Currency**

 

All monetary amounts in this Agreement referto Canadian Dollars unless otherwise specified.

 

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**1.10**                                                                        **References to Statutes**

 

Exceptas otherwise provided herein, any reference in this Agreement to a statuteshall be construed to be a reference to such statute as the same may have been,or may from time to time be, amended or re-enacted.

 

**1.11****                                                                        Referencesto Agreements**

 

Exceptas otherwise provided herein, any reference herein to this Agreement or anyother agreement or document shall be construed to be a reference to thisAgreement or such other agreement or document, as the case may be, as the samemay have been, or may from time to time be, amended, varied, novated orsupplemented.

 

**1.12****                                                                        Consentsand Approvals**

 

Wheneverthe consent or approval of a party hereto is required in a particularcircumstance, unless otherwise expressly provided for therein, such consent orapproval shall not be unreasonably withheld or delayed by such party.

 

**1.13****                                                                        Schedules**

 

Thefollowing are the Schedules attached hereto and incorporated by reference anddeemed to be part hereof:

 
| Schedule A      |   | Applicable  Margin, Applicable Libor Margin, Applicable BA Stamping Fee, LC Fee and  Standby Fee |
|----------------------|--------|--------------------------------------------------------------------------------------------------|
| Schedule B      |   | Borrowing  Base Certificate                                                                      |
| Schedule C      |   | Conversion  Notice                                                                               |
| Schedule D      |   | Drawdown  Notice                                                                                 |
| Schedule E      |   | Rollover  Notice                                                                                 |
| Schedule F      |   | Transfer  Certificate                                                                            |
| Schedule G      |   | Compliance  Certificate                                                                          |
| Schedule 7.1(h) |   | Litigation                                                                                       |
| Schedule 7.1(i) |   | Licenses                                                                                         |
| Schedule 7.1(j) |   | Non-Compliance Matters                                                                           |
| Schedule 7.1(p) |   | Real Property                                                                                    |
| Schedule 7.1(q) |   | Subsidiaries                                                                                     |
| Schedule 7.1(u) |   | Bank Accounts                                                                                    |

 

**ARTICLE 2THE FACILITIES**

 

**2.1****                                                                               OriginalLoan Agreement**

 

ThisAgreement amends and restates the Original Loan Agreement in its entirety.  For greater certainty, each of the Borrowerand the Lender agrees and confirms that all of its liabilities and obligationsunder the Original Credit Agreement existing on the Closing Date are amendedand restated by this Agreement and continue in full force and effect hereunder,except

 

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to the extent amended by this Agreement and anyamounts outstanding under the Original Loan Agreement on the Closing Date shallbe deemed to be and the parties hereby confirm that such amounts areoutstanding under the Operating Facility.

 

**2.2****                                                                               TheFacilities**

 

Uponthe terms and subject to the conditions hereof, the Lender hereby agrees tomake the Facilities available to the Borrower.

 

**2.3****                                                                               Purposes**

 

(a)                                  TheOperating Facility is being made available to the Borrower by the Lender forgeneral corporate purposes, including to provide working capital to theBorrower for the business and operations of the Borrower and its Subsidiaries.

 

(b)                                 TheTerm Facility is being made available to the Borrower by the Lender:

 

(i)             to advance funds to DPI to repay amounts outstanding under theDraxis Pharma Debt; and

 

(ii)          for Capital Expenditures requirements of the Borrower.

 

**2.4****                                                                               Termand Availability of Advances**

 

(a)                                  Availabilityof Operating Facility.  The Operating Facility shall be available forDrawdowns by the Borrower, at the option of the Borrower, (i) in a minimumprincipal amount of Cdn. $50,000 and integral multiples of Cdn. $10,000thereafter by way of Prime Rate Advances, (ii) in a minimum Face Amount of Cdn.$50,000 and integral multiples of Cdn. $50,000 thereafter by way of Bankers’Acceptance Advances, (iii) in a minimum amount of U.S. $50,000 and integralmultiples of U.S. $10,000 thereafter by way of U.S. Base Rate Advances, (iv) ina minimum amount of U.S. $50,000 and integral multiples of U.S. $10,000thereafter by way of Libor Advances, or (v) any combination thereof, in eachcase by irrevocable Drawdown Notice given to the Lender not later than (x)10:00 a.m. on the relevant Drawdown Date in the case of Prime Rate Advances,Bankers’ Acceptance Advances and U.S. Base Rate Advances and (y) 10:00 a.m. onthe third Business Day prior to the relevant Drawdown Date in the case of aLibor Advance.  The Operating Facilityshall be a revolving credit facility and, subject to the terms and conditionscontained herein, the Borrower shall have the right and option to determine, inaddition to the Letters of Credit available pursuant to Article 3, inwhich of these forms the Operating Facility shall be utilized from time to timeand the Borrower may borrow, repay and reborrow the Operating Facility at anytime prior to the Maturity Date but solely for the purposes set forth in Section 2.3(a),and the Borrower shall have the right to convert the manner in which theOperating Facility is utilized from one form to another as it sees fit, subjectto Section 2.13.  The Borrower maynot make a Drawdown under the Operating Facility if as a result of suchDrawdown the sum of (A) the aggregate principal amount of all Prime RateAdvances outstanding under the Operating Facility, plus (B) the aggregate FaceAmount of all Bankers’ Acceptances outstanding under the Operating Facility,plus (C) the maximum amount which may be drawn under all Canadian Dollardenominated Letters of Credit outstanding under the Operating Facility portionof the Letter of Credit Facility, plus (D) the Equivalent Amount,

 

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expressed inCanadian Dollars, of the aggregate principal amount of all Libor Advancesoutstanding under the Operating Facility, plus (E) the Equivalent Amount,expressed in Canadian Dollars, of the aggregate principal amount of all U.S.Base Rate Advances outstanding under the Operating Facility, plus (F) theEquivalent Amount, expressed in Canadian Dollars, of the maximum amount whichmay be drawn under all U.S. Dollar denominated Letters of Credit outstandingunder the Operating Facility portion of the Letter of Credit Facility, in eachcase without duplication, would exceed the Available Amount.  The Lender shall have no obligation to makeany Advance hereunder at any time after demand has been made pursuant to Section 10.2,or at any time that the Borrower or any of the Guarantors has failed to observeor perform any of its covenants or obligations under any of the Loan Documentsand such default is continuing, regardless of whether the Lender has madedemand pursuant to Section 10.2 hereof.

 

(b)                                 Availabilityof Term Facility.  The Term Facility shall be available forDrawdowns by the Borrower, at the option of the Borrower, (i) in a minimumprincipal amount of Cdn. $50,000 and integral multiples of Cdn. $10,000thereafter by way of Prime Rate Advances, (ii) in a minimum Face Amount of Cdn.$50,000 and integral multiples of Cdn. $50,000 thereafter by way of Bankers’Acceptance Advances, (iii) in a minimum amount of U.S. $50,000 and integralmultiples of U.S. $10,000 thereafter by way of U.S. Base Rate Advances, (iv) ina minimum amount of U.S. $50,000 and integral multiples of U.S. $10,000thereafter by way of Libor Advances, or (v) any combination thereof, in eachcase by irrevocable Drawdown Notice given to the Lender not later than (x)10:00 a.m. on the relevant Drawdown Date in the case of Prime Rate Advances,Bankers’ Acceptance Advances and U.S. Base Rate Advances and (y) 10:00 a.m. onthe third Business Day prior to the relevant Drawdown Date in the case of aLibor Advance.  The Term Facility shallbe a revolving credit facility and, subject to the terms and conditionscontained herein, the Borrower shall have the right and option to determine, inaddition to the Letters of Credit available pursuant to Article 3, inwhich of these forms the Term Facility shall be utilized from time to time andthe Borrower may borrow, repay and reborrow the Term Facility at any time priorto the Maturity Date but solely for the purposes set forth in Section 2.3(b),and the Borrower shall have the right to convert the manner in which the TermFacility is utilized from one form to another as it sees fit, subject to Section 2.13.  The Borrower may not make a Drawdown underthe Term Facility if as a result of such Drawdown the sum of (A) the aggregateprincipal amount of all Prime Rate Advances outstanding under the TermFacility, plus (B) the aggregate Face Amount of all Bankers’ Acceptancesoutstanding under the Term Facility, plus (C) the maximum amount which may be drawnunder all Canadian Dollar denominated Letters of Credit outstanding under theTerm Facility portion of the Letter of Credit Facility plus (D) the EquivalentAmount, expressed in Canadian Dollars, of the aggregate principal amount of allLibor Advances outstanding under the Term Facility, plus (E) the EquivalentAmount, expressed in Canadian Dollars, of the aggregate principal amount of allU.S. Base Rate Advances outstanding under the Term Facility, plus (F) theEquivalent Amount, expressed in Canadian Dollars, of the maximum amount whichmay be drawn under all U.S. Dollar denominated Letters of Credit outstandingunder the Term Facility portion of Letter of Credit Facility, in each casewithout duplication, would exceed the Available Amount.  The Lender shall have no obligation to makeany Advance hereunder at any time after demand has been made pursuant to Section 10.2,or at any time that the Borrower or any of the Guarantors has failed to observeor perform any of its covenants or obligations under any of the Loan Documentsand such default is continuing, regardless of whether the Lender has madedemand pursuant to Section 10.2 hereof.

 

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(c)                                  Termination.  The Term Facility shallterminate on the Maturity Date applicable thereto.  The Operating Facility shall terminate on theMaturity Date applicable thereto unless extended with this Section 2.4(c).  Not more than 90 days nor less than 60 daysbefore the then effective Maturity Date in respect of the Operating Facility,the Borrower may request, by written notice to the Lender, that the MaturityDate be extended for an additional period of up to 364 days.  Within 40 days after the Borrower hasdelivered such request for extension to the Lender, the Lender shall givewritten notice to the Borrower of its decision to so extend or deny therequested extension (and the failure to provide such notice shall be deemed tobe a decision to deny the requested extension). If the Lender approves the requested extension, the Maturity Date withrespect to the Operating Facility only shall be extended for the period of timeset forth in the notice of approval, to a maximum of a further 364 days and theMaturity Date for purposes of the Operating Facility shall be amendedaccordingly.

 

**2.5****                                                                               Repaymentof Operating Facility**

 

(a)                                  Ifthe sum of (i) the aggregate principal amount of all Prime Rate Advancesoutstanding under the Operating Facility, plus (ii) the aggregate Face Amountof all Bankers’ Acceptances outstanding under the Operating Facility, plus(iii) the maximum amount which may be drawn under all Canadian Dollardenominated Letters of Credit outstanding under the Operating Facility portionof the Letter of Credit Facility, plus (iv) the Equivalent Amount, expressed inCanadian Dollars, of the aggregate principal amount of all Libor Advancesoutstanding under the Operating Facility, plus (v) the Equivalent Amount,expressed in Canadian Dollars, of the aggregate principal amount of all U.S.Base Rate Advances outstanding under the Operating Facility, plus (vi) theEquivalent Amount, expressed in Canadian Dollars, of the maximum amount whichmay be drawn under all U.S. Dollar denominated Letters of Credit outstandingunder the Operating Facility portion of the Letter of Credit Facility (suchamount being referred to in this Section 2.5 as the “**Outstanding Operating Amount**”), exceeds themaximum amount allowed pursuant to Section 2.4(a) for any reasonwhatsoever (including changes in the Canadian Dollar/United States Dollarexchange rate), then the Lender may, by notice to the Borrower, require theBorrower to repay, within two Business Days of receipt of such notice, subjectto the provisions of this Section 2.5, that portion of the OutstandingOperating Amount which is in excess of the maximum amount allowed pursuant to Section 2.4(a)determined on the date of such notice.

 

(b)                                 Providedthat the Operating Facility is not prepaid or accelerated in accordance with Article 10,the Borrower shall repay the principal amount of all Advances outstanding underthe Operating Facility, together with accrued and unpaid interest thereon andassociated fees, on the Maturity Date. As concerns any Letter of Credit which, on the Maturity Date, has (withthe consent of the Lender) an expiry date later than the Maturity Date, theBorrower shall pay to the Lender, on the Maturity Date, the then contingentliability of the Lender thereunder (to be held solely for the purpose ofsatisfying any draw under such Letter and to be held subject to Section 3.7).  Following such payment by the Borrower to theLender, the Borrower shall have no further liability to the Lender with respectto any such Letter of Credit.  Amountswhich are repaid as aforesaid may not be reborrowed.

 

(c)                                  Allrepayments of the Operating Facility by the Borrower, other than repaymentspursuant to paragraphs (a) and (b) of this Section 2.5 shall be in aminimum amount of Cdn.

 

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$50,000 andincremental amounts of Cdn. $10,000 thereafter or the Equivalent Amount in U.S.Dollars.  Repayments of any Advanceoutstanding under the Operating Facility shall be made in the currency in whichsuch Advance is denominated.

 

**2.6****                                                                               Repaymentof Term Facility**

 

(a)                                  Ifthe sum of  (i) the aggregate principalamount of all Prime Rate Advances outstanding under the Term Facility, plus(ii) the aggregate Face Amount of all Bankers’ Acceptances outstanding underthe Term Facility, plus (iii) the maximum amount which may be drawn under allCanadian Dollar denominated Letters of Credit outstanding under the TermFacility portion of the Letter of Credit Facility, plus (iv) the EquivalentAmount, expressed in Canadian Dollars, of the aggregate principal amount of allLibor Advances outstanding under the Term Facility, plus (v) the EquivalentAmount, expressed in Canadian Dollars, of the aggregate principal amount of allU.S. Base Rate Advances outstanding under the Term Facility, plus (vi) theEquivalent Amount, expressed in Canadian Dollars, of the maximum amount whichmay be drawn under all U.S. Dollar denominated Letters of Credit outstandingunder the Term Facility portion of the Letter of Credit Facility, (such amountbeing referred to in this Section 2.6 as the “**Outstanding Term Amount**”), exceeds the amount allowed pursuantto Section 2.4(b) for any reason whatsoever (including changes in theCanadian Dollar/United States Dollar exchange rate), then the Lender may, bynotice to the Borrower, require the Borrower to repay, within two Business Daysof receipt of such notice, subject to the provisions of this Section 2.6,that portion of the Outstanding Term Amount which is in excess of the maximumamount allowed pursuant to Section 2.4(b) determined on the date of suchnotice.

 

(b)                                 Ifthe Borrower or any Subsidiary issues or incurs any Debt other than: (i)Permitted Debt or (ii) Subordinated Debt, an amount equal to 100% of the NetProceeds therefrom shall be paid to the Lender to repay amounts outstandingunder, and permanently cancel, the Term Facility.  Such payment shall be made within fiveBusiness Days of the receipt of the Net Proceeds.

 

(c)                                  Ifthe Borrower or any Subsidiary makes a Permitted Disposition, an amount equalto (i) 50% of all Net Proceeds attributable to any Permitted Disposition with avalue of less than $1,000,000; and (ii) 100% of all Net Proceeds attributableto any Permitted Disposition with a value of $1,000,000 or more shall be paidto the Lender to repay amounts outstanding under, and permanently cancel, theTerm Facility.  Such payment shall bemade within five Business Days of the receipt of the Net Proceeds.

 

(d)                                 Providedthat the Term Facility is not prepaid or accelerated in accordance with Article 10,the Borrower shall repay the principal amount of all Advances outstanding underthe Term Facility, together with accrued and unpaid interest thereon andassociated fees, on the Maturity Date. As concerns any Letter of Credit which, on the Maturity Date, has (withthe consent of the Lender) an expiry date later than the Maturity Date, theBorrower shall pay to the Lender, on the Maturity Date, the then contingentliability of the Lender thereunder (to be held solely for the purpose ofsatisfying any draw under such Letter and to be held subject to Section 3.7).  Following such payment by the Borrower to theLender, the Borrower shall have no further liability to the Lender with respectto any such Letter of Credit.  Amountswhich are repaid as aforesaid may not be reborrowed.

 

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(e)                                  Allrepayments of the Term Facility by the Borrower, other than repayments pursuantto paragraphs (a), (b) and (c) of this Section 2.6, shall be in a minimumamount of Cdn. $50,000 and incremental amounts of Cdn. $10,000 thereafter orthe Equivalent Amount in U.S. Dollars. Repayments of any Advance outstanding under the Term Facility shall bemade in the currency in which such Advance is denominated.

 

**2.7****                                                                               Cancellationor Reduction of Facilities**

 

TheBorrower may at any time, upon giving at least 10 days’ prior notice to theLender, cancel in full or, from time to time, cancel in part any undrawnportion of either the Operating Facility or the Term Facility; provided,however, that any such reduction shall be in minimum amounts of Cdn. $50,000.  Any such cancellation shall permanentlyreduce the Operating Facility and may not be reinstated.

 

**2.8****                                                                               Intereston Prime Rate Advances**

 

Intereston each Prime Rate Advance shall accrue at a rate *per annum* equal to Applicable Margin plus the Prime Rate ineffect from time to time during the period of time that the Prime Rate Advanceis outstanding.  Such interest shall bepayable in Canadian Dollars monthly in arrears on the Interest Date commencingwith the Interest Date occurring in the calendar month following the initialDrawdown Date for the period from and including the Drawdown Date for suchAdvance (or, if applicable, the date on which such Advance was converted into aPrime Rate Advance) or the preceding Interest Date for such Prime Rate Advance,as the case may be, to and including the day preceding such Interest Date andshall be calculated on the principal amount of the Prime Rate Advanceoutstanding during such period and on the basis of the actual number of dayselapsed in a year of 365 days or 366 days, in the case of an Interest Dateoccurring in a leap year.  Changes in thePrime Rate shall cause an automatic and immediate adjustment of the interestrate payable on Prime Rate Advances without the necessity of any notice to theBorrower.

 

**2.9****                                                                               Intereston U.S. Base Rate Advances**

 

Intereston each U.S. Base Rate Advance shall accrue at a rate *per annum* equal to Applicable Margin plusthe Base Rate in effect from time to time during the period of time that theU.S. Base Rate Advance is outstanding. Such interest shall be payable in United States Dollars monthly inarrears on the Interest Date commencing with the Interest Date occurring in thecalendar month following the initial Drawdown Date for the period from andincluding the Drawdown Date for such Advance (or, if applicable, the date onwhich such Advance was converted into a U.S. Base Rate Advance) or thepreceding Interest Date for such U.S. Base Rate Advance, as the case may be, toand including the day preceding such Interest Date and shall be calculated onthe principal amount of the U.S. Base Rate Advance outstanding during suchperiod and on the basis of the actual number of days elapsed in a year of 365days or 366 days, in the case of an Interest Date occurring in a leap year.  Changes in the Base Rate shall cause anautomatic and immediate adjustment of the interest rate payable on U.S. BaseRate Advances without the necessity of any notice to the Borrower.

 

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**2.10****                                                                        LiborAdvances**

 

(a)                                  LiborAdvances shall be available for Drawdown in United States Dollars.  Each Drawdown Notice shall specify theapplicable Interest Period for the Libor Advance. The duration of each suchInterest Period shall be for periods of approximately one, two, three or sixmonths (or such other period as may be agreed to by the Lender), as theBorrower may select in the applicable Drawdown Notice, Conversion Notice orRollover Notice.  No Libor Advance mayhave an Interest Period ending after the applicable Maturity Date.  If any Interest Period would end on a daywhich is not a Business Day, such Interest Period shall be extended to the nextsucceeding Business Day unless such next succeeding Business Day falls in thenext calendar month, in which case such Interest Period shall be shortened toend on the immediately preceding Business Day.

 

(b)                                 Ifthe Lender determines that deposits of the necessary amount for the relevantInterest Period are not available in the London interbank market or if for anyother reason the Lender, acting reasonably, is unable to determine theapplicable Libor Rate, then the relevant Libor Advance will not be made to theBorrower, and the Lender will notify the Borrower of such event forthwith andthe Lender will discuss with the Borrower the particular circumstances andimplications of such event.  In the eventthat such determination is made by the Lender in the case of a proposedRollover of an existing Libor Advance or a proposed Conversion of another typeof Advance into a Libor Advance, the proposed Libor Advance will automaticallybe deemed to be a U.S. Base Rate Advance.

 

(c)                                  Intereston any Libor Advance shall be calculated at a rate per annum equal to the LiborRate plus the Applicable Libor Margin, shall accrue from day to day and shallbe calculated on the basis of the actual number of days elapsed (including thefirst day of each Interest Period but excluding the last day thereof) anddivided by 360.  Interest on any LiborAdvance shall be payable in United States Dollars in arrears on the last day ofthe Interest Period relating thereto; provided, however, that if the InterestPeriod is for a term of more than three months, interest shall be payable onthe last day of the first three-month period and on the last day of eachthree-month period thereafter, as well as on the last day of the InterestPeriod.

 

(d)                                 If aLibor Advance is neither repaid on the last day of an Interest Period norconverted into another type of Advance on such date pursuant to Section 2.13,and if the Lender has not received a Rollover Notice or a Conversion Noticespecifying the term of the next Interest Period for such Libor Advance on orbefore 10:00 a.m. on the second Business Day prior to the last day of the thencurrent Interest Period, then the outstanding Libor Advance shall be deemed tobe converted, by way of Conversion on the last day of the then current InterestPeriod, as a U.S. Base Rate Advance.

 

(e)                                  Exceptas otherwise provided herein, Libor Advances shall not be repaid, prepaid orconverted into another type of Advance except on the last day of any InterestPeriod relating thereto unless the Borrower pays to the Lender, all amountswhich may be payable under Section 12.2.

 

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**2.11****                                                                        Methodand Place of Payment**

 

(a)                                  Eachpayment to be made by the Borrower under this Agreement shall be made withoutdeduction, set-off or counterclaim.

 

(b)                                 Allpayments of principal, interest and fees hereunder shall be made for value ator before 12:00 noon on the day such amount is due by deposit or transferthereof to the account of the Lender maintained at the principal office of theLender in Toronto or such other place as the Borrower and the Lender may fromtime to time agree.  Payments receivedafter such time shall be deemed to have been made on the next followingBusiness Day.

 

(c)                                  Allpayments and repayments of outstanding credit hereunder shall be made in thesame currency as such outstanding credit.

 

**2.12****                                                                        Fees**

 

(a)                                  Duringthe period commencing on the Closing Date and ending on the Maturity Date (the “**relevant period**”) the Borrower shall pay tothe Lender a fee (the “**Standby Fee**”)calculated at the rate per annumset out in Schedule A on the aggregate amount of the undrawn OperatingFacility and the undrawn Term Facility available hereunder (after giving effectto any cancellation and reduction pursuant to Section 2.7) during therelevant period from day to day.  TheStandby Fee shall be payable quarterly, in arrears, on the Interest Dateimmediately following the end of each fiscal quarter.

 

(b)                                 TheBorrower shall pay to the Lender on the Closing Date, a non-refundablerestructuring fee in the amount of $50,000, which amount shall be paid on theClosing Date.

 

(c)                                  TheBorrower shall pay to the Lender, in advance on the first Business Day of eachmonth during the term of this Agreement, a monthly administration fee of$350.00.

 

**2.13****                                                                        ConversionOptions**

 

Subjectto the provisions of this Agreement (including, without limitation, Sections2.10 and 4.6), the Borrower may convert any type of Advance outstanding underthe Term Facility into another type of Advance under the Term Facility and theBorrower may convert any type of Advance outstanding under the OperatingFacility into another type of Advance outstanding under the Operating Facility,in each case as follows:

 

(i)                                     provided that no Event of Default has occurred and is continuing, aPrime Rate Advance or a portion thereof into a Bankers’ Acceptance Advance bygiving the Lender a Conversion Notice no later than 10:00 a.m. on the date ofthe proposed Conversion;

 

(ii)                                  the Face Amount of a Bankers’ Acceptance or a portion thereof into aPrime Rate Advance on the maturity date of the Bankers’ Acceptance by givingthe Lender a Conversion Notice no later than 10:00 a.m. on the date of theproposed Conversion;

 

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(iii)                               provided that no Event of Default has occurred and is continuing, aU.S. Base Rate Advance or a portion thereof into a Libor Advance by giving theLender a Conversion Notice no later than 10:00 a.m. three Business Days priorto the date of the proposed Conversion;

 

(iv)                              a Libor Advance or a portion thereof into a U.S. Base Rate Advanceon the last day of the Interest Period of the relevant Libor Advance by givingthe Lender a Conversion Notice no later than 10:00 a.m. on the date of theproposed Conversion;

 

(v)                                 provided that no Event of Default has occurred and is continuing, aPrime Rate Advance or a portion thereof into a U.S. Base Rate Advance in theEquivalent Amount by giving the Lender a Conversion Notice no later than 10:00a.m. on the date of the proposed Conversion;

 

(vi)                              provided that no Event of Default has occurred and is continuing,the Face Amount of a Bankers’ Acceptance or a portion thereof into a U.S. BaseRate Advance in the Equivalent Amount on the maturity date of the Bankers’Acceptance by giving the Lender a Conversion Notice no later than 10:00 a.m. onthe date of the proposed Conversion;

 

(vii)                           a U.S. Base Rate Advance or a portion thereof into a Prime RateAdvance in the Equivalent Amount by giving the Lender a Conversion Notice nolater than 10:00 a.m. on the date of the proposed Conversion; and

 

(viii)                        a Libor Advance or a portion thereof into a Prime Rate Advance inthe Equivalent Amount on the last day of the Interest Period of the relevantLibor Advance by giving the Lender a Conversion Notice no later than 10:00 a.m.on the date of the proposed Conversion.

 

Notwithstanding the foregoing, if a Default has occurred and iscontinuing, a Conversion pursuant to clause (i) or (iii) will be permitted onlyin the sole discretion of the Lender. For purposes of Conversions of Advances from Canadian Dollars into U.S.Dollars or from U.S. Dollars into Canadian Dollars, the Equivalent Amount shallbe the Equivalent Amount on the date of the Conversion.  For greater certainty, this Section 2.13shall not be construed so as to entitle the Borrower to convert Advancesoutstanding under one Facility into Advances under the other Facility.

 

**2.14****                                                                        Executionof Notices**

 

AllDrawdown Notices, Conversion Notices, Rollover Notices, and notices ofrepayment, prepayment or cancellation and, unless otherwise provided herein,all other notices, requests, demands or other communications to be given to theLender by the Borrower hereunder shall be executed by any one officer ordirector of the Borrower.

 

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**2.15****                                                                        Evidenceof Indebtedness**

 

TheLender shall open and maintain in accordance with its usual practice books ofaccount evidencing all Advances and all other amounts owing by the Borrower tothe Lender hereunder.  The Lender shallenter in the foregoing accounts details of every Drawdown Date in respect ofeach Advance and of all amounts from time to time owing or paid by the Borrowerto the Lender, the amounts of principal, interest and fees payable from time totime hereunder and the unused portion of the Commitment in respect of theOperating Facility and the Term Facility available to be drawn down by theBorrower.  The information entered in theforegoing accounts shall constitute, in the absence of manifest error, *prima facie* evidence of the obligations ofthe Borrower to the Lender hereunder, the date the Lender made each Advanceavailable to the Borrower and the amounts the Borrower has paid from time totime on account of the principal of, interest on and fees related to theAdvances.

 

**2.16****                                                                        Intereston Unpaid Costs and Expenses**

 

Unlessthe payment of interest is otherwise specifically provided for herein, wherethe Borrower fails to pay any amount required to be paid by the Borrowerhereunder when due, having received notice that such amount is due, theBorrower shall pay interest on such unpaid amount, including overdue interest,from the time such amount is due until paid at an annual rate equal to the sumof (i) 3% plus the Prime Rate, in the case of overdue amounts payable inCanadian Dollars, or (ii) 3% plus the Base Rate, in the case of overdue amountspayable in United States Dollars.  Suchinterest shall be determined daily, compounded monthly in arrears on the lastBusiness Day of each calendar month in each year and payable on demand.

 

**2.17****                                                                        CriminalRate of Interest**

 

Notwithstandingthe foregoing provisions of this Article 2, the Borrower shall in no eventbe obliged to make any payments of interest or other amounts payable to theLender hereunder in excess of an amount or rate which would be prohibited bylaw or would result in the receipt by the Lender of interest at a criminal rate(as such terms are construed under the *CriminalCode* (Canada)).

 

**2.18****                                                                        Compliancewith the *Interest Act* (Canada)**

 

For thepurposes of this Agreement, whenever any interest is calculated on the basis ofa period of time other than a calendar year, the annual rate of interest towhich each rate of interest determined pursuant to such calculation isequivalent for the purposes of the *InterestAct* (Canada) is such rate as so determined multiplied by the actualnumber of days in the calendar year in which the same is to be ascertained anddivided by the number of days used in the basis of such determination.

 

**2.19****                                                                        NominalRate of Interest**

 

Theparties acknowledge and agree that all calculations of interest under thisAgreement are to be made on the basis of the nominal interest rate describedherein and not on the basis of effective yearly rates or on any other basiswhich gives effect to the principle of deemed reinvestment of interest.  The parties acknowledge that there is amaterial difference

 

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between the stated nominal interest rates and theeffective yearly rates of interest and that they are capable of making thecalculations required to determine such effective yearly rates of interest.

 

**ARTICLE 3**

**LETTER OF CREDIT FACILITY**

 

**3.1****                                                                               Establishmentof Letter of Credit Facility**

 

TheLetter of Credit Facility established hereunder shall form part of both of theFacilities and shall be made available by way of Letters of Credit.

 

**3.2****                                                                               Termand Availability**

 

Uponthe terms and subject to the conditions hereof, the Lender shall, at therequest of the Borrower, issue irrevocable Letters of Credit in the Lender’susual form and expiring no later than the earlier of: (i) 364 days from thedate of issuance of such Letter of Credit; and (ii) the applicable MaturityDate; provided that, subject to the forgoing, no earlier than 60 days prior tothe expiry of any Letter of Credit and no later than 30 days prior to theexpiry of such Letter of Credit the Borrower may request an extension orrenewal of such Letter of Credit in accordance with the terns hereof.  The Borrower may request Letters of Credit tobe denominated in Canadian Dollars or in United States Dollars or in such othercurrency as the Lender, in its sole and absolute discretion, may agree.  The Borrower shall specify the Facility underwhich each Letter of Credit requested is to be issued and, in the case ofLetters of Credit to be issued under the Term Facility, the purpose of suchLetter of Credit in accordance with Section 2.3(b).

 

**3.3****                                                                               Reimbursement**

 

(a)                                  Ifthe Lender is called upon by a beneficiary to honour a Letter of Credit, theLender shall forthwith give notice thereof to the Borrower (the “**Notice**”). Unless the Borrower has made other arrangements with the Lender withrespect to payment to the Lender of an amount sufficient to permit the Lenderto discharge its obligations under the Letter of Credit plus that amount equalto any and all charges and expenses which the Lender may pay or incur relativeto such Letter of Credit, any such payment so payable shall be deemed to be aDrawdown of a Prime Rate Advance under the Operating Facility or the TermFacility (as the case may be) if payment under such Letter of Credit was madein Canadian Dollars and shall be deemed to be a Drawdown of a U.S. Base RateAdvance under the Operating Facility or the Term Facility (as the case may be)if payment under such Letter of Credit was made in United States Dollars and,if payment under such Letter of Credit was made in a currency other thanCanadian Dollars or U.S. Dollars, any such amount so payable shall be deemed tobe a Drawdown of a Prime Rate Advance under the Operating Facility or the TermFacility (as the case may be) of an Equivalent Amount in Canadian Dollars;provided that the provisions of Sections 2.4(a) and 2.4(b) (as applicable)regarding Drawdown Notice, the provisions of Section 6.2 regardingconditions for subsequent Drawdowns and the provisions of Section 10.2relieving the Lender of the obligation to make further Advances shall not applyto such Advances.  If any amount sopayable by the Lender exceeds the amount available to be drawn down by the

 

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Borrower underthe applicable Facility in accordance with the provisions of Sections 2.4(a)and 2.4(b), then forthwith upon receipt of the Notice, the Borrower shallprovide to the Lender an amount equal to such excess amount and any amount sopayable shall be deemed to be a Prime Rate Advance (if such excess amount is inCanadian Dollars or the Equivalent Amount in Canadian Dollars of any excessamount in a currency other than Canadian Dollars or United States Dollars) or aU.S. Base Rate Advance (if such excess amount is in United States Dollars)under the applicable Facility, payable on demand.

 

**3.4****                                                                               ObligationsAbsolute**

 

(a)                                  TheBorrower’s obligation to reimburse the Lender for disbursements made inconnection with Letters of Credit as provided in Section 3.3 shall beabsolute, unconditional and irrevocable (without prejudice, however, to theBorrower’s right, after reimbursing the Lender, to claim for direct damages formatters arising from the Lender’s wilful misconduct or gross negligence inaccordance with Section 3.4(b)), and shall be performed strictly inaccordance with the terms of this Agreement under any and all circumstanceswhatsoever and irrespective of (i) any lack of validity or enforceability ofany Letter of Credit or this Agreement, or any term or provision therein orherein, (ii) any draft or other document presented under a Letter of Creditproving to be forged, fraudulent or invalid in any respect or any statementtherein being untrue or inaccurate in any respect, (iii) payment by the Lenderunder a Letter of Credit against presentation of a draft or other document thatdoes not comply with the terms of such Letter of Credit, or (iv) any otherevent or circumstance whatsoever, whether or not similar to any of theforegoing, that might, but for the provisions of this Section 3.4,constitute a legal or equitable discharge of, or provide a right of set-offagainst, the Borrower’s obligations hereunder. The Lender shall have no liability or responsibility by reason of or inconnection with the issuance or transfer of any Letter of Credit or any paymentor failure to make any payment thereunder (irrespective of any of thecircumstances referred to in the preceding sentence), or any error, omission,interruption, loss or delay in transmission or delivery of any draft, notice orother communication under or relating to any Letter of Credit (including anydocument required to make a drawing thereunder), any error in interpretation oftechnical terms or any consequence arising from causes beyond the control ofthe Lender.

 

(b)                                 Section 3.4(a)shall not be construed to excuse the Lender from liability to the Borrower tothe extent of any direct damages (as opposed to consequential damages, claimsin respect of which are hereby waived by the Borrower to the extent permittedby Applicable Law) suffered by the Borrower that are caused by the Lender’s failureto exercise care when determining whether drafts and other documents presentedunder a Letter of Credit comply with the terms thereof or the Lender’s grossnegligence or wilful misconduct.  Theparties hereto expressly agree that, in the absence of gross negligence orwilful misconduct on the part of the Lender (as finally determined by a courtof competent jurisdiction), the Lender shall be deemed to have exercised carein each such determination.  Infurtherance of the foregoing and without limiting the generality thereof, theparties agree that, with respect to documents presented which appear on theirface to be in substantial compliance with the terms of a Letter of Credit, theLender may, in its sole discretion, either accept and make payment upon suchdocuments without responsibility for further investigation, regardless of anynotice or information to the contrary, or refuse to accept and make paymentupon such documents if such documents are not in strict compliance with theterms of such Letter of Credit.

 

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**3.5****                                                                               Indemnityfor Costs**

 

TheBorrower shall indemnify the Lender against any and all actions, proceedings,costs, damages, expenses, Taxes (other than taxes on the Lender’s overall netincome, assets or capital), claims and demands which the Lender may incur orsustain by reason of or arising in any way whatsoever in connection with theoperating, establishing or paying of the amounts payable under each Letter ofCredit or arising in connection with any amounts payable by the Lenderthereunder save and except for amounts which have resulted from the grossnegligence or the wilful misconduct of the Lender.

 

**3.6****                                                                               Fees**

 

(a)                                  Atthe time of issue of a Letter of Credit, the Borrower shall pay to the Lenderthe LC Fee calculated on the maximum amount payable under the Letter of Creditmultiplied by a fraction, the numerator of which is the number of days in theterm of the Letter of Guarantee and the denominator of which is equal to 365.

 

(b)                                 TheBorrower shall pay to the Lender, for the account of the Lender, an amendmentfee in respect of each amendment to any Letter of Credit in such amount as isusual and customary for the Lender to charge its customers, and such fee shallbe payable by the Borrower to the Lender, for the account of the Lender, withintwo Business days of the time of request for such amendment.

 

**3.7****                                                                               Refundof Overpayments**

 

Withrespect to each Letter of Credit for which the Lender has been paid all of itscontingent liability pursuant to Sections 2.5(b), 2.6(d) or 10.2 and providedthat all amounts due by the Borrower to the Lender under Sections 2.5(b),2.6(d) or 10.2 have been paid, the Lender agrees to pay to the Borrower, uponthe earlier of:

 

(a)                                  thedate on which either the original counterpart of such Letter of Credit isreturned to the Lender for cancellation or the Lender is released by thebeneficiary thereof from any further obligations in respect of such Letter ofCredit;

 

(b)                                 theexpiry of such Letter of Credit; and

 

(c)                                  theLender is permanently enjoined by a court of competent jurisdiction fromhonouring such Letter pursuant to a final order of such court;

 

an amount equal to any excess of the amount receivedby the Lender hereunder in respect of its contingent liability under suchLetter of Credit over the total of amounts applied to reimburse the Lender foramounts paid by it under or in connection with such Letter of Credit (theLender having the right to so appropriate such funds).

 

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**ARTICLE 4 BANKERS’ ACCEPTANCES**

 

**4.1****                                                                               Formof Bankers’ Acceptance Advance**

 

(a)                                  Bankers’Acceptance Advances shall be available to the Borrower under the Term Facilityand the Operating Facility by way of Drawdown, Conversion or Rollover by theBorrower delivering to the Lender a Drawdown Notice, Conversion Notice orRollover Notice, as applicable.  Tofacilitate the procedures contemplated herein, the Lender is hereby appointedthe irrevocable agent of the Borrower with the power and authority to executethe Bankers’ Acceptances to be issued and accepted by it.  Furthermore, the Lender is hereby appointedthe irrevocable agent of the Borrower with power and authority to make thenecessary arrangements for the negotiation, sale and delivery on the moneymarket, in accordance with normal market practice, of Bankers’ Acceptances bythe Lender.  Each Bankers’ Acceptanceexecuted and delivered by the Lender on behalf of the Borrower as providedherein shall be binding upon the Borrower as if it had been executed anddelivered by a duly authorized officer or officers of the Borrower.  The dates, maturity dates and principalamounts of all drafts shall be completed by the Lender as required hereby.

 

**4.2****                                                                               MinimumAmount**

 

Theminimum Face Amount of any draft shall be Cdn. $50,000 or any integral multiplethereof.

 

**4.3****                                                                               Termand Interest Periods**

 

Theterm of any Bankers’ Acceptance shall be specified in the draft and in theDrawdown Notice, Conversion Notice or Rollover Notice and the term of anyBankers’ Acceptance shall be for periods of approximately 30, 60, 90 or 180days, unless otherwise agreed to by the Lender acting reasonably.  The term of each Bankers’ Acceptance shallmature on a Business Day.  The Borrowershall ensure that no Bankers’ Acceptance issued hereunder shall have a maturitydate after the applicable Maturity Date.

 

**4.4****                                                                               Purchaseof Drafts and Acceptance Fee**

 

EachDrawdown of a Bankers’ Acceptance Advance shall be made pursuant to a DrawdownNotice, Conversion Notice or Rollover Notice given by the Borrower to theLender in accordance with the terms of this Agreement.  Each Drawdown Notice, Conversion Notice orRollover Notice shall be irrevocable and binding on the Borrower and shallspecify the Drawdown Date, date of Conversion or date of Rollover, the sum ofthe aggregate Face Amount of the Bankers’ Acceptances to be purchased and thematurity date for such drafts.  Not laterthan noon on the applicable Drawdown Date or date of Conversion or Rollover,the Lender shall complete one or more drafts in accordance with the DrawdownNotice, Conversion Notice or Rollover Notice, accept such drafts and purchasethe Bankers’ Acceptances thereby created for the BA Purchase Price.  Bankers’ Acceptances purchased by the Lenderhereunder may be held by it for its own account until the maturity date or soldby it at any time prior thereto in any relevant market therefor, in the Lender’ssole discretion.

 

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**4.5****                                                                               Paymenton Maturity**

 

TheBorrower shall pay to the Lender on the maturity date of a Bankers’ Acceptancean amount equal to the Face Amount of such maturing Bankers’ Acceptance;provided that the Borrower may, at its option, so reimburse the Lender, inwhole or in part, by delivering to the Lender no later than 10:00 a.m. oneBusiness Day prior to the maturity date of a maturing Bankers’ Acceptance, aRollover Notice specifying the term of the Bankers’ Acceptances and presentingdrafts to the Lender for acceptance and purchase having, in the case of reimbursementin whole by replacement Bankers’ Acceptances, an aggregate Face Amount equal tothe Face Amount of the maturing Bankers’ Acceptances.  The Borrower shall pay to the Lender on thematurity date of the maturing Bankers’ Acceptance the difference between theFace Amount of the maturing Bankers’ Acceptance and the BA Purchase Price forsuch replacement Bankers’ Acceptances. If the Borrower fails to deliver a Conversion Notice or Rollover Noticeand fails to make payment to the Lender in respect of the maturing Bankers’Acceptance Advance, the Face Amount of the maturing Bankers’ Acceptancesforming part of such Bankers’ Acceptance Advance shall be deemed to beconverted to a Prime Rate Advance on the relevant maturity date.

 

**4.6****                                                                               Waiverof Days of Grace**

 

TheBorrower renounces and shall not claim any days of grace for the payment of anyBankers’ Acceptance.

 

**4.7****                                                                               NoMarket**

 

If theLender determines in good faith, which determination shall be final, conclusiveand binding upon the Borrower, and notifies the Borrower that by reason ofcircumstances affecting the Canadian money market there is no market forBankers’ Acceptances, then the right of the Borrower to request the Bankers’Acceptance Advances shall be suspended until the Lender, acting reasonably,determines that circumstances causing such suspension no longer exist and theLender so notifies the Borrower and any notice of drawing of a Bankers’Acceptance Advance which is outstanding shall be cancelled and the drawingrequested therein shall, at the sole option of the Borrower, either not be madeor be made as a Prime Rate Advance.  TheLender shall promptly notify the Borrower of the suspension of the Borrower’sright to request a Bankers’ Acceptance Advance and of the termination of anysuch suspension.

 

**ARTICLE 5CHANGE OF CIRCUMSTANCESAND INDEMNIFICATION**

 

**5.1****                                                                               IncreasedCosts**

 

In theevent of (i) any Applicable Law coming into force after the date hereof or (ii)any change in any existing Applicable Law, or in the interpretation orapplication thereof by any court or by any Governmental Authority or otherauthority or entity charged with the administration thereof or (iii) complianceby the Lender with any direction, request or requirement (whether or not havingthe force of law) of any Governmental Authority or other

 

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authority or entity charged with the administration ofany Applicable Law (each such event being hereinafter referred to as a “**change in law**”) which now or hereafter:

 

(a)                                  subjects(whether directly, or as a result of any withholding or deduction by theBorrower) the Lender to any Tax or changes the basis of taxation, or increasesany existing Tax (in each case, except for the coming into force of any tax orchange in the basis of taxation or manner of collection of any tax in respectof or the change in the rate of Tax charged on income or capital of the Lenderas a whole and including any other Tax that is payable by the Lender on, orrequired by Applicable Law to be withheld by the Borrower from, any AdditionalCompensation, as hereinafter defined), on payments of principal, interest orother amounts payable by the Borrower to the Lender under any Loan Documents oron or by reference to the amount of any Advances made or to be made by theLender hereunder or on or by reference to the Commitment of the Lenderhereunder, or

 

(b)                                 imposes,modifies or deems applicable any reserve, special deposit or similarrequirements or otherwise imposes any cost on the Lender in funding or maintainingall or any of the Advances or its Commitment hereunder, or

 

(c)                                  willhave the effect of increasing the amount of overall capital required to bemaintained by the Lender, taking into account the existence of the Lender’sparticipation in any Advance hereunder (including, without limitation, all orany part of its Commitment),

 

and the result of any of the foregoing is to increasethe cost to the Lender, reduce the income receivable by it or reduce theeffective return on the capital of the Lender in respect of any Advances and/orits Commitment to an extent which the Lender believes to be material, theLender shall give notice thereof to the Borrower (herein called a “**Notice of Amount**”) stating the event byreason of which it believes it is entitled to Additional Compensation, suchcost and/or such reduction in such return (or such proportion of such reductionas is, in the reasonable and *bona fide*opinion of the Lender, attributable to its obligations hereunder) the amount ofsuch Additional Compensation (as hereinafter defined) incurred by the Lenderand supplying reasonable supporting evidence (including, in the event of changeof Applicable Law, a photocopy of the Applicable Law evidencing such change)together with a certificate of a duly authorized officer of the Lender settingforth the Additional Compensation and the basis of calculation of suchAdditional Compensation; provided that the Lender shall not be required todisclose any information required to be kept confidential by Applicable Law.  In the event the Lender subsequently recoversall or part of the Additional Compensation paid by the Borrower, it shall repayan equal amount to the Borrower.  TheBorrower shall pay to the Lender, within 10 Business Days of the date ofreceipt of any Notice of Amount, the amount specified in such Notice of Amount(in this Article 5 referred to as “**AdditionalCompensation**”).  Theobligation to pay such Additional Compensation for subsequent periods willcontinue until the earlier of termination of the Advance or the Commitmentaffected by the change in law or the lapse or cessation of the change in lawgiving rise to the initial Additional Compensation.  The Lender shall make reasonable efforts tolimit the incidence of any such Additional Compensation and seek recovery forthe account of the Borrower upon the Borrower’s request at the Borrower’sexpense, provided the Lender in its reasonable determination suffers noappreciable economic, legal, regulatory or other disadvantage.  Notwithstanding the foregoing provisions, theLender shall only be entitled to rely upon the provisions of this Section 5.1if and for so long as it is not

 

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treating the Borrower in any materially different orin any less favourable manner than is applicable to any other customers of theLender, where such other customers are bound by similar provisions to theforegoing provisions of this Section 5.1.

 

**5.2****                                                                               Illegality**

 

If,with respect to the Lender, the implementation of any existing provision ofApplicable Law or the adoption of any Applicable Law, or any change therein orin the interpretation or application thereof by any court or by any statutoryboard or commission now or hereafter makes it unlawful for the Lender to make,fund or maintain all or any portion of an outstanding Advance, to maintain allor any part of its Commitment hereunder or to give effect to its obligations inrespect of all or any portion of an outstanding Advance, the Lender may, bywritten notice thereof to the Borrower (supported, at the request and expenseof the Borrower, by an opinion of the Lender’s counsel), declare theobligations of the Lender under this Agreement to be terminated whereupon thesame shall forthwith terminate, and the Borrower shall repay within the timerequired by such law (or as promptly as practicable if already unlawful or atthe end of such longer period, if any, as the Lender in its *bona fide* opinion may agree) the principalof the Advances made by the Lender.  Ifany such change shall affect only that portion of the Lender’s obligationsunder this Agreement that is, in the *bonafide* opinion of the Lender, severable from the remainder of thisAgreement so that the remainder of this Agreement may be continued in fullforce and effect without otherwise affecting any of the obligations of theLender or the Borrower hereunder, the Lender shall declare its obligationsunder only that portion so terminated.

 

**ARTICLE 6 CONDITIONS PRECEDENT TO DRAWDOWN**

 

**6.1****                                                                               Conditionsfor Closing**

 

Thefollowing conditions shall be satisfied by the Borrower on the Closing DateDrawdown;

 

(a)                                  thisAgreement, each of the other Loan Documents and confirmations of the continuingvalidity of the Security, each in form and on terms satisfactory to the Lender,acting reasonably, shall have been duly authorized, executed and delivered tothe Lender by the Borrower and the Guarantors which are parties thereto andshall constitute legal, valid and binding obligations of the Borrower and theGuarantors which are parties thereto;

 

(b)                                 theBorrower and each of the Guarantors shall have delivered to the Lendercertified copies of its constating documents and borrowing by-laws orconfirmation that there have been no amendments or modifications to suchdocuments since December 31, 2002, the resolution authorizing the LoanDocuments and the incumbency of officers signing the Loan Documents and anydocuments to be provided pursuant to the provisions hereof or thereof and acertificate of compliance, good standing or like certificate with respect tothe

 

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Borrower and each Guarantorissued by appropriate government officials of its governing jurisdiction;

 

(c)                                  therepresentations and warranties set forth in Section 7.1 shall be true andcorrect in all material respects on and as of the Closing Date by reference tothe facts and circumstances then existing and the Borrower shall have deliveredan Officer’s Certificate to such effect or, in the event of a Drawdown on theClosing Date, a Drawdown Notice;

 

(d)                                 noDefault or Event of Default shall have occurred and be continuing and theBorrower shall have delivered an Officer’s Certificate to such effect or, inthe event of a Drawdown on the Closing Date, a Drawdown Notice;

 

(e)                                  noMaterial Adverse Change shall have occurred since December 31, 2003 andthe Borrower shall have delivered an Officer’s Certificate executed by itsChief Financial Officer of the Borrower to such effect;

 

(f)                                    opinionsof Counsel to the Borrower and counsel to each of the Guarantors addressed tothe Lender in form and substance satisfactory to the Lender, shall have beendelivered to the Lender;

 

(g)                                 noneof the undertaking, property or assets of the Borrower shall be subject to anyCharge other than a Permitted Charge;

 

(h)                                 theLender shall have received copies of the Borrower’s (i) most recent interimfinancial statements; (ii) accounts receivable listing; (iii)****accounts payable listing;(iv) inventory listing; and (v) the annual and quarterly projections(including balance sheet, income statement, cash flow statement and certificateto be executed by the Borrower’s Chief Financial Officer setting out theBorrower’s computation as of March 31, 2004 of the financial covenants setforth in Section 8.3) for the 2004 year taking into account the revisedfinancing structure;

 

(i)                                     theLender shall be satisfied, acting reasonably, that all material Authorizationsrequired in connection with the transactions contemplated hereby have beenobtained and are in full force and effect and that all consents and waiversrequired to consummate such transactions have been obtained, to the extent thatconsummation of such transactions would otherwise be restricted or prohibitedunder the terms of any Material Agreement to which any Obligor is a party, orby which it is bound, in each case without the imposition of any burdensomeprovisions;

 

(j)                                     theLender shall have received confirmation of satisfactory policies of insurancein place for the benefit of the Borrower and each Guarantor, with the Lenderendorsed thereon as loss payee;

 

(k)                                  theLender shall have received satisfactory confirmation that all equity owned bySGF Santé Inc. in DPI has been purchased by the Borrower and that all debt owed

 

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by DPI to SGF Santé Inc. and InvestissementQuébec have been repaid in full and all security related to such debts havebeen discharged;

 

(l)                                     allfees and other amounts then payable under the Loan Documents shall have beenpaid in full; and

 

(m)                               theLender shall have received such other documents, security, waivers, consents,undertakings and acknowledgements as the Lender may reasonably request.

 

Theconditions set forth in this Section 6.1 are inserted for the sole benefitof the Lender and may be waived by Lender in whole or in part, with or withoutterms or conditions.

 

**6.2****                                                                               Conditionsfor Subsequent Drawdowns**

 

Thefollowing conditions shall be satisfied by the Borrower at or prior to the timeof each Drawdown of an Advance under the Facilities subsequent to the ClosingDate:

 

(a)                                  therepresentations and warranties set forth in Section 7.1 shall be deemed tohave been given on the Drawdown Date and shall be,*mutatis mutandis*, true and correct in all material respectson and as of the Drawdown Date, both before and after giving effect to theDrawdown of such Advance and to the application of proceeds therefrom, byreference to the facts and circumstances then existing and assuming that eachof such representations and warranties and the Schedules referred to thereinhad been amended to reflect any notices provided by the Borrower to the Lender(and consented to in writing by the Lender) in respect of the matters dealtwith therein and, with respect to the representation set forth in Section 7.1(g),the reference to the financial statements of the Borrower as at December 30,2003 shall be deemed to be a reference to the financial statements of theBorrower most recently delivered pursuant to Section 8.1(a) and, withrespect to unaudited financial statements, that such statements fairly presentthe financial condition of the Borrower and its Subsidiaries as at such dateand the results of their operations for the financial period then ended, inaccordance with GAAP consistently applied, subject to normal year end auditadjustments; and

 

(b)                                 noDefault or Event of Default shall have occurred and be continuing, nor shallany such event occur as a result of making the Advances or the application ofproceeds therefrom.

 

**ARTICLE 7 REPRESENTATIONS AND WARRANTIES**

 

**7.1****                                                                               Representationsand Warranties**

 

TheBorrower represents and warrants as follows to the Lender and the Lenderacknowledges and confirms that the Lender is relying upon such representationsand warranties:

 

(a)                                  **Corporate Status**.  The Borrower is a corporation duly continuedand validly existing under the laws of Canada and each of the Guarantors is acorporation

 

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duly incorporated or amalgamated and validlyexisting under the laws of the jurisdiction of its incorporation and theBorrower and each of the Guarantors has all necessary corporate power andauthority to conduct its business as presently conducted and to own or leaseits properties and assets in each jurisdiction where such properties and assetsare situated or such business is conducted.

 

(b)                                 **Corporate Power and Authority**.  The Borrower and each ofthe Guarantors has full corporate power and authority to enter into thisAgreement and each of the Loan Documents to which it is a party, and to do allacts and things and execute and deliver all documents as are required hereunderor thereunder to be done, observed or performed by it in accordance with theterms thereof.

 

(c)                                  **Authorization and Enforceability**.  This Agreement and each ofthe Loan Documents have been delivered by the Borrower and the Guarantors whichare parties to it and constitute valid and legally binding obligations of theBorrower and the Guarantors which are parties thereto enforceable against themin accordance with their respective terms, subject to applicable bankruptcy,insolvency and other laws affecting the enforcement of creditors’ rightsgenerally and to the availability of equitable remedies.

 

(d)                                 **Conflict with Constating Documents and Agreements**.  Neither the execution anddelivery of the Loan Documents nor compliance by the Borrower and theGuarantors with the terms, conditions and provisions hereof and thereof, willconflict with or result in a breach of any of the terms, conditions orprovisions of:

                

(i)                                        the constating documents or by-laws of the Borrower or any Guarantoror any unanimous shareholders’ agreement relating to any of them;

                

(ii)                                     anyresolution of the shareholders, directors or any committee of directors of theBorrower or any Guarantor;

                

(iii)                                  inany material respect, any agreement, instrument or arrangement to which theBorrower or any Guarantor is now a party or by which it, or its properties are,or may be, bound, the absence of which agreement, instrument or arrangementcould reasonably be expected to result in a Material Adverse Change or willconstitute a default thereunder, or will result in the creation or impositionof any Charge (other than a Permitted Charge) upon any of the properties orassets of the Borrower or any Guarantor;

 

(iv)                                 anyjudgment or order, writ, injunction or decree of any court; or

 

(v)                                    anyApplicable Law.

 

(e)                                  **No Other Authorization or Consents Necessary**.  No action (including,without limitation, the giving of any Authorization) of, or filing with, anyGovernmental Authority is required to authorize, or is otherwise required inconnection with, the execution, delivery and performance by the Borrower ofthis Agreement or by the

 

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Borrower or any Guarantor of any of the otherLoan Documents or in order to render this Agreement or any of the LoanDocuments legal, valid, binding or enforceable except those actions which havebeen obtained or filings which have been made.

 

(f)                                    **No Third Party Consents**.  No consent or approval of anyother party is required in connection with the execution, delivery andperformance by the Borrower or any Guarantor of this Agreement or any of theLoan Documents or in order to render this Agreement and each of the LoanDocuments legal, valid, binding or enforceable except those consents orapprovals which have been obtained.

 

(g)                                 **Financial Statements**.  The audited consolidated financial statementsof the Borrower as at December 31, 2003 and the interim unauditedconsolidated financial statements of the Borrower as at March 31, 2004fairly present the financial condition of the Borrower and its Subsidiaries asat such date and the results of their operations in accordance with GAAPconsistently applied; since December 31, 2003, there has been no MaterialAdverse Change.

 

(h)                                 **Litigation**.  Except as set forth on Schedule 7.1(h),there are no actions, suits or legal proceedings instituted or pending nor, tothe knowledge of the Borrower and each of its Subsidiaries, threatened, againstany of them or their property before any court or arbitrator or anyGovernmental Authority or instituted by any Governmental Authority which, ifdecided against the Borrower or such Subsidiaries, would reasonably be expectedto result in a Material Adverse Change.

 

(i)                                     **Licences, etc. and Compliance with Laws**.  Other than as disclosed in Schedule 7.1(i),all grants, licences, franchises, certificates, consents, rights, privileges,approvals, authorizations, registrations, orders, easements, entitlements andpermits (collectively “Authorizations”) required to enable the Borrower andeach of its Subsidiaries to carry on their respective businesses as nowconducted by them and to own, lease and operate their properties other thanthose the absence of which would not reasonably be expected to result in aMaterial Adverse Change have been duly obtained and are currentlysubsisting.  The Borrower and each of itsSubsidiaries have complied in all material respects with all terms andprovisions presently required to be complied with by them in all such materialAuthorizations and with all Applicable Law (other than Environmental Laws) andthey are not in violation of any of the respective provisions thereof and inrespect of which there is a reasonable possibility that such non-compliance orviolation could materially and adversely affect the ability of the Borrower orany Guarantor to perform its obligations under this Agreement and the LoanDocuments.

 

(j)                                     **Environmental Matters**.  There are no existingclaims, demands, damages, expenses, suits, proceedings, actions, negotiationsor (to the best knowledge of the Borrower, after due enquiry) causes of actionof any nature whatsoever, whether threatened or pending, arising out of thepresence on any property owned or controlled by the Borrower or itsSubsidiaries, either past or present, of any

 

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Hazardous Substance, or out of any past orpresent activity conducted not in material compliance with applicableEnvironmental Laws on any property now owned by the Borrower or itsSubsidiaries, whether or not conducted by the Borrower or its Subsidiaries,involving Hazardous Substances, which would reasonably be expected to result ina Material Adverse Change; all material claims, demands, damages, expenses,suits, proceedings, actions, negotiations or causes of action of which theBorrower is aware are described in Schedule 7.1(j).

 

To the best ofthe knowledge of the Borrower, after due enquiry:

 

(i)                                     there is no Hazardous Substance or hazardous waste existing on orunder any property of the Borrower or of any of its Subsidiaries whichconstitutes a violation of any Environmental Law for which an owner, operatoror Person in control of a property may be held liable which would, if actedupon by the appropriate Governmental Authority, reasonably be expected toresult in a Material Adverse Change;

 

(ii)                                  the business of the Borrower and each of its Subsidiaries is beingcarried on so as to respect in all material ways all Environmental Laws and allLaws applicable to health and safety matters and that are material to theBorrower’s and its Subsidiaries’ businesses;

 

(iii)                               no Hazardous Substance has been spilled or emitted into theenvironment contrary to applicable Environmental Laws from any property owned,operated or controlled by the Borrower or any of its Subsidiaries which would,if acted upon by the appropriate Governmental Authority, reasonably be expectedto result in a Material Adverse Change;

 

(iv)                              compliance by the Borrower and its Subsidiaries with all currentEnvironmental Laws would not reasonably be expected to result in a MaterialAdverse Change;

 

(v)                                 none of the Borrower or any of its Subsidiaries is in default infiling any report or information material to its business with any GovernmentalAuthority as required pursuant to Environmental Laws; and

 

(vi)                              the Borrower and each of its Subsidiaries has maintained, in allmaterial respects, all environmental and operating documents and recordsmaterial to its business substantially in the manner required by allEnvironmental Laws.

 

(k)                                  **Encumbrances**.  The Borrower and each of the Guarantors hasgood and marketable title to all of its assets and property and there are noCharges on any of the assets or undertaking of the Borrower or any Guarantor otherthan Permitted Charges.

 

(l)                                     **No Default or Event of Default**.  No Default or Event ofDefault has occurred and is continuing.

 

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(m)                               **No Action for Winding-Up or Bankruptcy**.  There has been no voluntaryor involuntary action taken either by or against the Borrower or any Guarantorfor any such corporation’s winding-up, dissolution, liquidation, bankruptcy,receivership, administration or similar or analogous events in respect of suchcorporation or partnership or all or any material part of its assets orrevenues.

 

(n)                                 **Taxes**.  The Borrower and each of its Subsidiaries hasfiled within the prescribed delays all federal, provincial or other tax returnswhich it is required by Law to file and all taxes, assessments and other dutieslevied by the various Governmental Authorities with respect to the Borrower andeach of its Subsidiaries have been paid when due, except to the extent thatpayment thereof is being contested in good faith by the Borrower or any of itsSubsidiaries in accordance with the appropriate procedures, for which adequatereserves have been established in the books of the Borrower or itsSubsidiaries, as the case may be.

 

(o)                                 **Authorizations**.  The Borrower and each of the its Subsidiariesholds in good standing all Authorizations which it requires, or is required byApplicable Law, to hold, own, lease, license or use the property included inthe business carried on by it and to carry on such business, except for suchAuthorizations, the absence of which has not given rise to and would notreasonably be expected to give rise to, a Material Adverse Change.

 

(p)                                 **Title to Real Property**.  The Borrower and each other Obligor hasindefeasible fee simple title to its owned real properties, and with respect toits leased real properties, indefeasible title to the leasehold estate withrespect thereto, pursuant to valid and enforceable leases, free and clear ofall Charges except Permitted Charges. Schedule 7.1(p) sets out all realproperty which is owned or leased by each of the Obligors.

 

(q)                                 **Subsidiaries**.  Schedule 7.1(q) correctly sets forth the(i) names, (ii) form of legal entity, (iii) equity securities issued andoutstanding, (iv) equity securities owned by the Borrower or a Subsidiary (andspecifying such owner), and (v) jurisdictions of organization of allSubsidiaries of the Borrower.  Except asdescribed in Schedule 7.1(q) the Borrower does not own any equitysecurities or debt security which is convertible, or exchangeable, for equitysecurities of any Person.  Unlessotherwise indicated in Schedule 7.1(q), all of the outstanding equityshares of each Obligor (other than the Borrower) are owned legally andbeneficially by the Borrower, there are no outstanding options, warrants orother rights to purchase securities of any such Obligor, and all suchsecurities so owned are duly authorized, validly issued, fully paid andnon-assessable, and were issued in compliance with all applicable federal,provincial, state or foreign securities and other Applicable Laws, and are freeand clear of all Charges, except for Permitted Charges.

 

(r)                                    **Control of the Borrower.**  On the Closing Date, theBorrower is not Controlled by any Person or group of Persons acting jointly orotherwise in concert.

 

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(s)                                  **Vermont Property.**  The value of all assets located at or on theVermont Property is less than US$100,000 (excluding, for greater certainty, thevalue of the leasehold interest in the Vermont Property).

 

(t)                                    **Ontario Property. **The value of alltangible assets located at or on the Ontario Property is less than $175,000(excluding, for greater certainty, the value of the leasehold interest in theOntario Property).

 

(u)                                 **Bank Accounts.**  Schedule 7.1(u) lists all bank accountsmaintained by the Borrower and each of its Subsidiaries, except such other bankaccounts maintained by the Borrower and its Subsidiaries with the Lender andsuch other bank accounts that the Borrower has notified the Lender of pursuantto Section 8.2(i).

 

(v)                                 **Quebec Property. **Since February 25,2000, the date on which the site survey, referred to in the certificate oflocation prepared by Stéphane Arsenault Q.L.S. under minute number 3728, wascarried out, there has been no modification to the nature, shape and dimensionsof the building bearing civic number 16751 Trans-Canada Highway (Autoroute 40),Kirkland, Quebec, H9H 4J4, described in the said certificate of location andthe plan attached thereto, except as previously disclosed to the Lender in writing.

 

(w)                               **Books and Records.**  No books and records of the Borrower or anyGuarantor relating to inventory (including without limitation EligibleInventory) or trade accounts (including without limitation Eligible AccountsReceivable) or which are otherwise material to the Business, affairs, financialcondition or prospects of the Borrower or any Guarantor are kept or stored atthe Ontario Property other than books and records for which duplicate copies orthe originals are kept or stored at the Quebec Property.

 

**7.2****                                                                               Survivalof Representations and Warranties**

 

Therepresentations and warranties set out in this Article 7 shall survive theexecution and delivery of this Agreement and the making of any Advances to theBorrower, notwithstanding any investigations or examinations which may be madeby the Lender or its counsel.

 

**ARTICLE 8 COVENANTS**

 

**8.1****                                                                               AffirmativeCovenants**

 

TheBorrower covenants and agrees with the Lender that, unless the Lender otherwiseconsents in writing, so long as any amount payable hereunder is outstanding orthe Lender has any Commitment hereunder:

 

(a)                                  **Financial Reporting**.  The Borrower shall deliver, or cause to bedelivered, to the Lender:

 

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(i)                                     within 45 days after the end of each of the first three fiscalquarters of each of the Borrower in each fiscal year, commencing with thefiscal quarter ending March 31, 2004, the unaudited consolidated financialstatements of the Borrower prepared in accordance with GAAP together with themanagement discussion and analysis prepared in connection therewith as filedwith any securities commission or similar regulatory body, together with thefigures for the year-to-date and setting forth, in each case, in comparativeform, the figures for the corresponding portion of the previous fiscal year;and

 

(ii)                                  within 90 days after the end of each fiscal year of each of theBorrower (commencing with the fiscal year ending December 31, 2003) theaudited consolidated financial statements of the Borrower for such year filedwith any securities commission or similar regulatory body in comparative form,together with the report thereon of an independent auditor of recognizednational standing;

 

each of such financial statements to beprepared in accordance with GAAP as then in effect;

 

(iii)                               together with the financial statements delivered pursuant toSections 8.1(a)(i) and 8.1(a)(ii), a Compliance Certificate executed by theChief Financial Officer of the Borrower;

 

(iv)                              within 25 days of the end of each calendar month, a detailed reporton Accounts Receivable and Inventory of the Borrower and each Guarantor,prepared in accordance with GAAP;

 

(v)                                 within 25 days following the end of each calendar month and on eachDrawdown Date, a Borrowing Base Certificate;

 

(vi)                              as soon as practicable and, in any event, no later than the lastBusiness Day of any fiscal year, a draft of the Borrower’s annual business plan(incorporating, *inter alia*, aCapital Expenditure budget for the Borrower) (the “**Annual Plan**”) for the next following fiscal year and the finalAnnual Plan which has been approved by the Borrower’s Board of Directors assoon as practicable and, in any event, no later than 60 days after the end ofthe applicable fiscal year;****and

 

(vii)                           such other information as the Lender may reasonably request fromtime to time.

 

(b)                                 **Corporate Status**.  Subject to Section 11.1, the Borrowerwill remain a corporation duly continued and validly subsisting under the lawsof Canada or a province thereof and each Guarantor shall remain a corporationduly incorporated and validly subsisting under the laws of its existingjurisdiction of incorporation or the laws of Canada or any province thereofand, in each case, registered or

 

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otherwise qualified in all material respectsto carry on business in each jurisdiction where necessary to conduct itsbusiness.

 

(c)                                  **Conduct of Business**. TheBorrower will, and will cause each Guarantor to, continue its business, exceptas the board of directors or duly authorized officers of the Borrower mayotherwise, in good faith, determine is in the best interests of the Borrower,and will not materially and adversely affect the business, operations orfinancial condition of the Borrower and its Subsidiaries (taken as a whole), orthe Borrower’s ability to perform any of its obligations under thisAgreement.  The Borrower will, and willcause each Guarantor to, manage its business in a proper, prudent and efficientmanner (as the board of directors of the Borrower may determine in good faith)in all material respects.

 

(d)                                 **Notice of Default**.  The Borrower will deliver to the Lender,forthwith upon becoming aware of any Default or Event of Default, a certificateof an officer of the Borrower specifying such Default or Event of Defaulttogether with a statement of an officer of the Borrower setting forth detailsof such Default or Event of Default and the action which has been, or isproposed to be, taken with respect thereto.

 

(e)                                  **Other Notifications**.  The Borrower shall furnish to the Lender:

 

(i)                                     prompt notification of any action, suit, proceeding, complaint,notice, order or material Environmental Claim which is commenced or issued orof which it becomes aware (and which has not been disclosed in Schedule 5.1(j))which is pending or issued against or, to the best of its information,knowledge and belief, affecting the Borrower or any Subsidiary or any of theirundertaking, property and assets at law, in equity or before any arbitrator orbefore or by any Governmental Authority in respect of which the Borrowerdetermines in good faith that there is a reasonable possibility of adetermination adverse to the Borrower or any Subsidiary which could, ifdetermined adversely, reasonably be expected to result in a Material AdverseChange;

 

(ii)                                  prompt notification of any change in the name or jurisdiction ofincorporation or organization of the Borrower or any Guarantor and of anychange in the location of the registered office or chief executive office ormaterial assets of any of them which are subject to a Charge in favour of theLender;

 

(iii)                               prompt notification of any hiring, termination or change in role ofany senior manager, executive or director of the Borrower;

 

(iv)                              prompt notification of any Material Adverse Change or PermittedInvestment;

 

(v)                                 a copy of a certificate of concordance by no later than 60 daysfollowing the Closing Date with respect to the Quebec Property; and

 

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(vi)                              prompt written notice of the distribution of all materialsdistributed generally by the Borrower to its shareholders.

 

(f)                                    **Compliance with Applicable Laws**.  The Borrower shall, andshall cause each Subsidiary to, comply in all material respects with allApplicable Laws, including Environmental Laws, the non-compliance with whichwould reasonably be expected to result in a Material Adverse Change and theBorrower shall obtain, comply in all material respects with the terms of andmaintain all Authorizations from, and make such filings with, any GovernmentalAuthority and to comply with such Applicable Laws as may be necessary to carryon its businesses, to own, lease and operate its properties and to enable it toenter into and perform its obligations under this Agreement or to render thisAgreement legal, valid, binding or enforceable other than those the absence ofwhich would not reasonably be expected to result in a Material Adverse Change.

 

(g)                                 **Payment of Taxes**.  The Borrower shall, and theBorrower shall cause each Subsidiary to, pay or cause to be paid, when due, allTaxes, property taxes, business taxes, social security premiums, assessmentsand governmental charges or levies imposed upon it or upon its income, sales,capital or profit or any property belonging to it unless any such Tax, socialsecurity premiums, assessment, charge or levy is contested by it in good faithwith appropriate reserves, and to collect and remit when due all payroll andwithholding taxes.

 

(h)                                 **Insurance**.  The Borrower shall maintain, or cause to bemaintained, on behalf of the Borrower and each Guarantor, insurance withresponsible and reputable insurance companies or associations in such amountsand covering such risks as would be prudent for companies engaged in similarbusinesses and owning similar properties and assets in the same general areasin which the Borrower or such Guarantor (as the case may be) operate and theBorrower shall and shall cause each Guarantor to ensure that the Lender isnamed as an additional loss payee on all such insurance policies.

 

(i)                                     **Visitation Rights**.  The Borrower shall permitthe Lender at any reasonable time or times, within normal business hours,following reasonable prior written notice to the Borrower, to (provided theLender is accompanied by a senior officer of the Borrower) visit the propertiesof and examine and make copies of and abstracts from the books and records of,the Borrower and its Subsidiaries.  Allinformation received shall be held by the Lender in confidence for use inrespect of the administration of the Facilities and for no other purpose.

 

(j)                                     **Keeping of Books**.  The Borrower shall, andshall cause each of its Subsidiaries to, keep proper books of record andaccount, in which full and correct entries shall be made of all financialtransactions and the assets and business of the Borrower and each of itsSubsidiaries in accordance with GAAP consistently applied.

 

(k)                                  **Compliance with Material Leases, Contractsand Other Agreements**.  The Borrower shall, and shall cause each ofits Subsidiaries to, comply in all material

 

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respects and perform its obligations underall leases (whether real or personal property), contracts and other agreementsto which it is a party or by which it is bound if the non-compliance ornon-performance of obligations thereunder could reasonably be expected to giverise to a Material Adverse Change.

 

(l)                                     **Dividends to Borrower**.  The Borrower will cause theGuarantors, to pay, to the extent they are legally able to do so, dividends,interest, amounts due in respect of inter-company accounts and capital or otherdistributions to the Borrower, or otherwise advance monies to the Borrower byway of inter-company loans subordinated to the obligations of the Borrower tothe Lender under this Agreement, in an aggregate amount sufficient and as maybe required to enable the Borrower to satisfy its obligations under thisAgreement and to pay all amounts due and owing hereunder.

 

(m)                               **Hedging Arrangements**.  The Borrower will maintaina responsible hedging strategy and will discuss such hedging strategy with theLender upon request.

 

(n)                                 **Use of Facilities**.  The Borrower shall only usethe Facilities for the purposes set forth in Section 2.3.

 

(o)                                 **Subsidiaries**.  The Borrower shall give the Lender 10 BusinessDays’ advance written notice of the proposed acquisition, incorporation ororganization of any Subsidiary by it or any of its Subsidiaries.

 

**8.2****                               NegativeCovenants**

 

TheBorrower covenants and agrees with the Lender that unless the Lender otherwiseconsents in writing, so long as any amount payable hereunder is outstanding orthe Lender shall have any Commitment hereunder:

 

(a)                                  **No Merger, Amalgamation, etc**.  The Borrower shall not, andshall not permit any Subsidiary to, liquidate or dissolve or take any steps toamalgamate, consolidate or effect any restructuring or corporate or capitalreorganization or change its head or registered office to a location outside ofCanada except upon compliance with Article 11.

 

(b)                                 **Negative Pledge**.  The Borrower shall not, and shall not permitany Subsidiary to, create, incur, assume or permit to exist any Charge, otherthan a Permitted Charge, on any of its property, undertaking or assets nowowned or hereafter acquired.

 

(c)                                  **Debt**.  The Borrower shall not and shall not permitany Subsidiary to incur any Debt other than (i) Permitted Debt; (ii)Subordinated Debt, and (iii) guarantees provided to third party lessors inrespect of leases of real property by a wholly-owned Subsidiary of theBorrower.

 

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(d)                                 **Dispositions**.** **TheBorrower shall not and shall not permit any Subsidiary to sell, lease,transfer, assign, convey or otherwise dispose of any assets or property or anyinterests therein other than Permitted Dispositions.

 

(e)                                  **Distributions**.** **TheBorrower shall not make and shall not permit any Guarantor to make anyDistributions other than Distributions to the Borrower or, in the case of theGuarantors only, to another Guarantor (so long as such Guarantor is directly orindirectly wholly-owned by the Borrower and is incorporated or existing inCanada or the United States or any political subdivision thereof or anotherjurisdiction approved by the Lender in writing).

 

(f)                                    **Investments**.** **TheBorrower shall not make and shall not permit any Subsidiary to make anyInvestments other than Permitted Investments.

 

(g)                                 **Capital Expenditures**.  The Borrower shall not andshall not permit any Subsidiary to undertake or incur any Capital Expendituresin any fiscal year other than: (i) Capital Expenditures for all Obligors in anaggregate maximum amount of $7,000,000 for the fiscal year ending December 31,2004; and (ii) Capital Expenditures for all Obligors in an amount to be agreedby the Borrower and the Lender (each acting reasonably) for each fiscal yearthereafter if such Capital Expenditures exceed $5,000,000 in the aggregate inany fiscal year.

 

(h)                                 **Acquisitions**.  The Borrower shall not make, and shall notpermit any Subsidiary to make, any Acquisitions other than PermittedAcquisitions.

 

(i)                                     **Accounts.** The Borrower shall not, and shall not permitany Subsidiary to, maintain any bank accounts in Canada other than accountswith the Lender.  The Borrower shall not,and shall not permit any Subsidiary to, maintain any bank accounts outside ofCanada other than accounts listed on Schedule 7.1(u) or which the Borrowerhas provided the Lender written notice of within three days following theopening of such account.

 

(j)                                     **Restriction on Sale and Leasebacks andSecuritizations**. The Borrower shall not, and shall not permit any Guarantor to, enterinto sale and leaseback transactions or Securitization Transactions.

 

(k)                                  **Material Agreements.**  The Borrower will not amend(or waive any provision), or permit any Subsidiary to amend (or waive anyprovision of) any Material Agreement in any manner which individually or in theaggregate could reasonably be expected to have a Material Adverse Effect.

 

(l)                                     **Business**.  The Borrower shall not and shall not permitany Guarantor to carry on any business which is materially different than theBusiness.

 

(m)                               **Vermont Property.**  The Borrower shall not andshall not permit any Subsidiary to cause or permit more than US$100,000 ofassets to be kept or located at or on the Vermont Property at any time.

 

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(n)                                 **Ontario Property.**  The Borrower shall not andshall not permit any Subsidiary to cause or permit more than $175,000 oftangible assets to be kept or located at or on the Ontario Property at anytime.

 

(o)                                 **Books and Records. **Neither theBorrower nor any Guarantor shall permit any books and records of the Borroweror any Guarantor relating to inventory (including without limitation EligibleInventory) or trade accounts (including without limitation Eligible AccountsReceivable) or which are otherwise material to the Business, affairs, financialcondition or prospects of the Borrower or any Guarantor to be stored or kept atthe Ontario Property unless duplicate copies or the originals are kept orstored at the Quebec Property.

 

**8.3****                                                                               FinancialCovenants**

 

TheBorrower covenants and agrees with the Lender that so long as any amountpayable hereunder is outstanding or the Lender shall have any Commitmenthereunder, it shall:

 

(a)                                  **Minimum Consolidated Working Capital**.  Maintain, at all times aConsolidated Working Capital Ratio of not less than 1.25:1;

 

(b)                                 **Minimum Debt Service Ratio**.** **Maintain, at all times, a ratio of Adjusted EBITDA toprincipal (the current portion of Debt including Leases and Long-Term Debt)plus interest (all cash interest including interest paid on Leases andLong-Term Debt) of not less than 1.25:1, as tested, on a trailing four quarterbasis; and

 

(c)                                  **Maintenance of Total Funded Debt to EBITDARatio**. Maintain, at all times, a maximum ratio, calculated at the end of eachfinancial quarter for the four consecutive financial quarters then ended, ofTotal Funded Debt to EBITDA of 2.50:1.

 

**ARTICLE 9SECURITY**

 

**9.1****                                                                               Guarantorsto Provide Guarantees**

 

(a)                                  The Borrower agrees to cause each Guarantor to guarantee to theLender the due and punctual payment of all debts, liabilities and obligationsof the Borrower arising hereunder and to duly authorize, execute and deliver tothe Lender the Guarantee and the Guarantors’ Security Documents, in form and onterms satisfactory to the Lender, acting reasonably (the “**Guarantors’ Security**”).

 

(b)                                 The Borrower agrees to cause each Guarantor to deliver to the Lendercertified copies of its constating documents and borrowing by-laws (if any), aresolution  authorizing the Guarantee andthe Guarantors’ Security to which it is a party and the incumbency of theofficers of the Guarantor signing the Guarantee and the Guarantors’ SecurityDocuments and any other documents or instruments to be provided pursuant to theprovisions thereof and the provisions of this Agreement

 

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and a certificate of status, good standing orlike certificate with respect to such Guarantor issued by appropriate governmentofficials of its jurisdiction of incorporation and such jurisdiction in whichit carries on business.

 

(c)                                  The Borrower agrees to cause each Guarantor to deliver an opinion ofits counsel, addressed to the Lender, in form and substance acceptable to theLender.

 

**9.2****                                                                               Borrower’sSecurity Documents**

 

TheBorrower hereby confirms that  assecurity for all Advances made to it and as security for all its otherliability or indebtedness, both present and future, hereunder, the Borrowercontinues to assign, by way of security (the “**Borrower’sSecurity**”) in favour of the Lender, all of its receivables howsoeverarising in connection with the sale or lease of goods or services by theBorrower to customers located in Canada or the United States and shall deliver,or cause to be delivered, the following documents (collectively called the “**Borrower’s Security Documents**”) all in formsatisfactory to the Lender:

 

(a)                                  an assignment under Section 427 of the *Bank Act*(Canada) providing for a chargeon the inventories of the Borrower;

 

(b)                                 a general security agreement granting a first charge against all ofthe personal property of the Borrower;

 

(c)                                  a general hypothec on the movable property of the Borrower;

 

(d)                                 a pledge of the shares of each of the Guarantors;

 

(e)                                  an unlimited joint and several Guarantee of DI and DAHI;

 

(f)                                    an unlimited Guarantee of DPI; and

 

(g)                                 an unlimited Guarantee of each other Guarantor other than DI, DAHIand DPI (if applicable).

 

**9.3****                                                                               Guarantors’Security Documents**

 

As security for all its liability and indebtedness,both present and future under the Guarantee, each of the Guarantors willdeliver to the Lender the following documents (the “**Guarantors’Security Documents**”):

 

(i)                                     a general security agreementgranting a first charge against all of the personal property of such Guarantor;

 

(ii)                                  a general hypothec on the movableproperty of DI and DPI; and

 

(iii)                               an immovable hypothec on theimmovable property of DPI.

 

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**9.4****                                                                               AdditionalSecurity Documents**

 

TheBorrower shall, and shall cause each Guarantor to, execute all suchdocumentation as may be reasonably necessary from time to time to permit theLender to take, register, perfect and maintain a security interest in anyproperty or assets presently owned or hereafter required by any of them.

 

**ARTICLE 10 DEFAULT AND ACCELERATION**

 

**10.1****                                                                        Eventsof Default**

 

Theoccurrence of any one or more of the following events (each such event and theexpiry of the cure period, if any, provided in connection therewith, beingherein referred to as an “**Event of Default**”)shall constitute a default under this Agreement:

 

(a)                                  if the Borrower shall fail to pay the principal of any Advance asand when the same becomes due and payable;

 

(b)                                 if the Borrower shall fail to pay interest on any Advance or to payany other amount due hereunder on the due date;

 

(c)                                  if the Borrower or any Guarantor shall encumber any of its assetscontrary to the provisions of Section 8.2(b) hereof and fail to dischargesuch Charge within a period of 15 days after notice in writing has been givenby the Lender to the Borrower requiring such discharge;

 

(d)                                 if the Borrower or any Guarantor shall default in the observance orperformance of any agreement, covenant or condition contained in Section 8.1and such failure shall remain unremedied for 30 days after notice in writinghas been given by the Lender to the Borrower;

 

(e)                                  if the Borrower shall, or shall permit any Guarantor to, default inthe observance or performance of any agreement, covenant or condition containedin Sections 8.2 or 8.3 (other than Section 8.2(b));

 

(f)                                    if the Borrower or any Guarantor shall default in any materialrespect in the observance or performance of any agreement, covenant orcondition contained in this Agreement (other than a covenant or condition whosebreach or default in performance is elsewhere in this Section 10.1specifically dealt with) or in any of the Loan Documents and such default shallnot be remedied, if capable of remedy, within a period of 30 days after noticein writing thereof is given by the Lender to the Borrower or Guarantor, asapplicable;

 

(g)                                 if any one or more of the Borrower or its Subsidiaries shall fail topay the principal of (or lease payments on), or premium or interest on, anyDebt in respect of which any of them has failed to pay the principal of, orpremium or interest on, exceeds Cdn. $2,000,000 (or the Equivalent Amount inany other currency)

 

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(excluding Debt due to the Lender hereunderand Debt owing by the Borrower to any of the Guarantors or by any Guarantor toany other Guarantor) when the same becomes due and payable (whether byscheduled maturity, required prepayment, acceleration, demand or otherwise) andsuch failure shall continue after the applicable grace period, if any,specified in the agreement or instrument relating to such Debt, or any otherevent of default or early termination event (howsoever described or designated)shall occur or condition shall exist, and shall continue after the applicablegrace period, if any, specified in any agreement or instrument relating to anysuch Debt and the effect of such event is to accelerate, or permit theacceleration of, Debt of any of them in a principal amount which, whenaggregated with the principal amount of all other Debt of any of them which is,or may be, declared due and payable prior to its specified maturity as a resultof an event of default, exceeds Cdn. $2,000,000 (or the Equivalent Amount inany other currency);

 

(h)                                 if the Borrower or any Guarantor shall generally not pay its debtsas such debts become due, or shall admit in writing its inability to pay itsdebts generally as they become due or shall make a general assignment for thebenefit of creditors; or any proceeding shall be instituted by or against theBorrower or any Guarantor seeking to adjudicate it a bankrupt or insolvent, orseeking liquidation, dissolution, winding-up, reorganization, arrangement,adjustment, protection, relief or composition of it or its debts under any lawrelating to bankruptcy, insolvency or reorganization or relief of debtors, orseeking the entry of an order for relief or the appointment of a receiver,trustee or other similar official for it or for any substantial part of itsproperty and, in the case of any such proceeding instituted against it (but notinstituted by it), either such proceeding shall remain undismissed or unstayedfor a period of 60 days or any of the actions sought in such proceeding(including, without limitation, the entry of an order for relief against it orthe appointment of a receiver, trustee, custodian or other similar official forit or for any substantial part of its property) shall occur; or the Borrower orany Guarantor shall take any action to authorize any of the actions set forthabove in this Section 10.1(h);

 

(i)                                     if any judgment or order or series of judgments or orders (whetheror not related) for the payment of money in an aggregate amount in excess ofCdn. $2,000,000 (or the Equivalent Amount in any other currency), other thanany judgment or order for which one or more of the Borrower and itsSubsidiaries will recover under a policy of insurance, shall be renderedagainst any one or more of the Borrower and its Subsidiaries and (i) suchjudgment or order or series of judgments and/or orders are final with nofurther right of appeal and the Borrower has not satisfied the Lender, actingreasonably, that the Borrower or the relevant Subsidiary is able to satisfysuch judgment or order or series of judgments and/or orders; or (ii)enforcement proceedings shall have been commenced by any creditor upon suchjudgment or order or series of judgments and/or orders, as the case may be; or(iii) there shall be any period of 20 consecutive days during which a stay of enforcementof such judgment or order or series of judgments

 

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and/or orders, as the case may be, by reasonof a pending appeal or otherwise, shall not be in effect;

 

(j)                                     if any representation or warranty made or deemed to be made by theBorrower or any Guarantor in this Agreement or any Loan Document shall prove tohave been incorrect or misleading in any material respect when made or deemedto be made;

 

(k)                                  if the Borrower or any of its Subsidiaries shall be the subject ofany proceeding or investigation pertaining to the discovery of any HazardousSubstance on any property or the Release by such entity of any HazardousSubstance or any violation of any Environmental Law shall occur which, in eachcase, could if determined adversely to the Borrower or such Subsidiaryreasonably be expected to give rise to a Material Adverse Change;

 

(l)                                     if the obligations of the Borrower hereunder or of the Borrower orany Guarantor under any of the Loan Documents shall cease to constitute thelegal, valid and binding obligations of the Borrower or shall cease to be infull force and effect or the Borrower or any Guarantor shall have contested thevalidity of this Agreement or any of the Loan Documents or denied that it had anyliability hereunder;

 

(m)                               if there is an Acquisition of Control of the Borrower without theprior written consent of the Lender;

 

(n)                                 if there is an Acquisition of Control of any of the Guarantorswithout the prior written consent of the Lender;

 

(o)                                 if any of the Borrower’s Security or Guarantors’ Security shallcease to be a valid and perfected first priority security interest relative tothird parties (subject only to Permitted Charges) as a result of any actiontaken or omitted to be taken by the Borrower or any Guarantor;

 

(p)                                 any material Authorization issued to any Obligor by any GovernmentalAuthority or other regulatory body in Canada, the United States or Europe ineffect at the date hereof is not renewed or extended or is terminated,suspended or revoked; or

 

(q)                                 there has occurred an event or development, which could reasonablybe expected to give rise to a Material Adverse Change.

 

**10.2****                                                                        Acceleration**

 

Uponthe occurrence of an Event of Default and at any time thereafter while an Eventof Default is continuing, the Lender may, by written notice to the Borrower:

 

(a)                                  declare the Advances made to the Borrower (including (i) the presentvalue of the face amount of all Bankers’ Acceptances issued and outstandinghereunder based on their respective maturity dates, such present value to becalculated using a discount rate equal to the yield of Government of Canadatreasury bills having a similar maturity date and (ii) the then contingentliability of the Lender under all

 

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outstanding Letters of Credit) to beimmediately due and payable (whereupon the same shall become so payabletogether with accrued interest thereon and any other sums then owed by theBorrower hereunder or under any other Loan Document without further demand ornotice) or declare such Advances to be due and payable on demand of the Lender;and/or

 

(b)                                 declare that all of the Commitment shall be cancelled, whereupon thesame shall be cancelled and the Commitment of the Lender shall be reduced tozero.

 

Upon the payment by the Borrower to the Lender of thepresent value of the face amount of all Bankers’ Acceptances issued andoutstanding hereunder, the Borrower shall have no further liability to theLender with respect to such Bankers’ Acceptances.  Upon the payment by the Borrower to theLender of the then contingent liability of the Lender under all outstandingLetters of Credit, the Borrower shall have no further liability to the Lenderwith respect to such Letters of Credit.

 

If,pursuant to this Section 10.2, the Lender declares any Advances made tothe Borrower to be due and payable on demand, then, and at any time thereafter,the Lender may by written notice to the Borrower call for repayment of suchAdvances on such date or dates as it may specify in such notice (whereupon thesame shall become due and payable on such date together with accrued interestthereon and any other sums then owed by the Borrower hereunder and theprovisions of Section 10.4 shall apply) or withdraw its declaration witheffect from such date as it may specify in such notice.

 

**10.3****                                                                        RemediesCumulative and Waivers**

 

It isexpressly understood and agreed that the rights and remedies of the Lenderhereunder or under any other Loan Document or other instrument executedpursuant to this Agreement are cumulative and are in addition to and not insubstitution for any rights or remedies provided by law or by equity; and anysingle or partial exercise by the Lender of any right or remedy for a defaultor breach of any term, covenant, condition or agreement contained in thisAgreement or any other Loan Document shall not be deemed to be a waiver of orto alter, affect or prejudice any other right or remedy or other rights orremedies to which the Lender may be lawfully entitled for such default orbreach.  Any waiver by the Lender of thestrict observance, performance or compliance with any term, covenant, conditionor other matter contained herein and any indulgence granted, either expresslyor by course of conduct, by the Lender shall be effective only in the specificinstance and for the purpose for which it was given and shall be deemed not tobe a waiver of any rights and remedies of the Lender under this Agreement as aresult of any other default or breach hereunder or thereunder.

 

**10.4****                                                                        Suspensionof Lender’s Obligations**

 

Withoutprejudice to the rights which arise out of this Agreement or by law, theoccurrence of a Default or Event of Default shall, while such Default or Eventof Default shall be continuing, relieve the Lender of all obligations to makeany Advances hereunder (whether or not a request for any Drawdown in respect ofany such Advance shall have been received by the

 

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Lender prior to the occurrence of a Default or Eventof Default) or to accept or comply with any request for a Drawdown or toconvert any Advance.

 

**10.5****                                                                        Applicationof Payments and Proceeds of Realization After an Event of Default**

 

If anyEvent of Default shall occur and be continuing, all payments made by theBorrower hereunder and all amounts realized by the Lender upon the enforcementof the Security shall be applied in the following order:

 

(a)                                  to amounts due hereunder and under the Security as costs andexpenses of the Lender (including, without limitation, costs and expensesincurred in the exercise of all or any of the powers granted to it hereunder orunder the Security and in payment of all of the remuneration of any receiver orsimilar agent and all costs and expenses incurred by such receiver in theexercise of all or any powers granted to it under the Security);

 

(b)                                 to amounts due hereunder as fees;

 

(c)                                  to any other amounts (other than amounts in respect of interest orprincipal) due hereunder;

 

(d)                                 to amounts due hereunder as interest;

 

(e)                                  rateably to amounts due hereunder as principal; and

 

(f)                                    any balance to the Borrower or as a court of competent jurisdictionshall determine.

 

**10.6****                                                                        Disclosureof Information**

 

(a)                                  The Borrower agrees that, if the Borrower has given its prior writtenconsent to a Person being a Transferee hereunder, then the Lender may provideany such Transferee or proposed Transferee pursuant to Section 13.11 withany information it has concerning the financial condition of the Borrower andits Subsidiaries other than information delivered by the Borrower to the Lenderon a confidential basis which is not in the public domain (other than through abreach of this Agreement); provided that, for greater certainty, nothing inthis Section 10.6(a) shall prevent the Lender from disclosing the terms ofthis Agreement on a confidential basis to any proposed Transferee of theLender; and provided further that consent of the Borrower shall not be requiredif an Event of Default has occurred and is continuing and such proposedTransferee has entered into a confidentiality agreement for the benefit of theBorrower.

 

(b)                                 Subject to Section 10.6(a), the Lender acknowledges theconfidential nature of the financial, operational and other information anddata provided and to be provided to it by the Borrower pursuant hereto that isnot at the time it is so provided or (other than through a breach of thisAgreement) thereafter in the public domain and agrees to use all reasonableefforts to prevent the disclosure thereof by it; provided, however, that:

 

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(i)                                     the Lender may disclose all or any part of such information if, (A)in the sole reasonable opinion (stated in writing) of its legal counsel ofreputable standard, such disclosure is compellable by Applicable Law inconnection with any pending judicial, administrative or governmental proceedingor is required or desirable in connection with any actual judicial,administrative or governmental proceeding or (B) such disclosure is compellableby Applicable Law;

 

(ii)                                  it shall incur no liability in respect of any disclosure of suchinformation to any, or pursuant to the requirements of any, judicial authority,law enforcement agency, tax or regulatory authority which it is required tomake in accordance with Applicable Law;

 

(iii)                               it shall inform the Borrower, prior to making such disclosure, sothat the Borrower or its Subsidiaries may seek a protective order or otherappropriate remedy (the Lender shall consent to the protective order or otherappropriate remedy which the Borrower or its Subsidiaries may seek for thepurpose of preventing disclosure of any of such information to the public). Ifnot practical to so inform prior to the disclosure, it shall inform theBorrower as soon as is practicable, of any disclosure of such information madeby it, unless such disclosure is in the ordinary course of its business or suchtax or regulatory authority or such judicial authority or law enforcementagency requires the Lender not to inform the Borrower of the disclosure of suchinformation to it.  In the event that aprotective order or other remedy is not obtained, or the Lender disclosesinformation without giving the Borrower prior notice thereof, the Lender willfurnish only the portion of such information which the Lender is advised bywritten opinions of its counsel is legally required to be disclosed;

 

(iv)                              the Lender may disclose all or any part of such information on aconfidential basis (i) to its auditors or (ii) to the Lender’s Counsel to theLender or other counsel of reputable standard on a confidential basis for thepurpose of seeking or obtaining legal advice;

 

(v)                                 the Lender may disclose such information on a confidential basis toany Subsidiary or Affiliate of the Lender; and

 

(vi)                              if an Event of Default has occurred and is continuing, the Lendermay disclose such information, other than any competitively sensitivenon-financial information which is proprietary in nature, to other lenders toany of the Borrower’s Subsidiaries on a confidential basis in connection withany discussions regarding or related to the resolution of such Event ofDefault.

 

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**ARTICLE 11SUCCESSOR COMPANIES**

 

**11.1****                                                                        CertainRequirements in Respect of Merger, Etc.**

 

TheBorrower shall not, and shall not permit any Guarantor to, liquidate ordissolve or take any steps to amalgamate, consolidate or effect anyrestructuring or corporate or capital reorganization (collectively a “**Reorganization**”), or change its head or registered office toa location outside of Canada, except where (a) the surviving or continuingentity (the “**Successor Corporation**”)of any such amalgamation or merger in the case of the Borrower assumes all ofthe obligations hereunder and in the case of a Guarantor, assumes all of suchGuarantor’s obligations under such Guarantor’s Guarantors’ Security Documents;(b) the transaction in question is a Permitted Acquisition; and (c) theReorganization, in the sole opinion of the Lender, does not have a detrimentaleffect on the financial condition of the Borrower, nor on the rights of theLender.  In particular, thecreditworthiness of the Successor Corporation (as determined by the Lender inits sole discretion) shall not be less than the creditworthiness of theBorrower immediately prior to the Reorganization.

 

Inaddition, in order to obtain the approval of any such Reorganization, theBorrower shall deliver to the Lender the following, and shall satisfy theLender as to the following:

 

(a)                                  all documentation necessary to evidence the assumption by theSuccessor Corporation to the parties to the Reorganization of all liabilitieshereunder or under the applicable Guarantor’s Guarantors’ Security Documents,together with any other documentation required by the Lender, actingreasonably;

 

(b)                                 all taxes to be paid in connection with the Reorganization shallhave been paid in full;

 

(c)                                  no illegality or increased costs (described in Section 5.1)will result from such Reorganization, nor will it result in any withholdingTaxes being required to be paid;

 

(d)                                 no Default or Event of Default will occur as a result of theReorganization; and

 

(e)                                  an opinion of Counsel to the Borrower or such Guarantor and ofcounsel to the Successor Corporation will be provided to the Lender and theLender’s Counsel, to the effect that the Person resulting from theReorganization will remain fully liable to the Lender under the provisions ofthis Agreement or the applicable Guarantors’ Security Documents, and that therights of the Lender hereunder will be enforceable against such Person.

 

**11.2****                                                                        Vestingof Powers in Successor**

 

Exceptin the case of an amalgamation or other transaction pursuant to which theSuccessor Corporation is liable for all of the obligations of the Borrower orthe applicable Guarantor by operation of law, whenever the conditions of Section 11.1above have been duly

 

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observed and performed, the Successor Corporationshall possess and from time to time may exercise each and every right and powerof the Borrower under this Agreement (or the applicable Guarantor under theapplicable Guarantors’ Security Documents) in its own name or in the name ofthe Borrower or such Guarantor or otherwise and any act or proceeding by anyprovision of this Agreement required to be done and performed with like forceand effect by the like directors or officers of the Successor Corporation.

 

**ARTICLE 12 COSTS, EXPENSES AND INDEMNIFICATION**

 

**12.1****                                                                        Costsand Expenses**

 

TheBorrower shall pay promptly, upon request by the Lender accompanied byreasonable supporting documentation or other evidence, all reasonable costs andexpenses in connection with preparation, printing, execution and delivery ofthis Agreement and the other documents to be delivered hereunder including,without limitation, the reasonable fees and out-of-pocket expenses of theLender’s Counsel with respect thereto. Except for ordinary expenses of the Lender relating to the day-to-dayadministration of this Agreement, the Borrower further agrees to pay allreasonable costs and expenses (including reasonable fees and expenses ofcounsel, accountants and other experts) in connection with the interpretation,preservation or enforcement of rights of the Lender under this Agreement and eachof the other Loan Documents including, without limitation, all reasonable costsand expenses sustained by it as a result of any failure by the Borrower toperform or observe its obligations contained in this Agreement or any of theother Loan Documents.

 

**12.2****                                                                        Indemnificationby the Borrower**

 

Inaddition to any liability of the Borrower to the Lender under any otherprovision hereof, the Borrower shall indemnify the Lender and hold the Lenderharmless against any reasonable costs or expenses incurred by the Lender as aresult (i) of any failure by the Borrower to fulfil any of its obligationshereunder or under any Loan Document in the manner provided herein including,without limitation, any cost or expense incurred by reason of the liquidationor re-employment in whole or in part of deposits or other funds required by theLender to fund or maintain any Advance as a result of the failure of theBorrower to complete a Drawdown or to make any repayment or other payment onthe date required hereunder or specified by it in any notice given hereunder(but excluding costs arising solely out of loss of anticipated profits); (ii)the failure of the Borrower to pay any other amount including, withoutlimitation, any interest or fee due hereunder on its due date; or (iii) as aresult of the prepayment or repayment by the Borrower of any Libor Advance orBankers’ Acceptance Advance prior to its date of maturity or the last day ofthe then current Interest Period for such Advance, including, without limitingthe generality of the foregoing, any repayment or prepayment resulting from thecircumstances referred to in Section 5.2.

 

**12.3****                                                                        Funds**

 

Eachamount advanced, made available, disbursed or paid hereunder shall be advanced,made available, disbursed or paid, as the case may be, in immediately availablefunds

 

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or, after notice from the Lender, in such other formof funds as may from time to time be customarily used in Toronto, Canada in thesettlement of banking transactions similar to the banking transactions requiredto give effect to the provisions of this Agreement on the day such advance,disbursement or payment is to be made.

 

**12.4****                                                                        GeneralIndemnity**

 

(a)                                  **Indemnity**.  Subject to paragraphs (b), (c) and (d) below,the Borrower agrees to indemnify and save harmless the Lender and its officers,directors, employees, agents, advisors, representatives and affiliates(collectively, the “**Indemnitees**”and individually, an “**Indemnitee**”)from and against any and all liabilities, costs, claims, damages, penalties,losses and expenses (including reasonable legal fees and disbursements ofcounsel but excluding loss of profits and consequential damages) (collectively,the “**Losses**”) as a result of anyclaims, actions or proceedings (“**Claims**”)asserted against the Indemnitees by a Person other than the Indemnitees inconnection with the agreement of the Lender to provide the Facilities, theCommitment of the Lender and the Advances made by the Lender including, withoutlimitation: (i) the costs of defending and/or counterclaiming or claiming overagainst third parties in respect of any Claim; and (ii) subject to theprovisions set forth in paragraph (d) below, any Losses arising out of asettlement of any Claim made by the Indemnitees.

 

(b)                                 **Limitations to Indemnity**.  The foregoing obligationsof indemnification shall not apply to any Losses suffered by the Indemnitees orany of them or to any Claim asserted against the Indemnitees or any of them tothe extent such Loss or Claim has resulted from the gross negligence or wilfulmisconduct of the Indemnitees or any of them.

 

(c)                                  **Notification**.  Whenever the Lender shall have receivednotice that a Claim has been commenced or threatened, which, if successful,would subject the Borrower (the “**IndemnifyingParty**”) to the indemnity provisions of this Section 12.4, theLender shall as soon as reasonably possible notify (to the extent permitted bylaw) the Indemnifying Party in writing of the Claim and of all relevantinformation the Lender possesses relating thereto; provided, however, thatfailure to so notify the Borrower shall not release it from any liability whichit may have on account of the indemnity set forth in this Section 12.4,except to the extent that the Indemnifying Party shall have been materiallyprejudiced by such failure.

 

(d)                                 **Defence and Settlement**.  The Indemnifying Partyshall have the right, but not the obligation, to assume the defence of anyClaim in any jurisdiction with legal counsel of reputable standard in order toprotect the rights and interest of the Indemnitees.  In such respect, (i) the Indemnifying Partyshall require the consent of the Indemnitees to the choice of legal counsel inconnection with the Claim, which consent shall not be unreasonably withheld ordelayed; and (ii) without prejudice to the rights of the Indemnitees to retaincounsel and participate in the defence of the Claim, the Indemnifying Party andthe Indemnitees shall make all reasonable efforts to co-ordinate their courseof action in connection with the defence of such Claim.  The related costs and expenses sustained insuch respect by the Indemnitees shall be at the expense of the IndemnifyingParty, provided that the Indemnifying Party shall only be liable for the costsand expenses of one firm of separate counsel in addition to the cost of anylocal counsel that may be required.  Ifthe Indemnifying Party fails to assume defence of the Claim, the Indemniteeswill (upon further notice to the Borrower) have the right to undertake, at the

 

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expense of theBorrower, the defence, compromise or settlement of the Claim on behalf and forthe account and risk of the Indemnifying Party, subject to the right of theIndemnifying Party to assume the defence of the Claim at any time prior tosettlement, compromise or final determination thereof.

 

Notwithstandingthe foregoing, in the event the Indemnitee, acting reasonably, does not agreewith the manner or timeliness in which the legal counsel of the IndemnifyingParty is carrying on the defence of the Claim, or, pursuant to the opinion of areputable counsel retained by the Indemnitee, there may be one or more legaldefences available different from the one carried on by the legal counsel ofthe Indemnifying Party, the Indemnitee shall have the right to assume its owndefence in the Claim by appointing its own legal counsel. The costs and theexpenses sustained by the Indemnitee shall be at the expense of theIndemnifying Party provided that the Indemnifying Party shall only be liablefor the costs and expenses of one firm of separate counsel, in addition to thecosts of any local counsel that may be required.

 

TheIndemnifying Party shall not be liable for any settlement of any Claim effectedwithout its written consent (which shall not be unreasonably withheld ordelayed).  In addition, the IndemnifyingParty will not, without the prior written consent of the Indemnitee (whichconsent shall not be unreasonably withheld or delayed), settle, compromise orconsent to the entry of any judgment in or otherwise seek to terminate anyClaim or threatened Claim in respect of which indemnification or contributionmay be sought hereunder.

 

If anoffer for settlement made to any Indemnitee and which the Indemnifying Party hasrecommended for acceptance is rejected by the Indemnitee and the finalliability of the Indemnitee in respect of such action and all related damagesis greater than such offer, the liability of the Indemnifying Party will onlybe to indemnify the Indemnitee up to the amount of such offer.

 

**12.5****                                                                        EnvironmentalClaims**

 

(a)                                  **Indemnity**.  Subject to paragraphs (b), (c) and (d) below,the Borrower agrees to indemnify and save harmless the Lender and theIndemnitees from and against any and all Losses as a result of any Claimsasserted against the Indemnitees by a Person other than the Indemnitees withrespect to any material presence or the Release on, into, onto, under or fromthe property of the Borrower or its Subsidiaries of any Hazardous Substance orwhich arises out of or in connection with any action of, or failure to act by,the Borrower or any predecessor or successor thereof in contravention of anyEnvironmental Laws including, without limitation: (i) the costs of defendingand/or counterclaiming or claiming over against third parties in respect of anyClaim; and (ii) subject to the provisions set forth in paragraph (d) below, anyLosses arising out of a settlement of any Claim made by the Indemnitees.

 

(b)                                 **Limitations to Indemnity**.  The foregoing obligationsof indemnification shall not apply to any Losses suffered by the Indemnitees orany of them or to any Claim asserted against the Indemnitees or any of themwhich relates, directly or indirectly, to any action or omission of any of theIndemnitees while in possession or control of the property of the Borrower orits Subsidiaries which is grossly negligent or constitutes wilful misconduct.

 

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(c)                                  **Notification**.  Whenever the Lender shall have received noticethat a Claim has been commenced or threatened, which, if successful, wouldsubject the Borrower to the indemnity provisions of this Section 12.5, theLender shall as soon as reasonably possible and in any event on or before theexpiry of the date (the “**Notification****Date**”) which is the earlier of (i)the tenth Business Day after the receipt of such notice by the Lender, and (ii)such date as will afford sufficient time for the Borrower to prepare and file atimely answer to the Claim, notify the Borrower of the Claim and of allrelevant information the Lender possesses relating thereto.  If the Lender shall fail to so notify theBorrower and provide it with such information on or before the NotificationDate, the Borrower shall not have any liability hereunder in respect of anyLosses suffered by the Indemnitees in respect of such Claim to the extent suchLosses may be reasonably attributable to such failure by the Lender.

 

(d)                                 **Defence and Settlement**. The provisions of Section 12.4(d) shall apply to any Claimsunder this Section 12.5.

 

**ARTICLE 13 GENERAL**

 

**13.1****                                                                        Term**

 

TheFacilities shall each expire on the applicable Maturity Date.

 

**13.2****                                                                        Survival**

 

Allcovenants, agreements, representations and warranties made herein or incertificates delivered in connection herewith by or on behalf of the Borrowershall survive the execution and delivery of this Agreement and the making ofthe Drawdowns hereunder and shall continue in full force and effect so long asthere is any obligation of the Borrower to the Lender hereunder.

 

**13.3****                                                                        Benefitof the Agreement**

 

ThisAgreement shall enure to the benefit of and be binding upon the successors andpermitted assigns of the Borrower and the successors and permitted assigns ofthe Lender.

 

**13.4****                                                                        Notices**

 

Allnotices, requests, demands or other communications to or from the partieshereto shall be in writing and shall be given by overnight delivery service, byhand delivery or by telecopy (with a confirmation of receipt) to the addresseeas follows:

 

(i)                                     If to the Borrower:

 

16751 Trans Canada Highway

Kirkland, Quebec H9H 4J4

 

Attention: Mark Oleksiw, Chief FinancialOfficer

 

Telecopier:                                     (514) 694-5968

Telephone:                                    (514) 630-7062

 

 

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with a copy to:

 

16751 Trans Canada Highway

Kirkland, Quebec H9H 4J4

 

Attention: General Counsel & Secretary

 

Telecopier:                                     (514) 630-7159

Telephone:                                    (514) 630-7060

 

(ii)                                  If to the Lender:

 

130 KingStreet West

Suite 820

PO Box 428

Toronto,Ontario M5X 1E3

 

Attention:                                         Larry Yamamoto

 

Telecopier:                                     (416) 864-7819

Telephone:                                    (416) 864-7550

 

or at such other address or to such other individualas the Borrower may designate by notice to the Lender or the Lender maydesignate by notice to the Borrower.  Ifany notice, request, demand or other communication is delivered or transmittedon a day other than a Business Day or after 3:00 p.m. on any Business Day, thesame shall be deemed to have been effectively given and received on the nextfollowing Business Day.

 

**13.5****                                                                        Amendmentand Waiver**

 

ThisAgreement and documents collateral hereto may be modified or amended and awaiver of any breach of any term or provision of this Agreement shall beeffective only if the Borrower and the Lender so agree in writing.

 

**13.6****                                                                        GoverningLaw**

 

ThisAgreement shall be governed by and construed in accordance with the laws of theProvince of Ontario.****The Lenderand Borrower agree that any legal suit, action or proceeding arising out ofthis Agreement or any Loan Document may be instituted in the courts of Ontario,and the Lender and Borrower hereby accept and irrevocably submit to thenon-exclusive jurisdiction of said courts and acknowledge their competence andagree to be bound by any judgment thereof.

 

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**13.7****                                                                        FurtherAssurances**

 

TheBorrower shall promptly cure any default in its execution and delivery of thisAgreement.  The Borrower, at its expense,will promptly execute and deliver, or cause to be executed and delivered, tothe Lender, upon request, all such other and further documents, agreements,certificates and instruments in compliance with, or accomplishment of thecovenants and agreements of the Borrower hereunder or more fully to state theobligations of the Borrower as set out herein or to make any recording, fileany notice or obtain any consents, all as may be necessary or appropriate inconnection therewith.

 

**13.8****                                                                        Enforcementand Waiver by the Lender**

 

TheLender shall have the right at all times to enforce the provisions of thisAgreement and agreements to be delivered pursuant hereto in strict accordancewith the terms hereof and thereof, notwithstanding any conduct or custom on thepart of the Lender in refraining from so doing at any time or times.  The failure of the Lender at any time or timesto enforce its rights under such provisions, strictly in accordance with thesame, shall not be construed as having created a custom or in any way or mannermodified or waived the same.  All rightsand remedies of the Lender are cumulative and concurrent and the exercise ofone right or remedy shall not be deemed a waiver or release of any other rightor remedy.

 

**13.9****                                                                        Executionin Counterparts**

 

ThisAgreement may be executed in counterparts, each of which shall be considered anoriginal and all of which taken together shall constitute a single agreement.

 

**13.10****                                                                 Assignmentby the Borrower**

 

Therights and obligations of the Borrower under this Agreement are not assignableto any other Person, except in accordance with Article 11, without theprior written consent of the Lender.

 

**13.11****                                                                 Assignmentsand Transfers by the Lender**

 

Withthe prior written consent of the Borrower, such consent not to be unreasonablywithheld or delayed, the Lender may, at any time, assign all or any of itsrights and benefits hereunder or transfer all or any of its rights, benefitsand obligations hereunder to another Person (the “**Transferee**”). Notwithstanding the foregoing, the consent of the Borrower is notrequired in connection with the assignment or transfer of all or any of therights, benefits and obligations hereunder to (i) any Subsidiary or Affiliateof the Lender, provided that, in either case, any such assignment or transferdoes not give rise to a claim for increased costs pursuant to Article 5,or (ii) to any financial institution or to any other Person if an Event ofDefault has occurred and is continuing. In connection with any assignment or transfer by the Lender, the Lendershall deliver a Transfer Certificate.

 

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**13.12****                                                                 Set-Off**

 

If anEvent of Default has occurred and is continuing, the Lender shall have theright to set off against any accounts, credits or balances maintained by theBorrower with the Lender, any amount due hereunder.

 

**13.13****                                                                 Timeof the Essence**

 

Timeshall be of the essence in this Agreement.

 

**13.14****                                                                 JudgmentCurrency**

 

To theextent permitted by applicable law, if any judgment or order is rendered andexpressed in a currency other than the currency (the “**Agreement Currency**”) in which amounts arepayable under the Facilities (i) for the payment of any amount owing by theBorrower or a Guarantor in respect of the Facilities or the Loan Documents, or(ii) in respect of a judgment or order of another court for the payment of anyamount described in (i) above, the Lender, after recovery in full of theaggregate amount to which the Lender is entitled pursuant to the judgment ororder, will be entitled to receive immediately from the Borrower the amount ofany shortfall in the Agreement Currency received by the Lender as a consequenceof sums paid in such other currency and will refund promptly to the Borrowerany excess of the Agreement Currency received by the Lender as a consequence ofsums paid in such other currency if such shortfall or such excess arises orresults from any variation between the rate of exchange at which the AgreementCurrency is converted into the currency of the judgment or order for thepurposes of such judgment or order and the rate of exchange at which the Lenderis able, acting in a reasonable manner and in good faith in converting thecurrency received into the Agreement Currency, to purchase the AgreementCurrency with the amount of the currency of the judgment or order actuallyreceived by the Lender.  The term “**rate of exchange**” includes, withoutlimitation, any premiums and costs of exchange payable in connection with thepurchase of or conversion into the Agreement Currency.  Any amount due from the Borrower under theprovisions of this Section 13.14 shall be due as a separate debt and shallnot be affected by judgment being obtained for any other amounts due under orin respect of the Facility or this Agreement.

 

**13.15****                                                                 NoNovation**

 

Theparties agree that any Advance under this Agreement shall not discharge,constitute a repayment or readvance or novation of, or any of the indebtedness.liabilities or obligations under the Original Loan Agreement and the OriginalLoan Agreement, as amended and restated by this Agreement, remains in fullforce and effect without novation.

 

**13.16****                                                                 Consent**

 

NotwithstandingSection 6.2(j) of the Original Loan Agreement, the Lender consents to theBorrower and its Subsidiaries maintaining bank accounts set forth on Schedule 7.1(u), which consent shall be effective from and as of December 31, 2002, andthe Lender expressly agrees in favour of the Borrower and its Subsidiaries thatsuch maintenance of the bank accounts listed on Schedule 7.1(u) does notconstitute a Default or an Event of Default

 

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occurring now or in the past under this Agreement orthe Original Loan Agreement. The Borrower acknowledges that the fact that theLender has provided this consent is not and should not be viewed as an expressor implied waiver of any other Defaults or Events of Defaults (under theabove-noted Section of the Original Loan Agreement or otherwise) occurringnow or in the future under this Agreement.

 

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INWITNESS WHEREOF the parties hereto have executed this Agreement.

 

 
| ** ** | **DRAXIS HEALTH INC.**      |
|------------|-----------------------------|
|       |                        |
|       | by                          |   |  c.s. |
|       |                        | Name: |
|       |                        | Title: |
|       |                        |
|       | by                          |   |  c.s. |
|       |                        | Name: |
|       |                        | Title: |
|       |                        |
|       |                        |
| ** ** | **NATIONAL BANK OF CANADA** |
|       |                        |
|       | by                          |   |   |
|       |                        | Name: |   Larry  S. Yamamoto |
|       |                        | Title: |   Senior  Account Manager |
|       |                        |
|       | by                          |   |   |
|       |                        | Name: |   Linda  Smart |
|       |                        | Title: |   Senior  Account Manager |
|            |                             |  |  |  |  |

 

----

** **

**SCHEDULE A**

** **

**APPLICABLE MARGIN, APPLICABLE LIBOR MARGIN,APPLICABLE BA STAMPING FEE, LC FEE AND STANDBY FEE**

 

“**Applicable Margin**” means:

 

(a)                                  in respect of any Prime Rate Advance or U.S. Base Rate Advance, atany time:

 

(i)                                     **0.00%**per annum if theratio of Total Funded Debt to EBITDA calculated as at last day of the relevantReference Financial Period (as defined below) is less than 1.50:1;

 

(ii)                                  **0.50%** per annum if the ratio of Total Funded Debt to EBITDAcalculated as at last day of the relevant Reference Financial Period is greaterthan or equal to 1.50:1; and

 

(b)                                 in respect of any Libor Advance, at any time, the Applicable LiborMargin.

 

“**Applicable BA Stamping Fee**”,“**LC Fee**” and “**Applicable Libor Margin**” means, at anytime:

 

(a)                                  **1.50%** per annum if theratio of Total Funded Debt to EBITDA calculated as at last day of the relevantReference Financial Period is less than 1.50:1; and

 

(b)                                 **2.00%** per annumif the ratio of Total Funded Debt to EBITDA calculated as at last day of therelevant Reference Financial Period is greater than or equal to 1.50:1.

 

“**Reference Financial Period**”means, with respect to determination of the Applicable Margin, Applicable BAStamping Fee, Applicable Libor Margin, LC Fee and Standby Fee at any time, thefour most recently completed fiscal quarters of the Borrower commencing withthe quarter ending March 31, 2004;

 

“**Standby Fee**” means, atany time:

 

(a)                                  **0.25%** per annum if theratio of Total Funded Debt to EBITDA calculated as at last day of the relevantReference Financial Period is less than 1.50:1; and

 

(b)                                 **0.30%** per annumif the ratio of Total Funded Debt to EBITDA calculated as at last day of therelevant Reference Financial Period is greater than or equal to 1.50:1.

 

----

 

The table setforth below sets out, for illustrative purposes only, the Applicable Margin,the Applicable Libor Margin, the Applicable BA Stamping Fee, the LC Fee and theStandby Fee in the circumstances described therein:

 
| ** **                                                                 | ** ** | **LEVEL 1**                         | ** ** | **LEVEL 2**                         | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| **BASIS FOR PRICING**                                                      |       | Total Funded Debt to EBITDA<1.50 |       | Total Funded Debt to EBITDA>1.50 |       |
| ** **                                                                 |       |                                |       |                                |       |
| **Applicable  Margin for Prime Rate Advances and U.S. Base Rate Advances** |       | 0.00                                | %          | 0.50                                | %          |
| ** **                                                                 |       |                                |       |                                |       |
| **Applicable  BA Stamping Fee, Applicable Libor Margin and LC Fee**        |       | 1.50                                | %          | 2.00                                | %          |
| ** **                                                                 |       |                                |       |                                |       |
| **Standby  Fee**                                                           |       | 0.25                                | %          | 0.30                                | %          |

 

A-2

----

 

**SCHEDULE B**

** **

**BORROWING BASE CERTIFICATE**

 

**TO:**                          **NATIONAL BANK OF CANADA**

 

Reference ismade to the amended and restated loan agreement (the “**Loan Agreement**”) made as of June 10, 2004between DRAXIS HEALTH INC. (the “**Borrower**”)and NATIONAL BANK OF CANADA (the “**Lender**”),as the same may be further amended, restated or modified from time totime.  Unless otherwise defined herein,capitalized terms used in this certificate have the meanings given to them inthe Loan Agreement.  This certificate isbeing delivered pursuant to Section 8.1(a)(iv) of the Loan Agreement.

 

Theundersigned, the Chief Financial Officer of the Borrower, hereby certifies, forand on behalf of the Borrower, and not in his personal capacity, that as at [•]:

 
| (a)    |   | 80% of  Eligible Canadian Accounts Receivable is:                                                   |   | $      | • |   |
|--------|--------|-----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
|   |   |                                                                                                |   |   |   |   |
| (b)    |   | 75% of  Eligible U.S. Accounts Receivable (based on the Equivalent Amount in Canadian  Dollars) is: |   | $      | • |   |
|   |   |                                                                                                |   |   |   |   |
| (c)    |   | 50% of  Eligible Inventory is:                                                                      |   | $      | • |   |
|   |   |                                                                                                |   |   |   |   |
| (d)    |   | Priority  Claims are:                                                                               |   | $      | • |   |
|   |   |                                                                                                |   |   |   |   |
| (e)    |   | The  Borrowing Base (a) + (b) + (c) – (d) as at **[****•]**  is:                          |   | $      | • |   |

 

Theundersigned hereby further certifies that attached hereto as Exhibit I are thedetailed calculations used to calculate the totals referred to in (a) through(d) above.

 

 

DATED                                                      , 20        .

 

 
|   |   |   |
|--------|--------|--------|
|   |   |   | Name:  • |
|   |   |   | Title:    Chief  Financial Officer |

 

----

 

**SCHEDULEC**

** **

**CONVERSION NOTICE**

 

To:                              NationalBank of Canada130 King Street WestSuite 820, PO Box 428Toronto, OntarioM5X 1E3

 

Attention:                                         LarryYamamoto

 

This Conversion Notice is being delivered pursuant to the amended andrestated loan agreement made as of June 10, 2004 (the “**Loan Agreement**”) between Draxis Health Inc.and National Bank of Canada, as the same may be further amended, restated ormodified from time to time.  Capitalizedterms used herein but not defined herein shall have the meanings ascribed tosuch terms in the Loan Agreement.

 

We hereby request the following Conversions on                               ,              .  The Conversions shall be as set forth below:

 

*check the applicable boxes*

 

o                                    TermFacility:

 
| o      |   | (a)    |   | Prime Rate  Advance in the principal amount of Cdn.$                        shall be converted into a Bankers’ Acceptance Advance having a term** **of             days. |
|--------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                         |
| o      |   | (b)    |   | Prime Rate  Advance in the principal amount of Cdn.$                        shall be converted into an Equivalent Amount U.S. Base Rate Advance.                                                                                     |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                         |
| o      |   | (c)    |   | Bankers’  Acceptance in the aggregate Face Amount of Cdn.$                        shall be converted into a Prime Rate Advance.                                                                                                 |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                         |
| o      |   | (d)    |   | Bankers’  Acceptance in the aggregate Face Amount of Cdn.$                        shall be converted into an Equivalent Amount U.S. Base Rate Advance.                                                                          |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                         |
| o      |   | (e)    |   | Libor  Advance in the principal amount of U.S.$                        shall be converted into a U.S. Base Rate Advance.                                                                                                             |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                         |
| o      |   | (f)    |   | Libor  Advance in the principal amount of U.S.$                        shall be converted into an Equivalent Amount Prime Rate Advance.                                                                                              |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                         |
| o      |   | (g)    |   | U.S. Base  Rate Advance in the principal amount of U.S.$                        shall be converted into a Libor Advance having an Interest Period of             months.           |

 

----

 
| o |   | (h) |   | U.S. Base  Rate Advance in the principal amount of U.S.$                        shall be converted into an Equivalent Amount Prime Rate Advance. |
|---|--------|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

o                                    OperatingFacility:

 
| o      | ** ** | (a)    |   | Prime Rate Advance in the principal amount of Cdn. $                        shall be converted into a Bankers’ Acceptance Advance having a term of             days. |
|--------|------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ** ** |   |   |                                                                                                                                                                                                                                                                                                                                                |
| o      |       | (b)    |   | Prime Rate Advance in the principal amount of Cdn. $                        shall be converted into an Equivalent Amount U.S. Base Rate Advance.                                                                            |
|   |       |   |   |                                                                                                                                                                                                                                                                                                                                                |
| o      |       | (c)    |   | Bankers’ Acceptance in the aggregate Face Amount of  Cdn.$                         shall be converted into a Prime Rate Advance.                                                                                  |
|   |       |   |   |                                                                                                                                                                                                                                                                                                                                                |
| o      |       | (d)    |   | Bankers’ Acceptance in the aggregate Face Amount of  Cdn.$                         shall be converted into an Equivalent Amount U.S. Base Rate Advance.                                                           |
|   |       |   |   |                                                                                                                                                                                                                                                                                                                                                |
| o      |       | (e)    |   | Libor Advance in the principal amount of U.S.$                        shall be converted into a U.S. Base Rate Advance.                                                                                                     |
|   |       |   |   |                                                                                                                                                                                                                                                                                                                                                |
| o      |       | (f)    |   | Libor Advance in the principal amount of U.S.$                        shall be converted into an Equivalent Amount Prime Rate Advance.                                                                                      |
|   |       |   |   |                                                                                                                                                                                                                                                                                                                                                |
| o      |       | (g)    |   | U.S. Base Rate Advance in the principal amount of  U.S.$                        shall be converted into a Libor Advance having an Interest Period of             months.  |
|   |       |   |   |                                                                                                                                                                                                                                                                                                                                                |
| o      |       | (h)    |   | U.S. Base Rate Advance in the principal amount of  U.S.$                        shall be converted into an Equivalent Amount Prime Rate Advance.                                                                            |

 

Therepresentations and warranties set forth in Section 7.1 of the Loan Agreementare, *mutatis mutandis*, true andcorrect in all material respects on and as of the date hereof, both before andafter giving effect to the Conversion, by reference to the facts andcircumstances now existing.

 

No Default orEvent of Default has occurred, is continuing, nor shall any such event occur asa result of making the requested Conversion.

 

DATED                                                    , 20      .

 

C-2

----

 
| ** ** | **DRAXIS HEALTH INC.** |
|------------|------------------------|
| ** ** | ** **             |
| ** ** | ** **             |
|       | By:                    |   |
|       |                   | Name: |   |
|       |                   | Title: |   |
|       |                   |   |
|       |                   |   |
|       | By:                    |   |
|       |                   | Name: |   |
|       |                   | Title: |   |

 

C-3

----

 

**SCHEDULE D**

** **

**DRAWDOWN NOTICE**

 

To:                              NationalBank of Canada130 King Street WestSuite 820, PO Box 428Toronto, OntarioM5X 1E3

Attention:                                         Larry Yamamoto

 

This Drawdown Notice is being delivered pursuantto the amended and restated loan agreement made as of June 10,2004 (the “**Loan Agreement**”)between Draxis Health Inc. and National Bank of Canada, as the same may befurther amended, restated or modified from time to time.  Capitalized terms used herein but not definedherein shall have the meanings ascribed to such terms in the Loan Agreement.

 

We hereby request the following Advance on                                     ,              .

TheAdvance shall be pursuant to:

 

*check the applicable boxes*

 

o                                    Operating Facility:

 
| o      |   | (a)    |   | Prime  Rate Advance in the principal amount of Cdn. $                           .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| o      |   | (b)    |   | Bankers’  Acceptance Advance in the aggregate Face Amount of Cdn.$                        having  a term of            days.                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| o      |   | (c)    |   | Libor  Advance in the principal amount of U.S.$                          and  having an Interest Period of             months.                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| o      |   | (d)    |   | U.S.  Base Rate Advance in the principal amount of U.S.$                           .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| o      |   | (e)    |   | Letter  of Credit in the Face Amount of Cdn.$                           and/or  U.S.$                           with                                        as beneficiary with a term of           days. |

 

o                                    Term Facility:

 
| o      |   | (a)    |   | Prime  Rate Advance in the principal amount of Cdn.$                           .                                                                                                  |
|--------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                     |
| o      |   | (b)    |   | Bankers’  Acceptance Advance in the aggregate Face Amount of Cdn.$                         having  a term of            days.        |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                     |
| o      |   | (c)    |   | Libor  Advance in the principal amount of U.S.$                           and  having an Interest Period of             months. |

 

----

 
| o      |   | (d)    |   | U.S.  Base Rate Advance in the principal amount of U.S.$                               .                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| o      |   | (e)    |   | Letter  of Credit in the Face Amount of Cdn.$               and/or  U.S.$                                     with                                        as beneficiary with a term of           days. |

 

 
|   | Payment  instructions:   |   |   |
|--------|------------------------------------|--------|--------|
|   |                               |   |   |
|   |                               |   |   |
|   |                               |   |   |
|   |                               |   |   |

 

Therepresentations and warranties set forth in Section 7.1 of the Loan Agreementare, *mutatis mutandis*, true andcorrect in all material respects on and as of the date hereof, both before andafter giving effect to the Drawdown of the requested Advance and to theapplication of proceeds therefrom, by reference to the facts and circumstancesnow existing.

 

No Default orEvent of Default has occurred, is continuing, nor shall any such event occur asa result of making the requested Advance or the application of proceedstherefrom.

 

DATED                                                               , 20      .

 

 
| ** ** | **DRAXIS HEALTH INC.** |
|------------|------------------------|
| ** ** | ** **             |
| ** ** | ** **             |
|       | By:                    |   |
|       |                   |   |
|       |                   |   |
|       | By:                    |   |
|       |                   |   |
|       |                   |   |

 

D-2

----

 

**SCHEDULE E**

** **

**ROLLOVER NOTICE**

 

To:                                                                              National Bank of Canada130 King Street WestSuite 820, PO Box 428Toronto, OntarioM5X 1E3

 

Attention:                                         Larry Yamamoto

 

This RolloverNotice is being delivered pursuant to the amended and restated loan agreementmade as of June10, 2004 (the “**LoanAgreement**”) between Draxis Health Inc. and National Bank of Canada,as the same may be further amended, restated or modified from time totime.  Capitalized terms used herein butnot defined shall have the meanings ascribed to such terms in the LoanAgreement.

 

We herebyrequest the following:

 

*check the applicable box*

 

o                                    Rolloverin respect of the Libor Advance currently outstanding in the amount of U.S.$                        and with an Interest Period ending on                           ,            .  The next Interest Period for such LiborAdvance, commencing on such date is to be           months.

 

o                                    Acceptanceof Bankers’ Acceptances in the aggregate Face Amount of Cdn.$                        having a term of           days.

 

The representations and warranties setforth in Section 7.1 of the Loan Agreement are, *mutatis mutandis*, true and correct in all material respectson and as of the date hereof, both before and after giving effect to theRollover, by reference to the facts and circumstances now existing.

 

No Default or Event of Default hasoccurred, is continuing, nor shall any such event occur as a result of makingthe requested Rollover.

 

DATED                                                             , 20        .

 

----

 

 
| ** ** | **DRAXIS HEALTH INC.** |
|------------|------------------------|
| ** ** | ** **             |
| ** ** | ** **             |
|       | By:                    |   |
|       |                   | Name: |
|       |                   | Title: |
|       |                   |   |
|       |                   |   |
|       | By:                    |   |
|       |                   | Name: |
|       |                   | Title: |

 

E-2

----

 

**SCHEDULE F**

** **

**TRANSFER CERTIFICATE**

 

To:                              DraxisHealth Inc. (the “**Borrower**”)

 

WHEREAS theBorrower and National Bank of Canada (the “**Lender**”)are parties to an amended and restated loan agreement (the “**Loan Agreement**”) made as of June 10,2004 **[as amended]**;

 

AND WHEREASpursuant to and in accordance with Section 13.11 of the Loan Agreement, theLender, may, with the prior written consent of the Borrower, assign or transfercertain rights, benefits and obligations under the Loan Agreement by dulycompleting, executing and delivering to the Borrower this Transfer Certificate;

 

AND WHEREAS                                            (the“**Transferor**”) wishes to assign ortransfer to                       (the“**Transferee**”) the rights, benefitsand obligations of the Transferor under the Loan Agreement specified herein;

NOW THEREFOREin consideration of the foregoing and of $1.00 and other good and valuableconsideration, the receipt and sufficiency of which is acknowledged, the signatorieshereto agree as follows:

 

1.                                       All capitalized terms defined in the Loan Agreement and nototherwise defined herein have the same meaning as in the Loan Agreement.

 

2.                                       The Transferor assigns and transfers to the Transferee the followingrights, benefits and obligations (the “**Transfer**”):

 

**[description of theTransferred Rights, Benefits and Obligations, indicating retained interest orfees, if applicable, and Transferee’s Commitment and Participation]**

 

(the “**TransferredRights**”, the “**Transferred Benefits**”,the “**Transferred Obligations**”, asapplicable, and collectively the “**TransferredRights, Benefits and Obligations**”).

 

3.                                       The Transferee accepts the Transfer and (if applicable) assumes theTransferred Obligations (the “**Assumption**”)as if the Transferee had been an original signatory to the Loan Agreement.

 

4.                                       The Transfer and the Assumption are governed by and subject toSection 13.11 of the Loan Agreement.

 

5.                                       The Transferee acknowledges and confirms that it has not relied uponand that the Transferor has not made any representation or warranty whatsoeveras to the due execution, legality, effectiveness, validity or enforceability ofthe Loan Agreement or any

 

----

 

other documentation or informationdelivered by the Transferor to the Transferee in connection therewith or as tothe financial condition of the Borrower. All representations, warranties and conditions express or implied by lawor otherwise are hereby excluded.

 

6.                                       The Transferee represents and warrants that it is not a non-residentwithin the meaning of the *Income Tax Act*(Canada) and that it has itself been, and will continue to be, solelyresponsible for making its own independent appraisal of and investigation intothe financial condition, creditworthiness, affairs, status and nature of theBorrower and has not relied and will not hereafter rely on the Transferor toappraise or keep under review on its behalf the financial condition,creditworthiness, affairs, status or nature of the Borrower.

 

7.                                       Each of the Transferor and the Transferee represents and warrants tothe other, and to the Borrower that it has the capacity and power to enter intothe Transfer and the Assumption in accordance with the terms hereof and toperform its obligations arising therefrom, and all action required to authorizethe execution and deliver hereof and the performance of such obligations hasbeen duly taken.

 

8.                                       The Transferor and the Transferee acknowledge and agree that theamounts payable by the Borrower under the Loan Agreement shall not increase asa result of the Transfer and Assumption, whether in respect of withholding onaccount of Taxes or in any other respect.

 

9.                                       This Transfer Certificate shall be governed by and construed inaccordance with the laws of the Province of Ontario, Canada.

 

DATED                                                                     , 20        .

 

 
| ** ** | **[TRANSFEROR]** |
|------------|------------------|
| ** ** | ** **       |
|       | by               |   |
|       |             | Name: |   |
|       |             | Title: |   |
|       |             |   |   |
|       |             |   |
|       |             | Name: |   |
|       |             | Title: |   |
|            |                  |  |  |  |

 

F-2

----

 
| ** ** | **[TRANSFEREE]** |
|------------|------------------|
| ** ** | ** **       |
| ** ** | ** **       |
|       | by               |   |
|       |             | Name: |
|       |             | Title: |
|       |             |   |
|       |             |   |
|       |             | Name: |
|       |             | Title: |
|            |                  |  |  |

 

 

We hereby consent to the Transfer and Assumption.

 

DATED                                                             , 20        .

 

 
| ** ** | **DRAXIS HEALTH INC.** |
|------------|------------------------|
| ** ** | ** **             |
| ** ** | ** **             |
|       | by                     |   |
|       |                   | Name: |
|       |                   | Title: |
|       |                   |   |
|       |                   |   |
|       |                   | Name: |
|       |                   | Title: |
|            |                        |  |  |

 

F-3

----

 

**SCHEDULE G**

** **

**COMPLIANCE CERTIFICATE**

 

To:                                                                              National Bank of Canada130 King Street WestSuite 820, PO Box 428Toronto, OntarioM5X 1E3

 

Attention:                                         Larry Yamamoto

 

ThisCompliance Certificate is being delivered pursuant to the amended and restatedloan agreement made as of June 10, 2004 (the “**Loan Agreement**”) between Draxis Health Inc.(the “**Borrower**”) and National Bankof Canada, as the same may be further amended, restated or modified from timeto time.  Capitalized terms used hereinbut not defined shall have the meanings ascribed to such terms in the LoanAgreement.

 

Theundersigned, Chief Financial Officer of the Borrower, hereby certifies onbehalf of the Borrower and not in **[his/her]**personal capacity that:

 

(a)                                  theinformation contained in the financial statements delivered on the date hereofpursuant to Section **[8.1(a)(i) or 8.1(a)(ii)]**of the Loan Agreement (the “**FinancialStatements**”) is prepared and presented in accordance with GAAP ascurrently in effect and in a manner consistent with the past practices of theBorrower;

 

(b)                                 theFinancial Statements are true and correct in all material respects**[, subject to normal year-end audit adjustments in the case ofunaudited financial statements,]** and present fairly the results ofoperations and changes in the financial position of the Borrower as of and tothe date of the Financial Statements;

 

(c)                                  theBorrower is in compliance with the covenants set forth in Article 8 of theLoan Agreement;

 

(d)                                 exceptas set out in Exhibit I hereto, each of the representations and warranties ofthe Borrower set forth in Section 7.1 of the Loan Agreement is true and correctin all material respects by reference to the facts and circumstances nowexisting;

 

(e)                                  exceptas set out in Exhibit II **[Note:  Exhibit II must also set out what action theBorrower is taking in connection with any Default or Event of Default]**,no Default or Event of Default has occurred and is continuing; and

 

(f)                                    ExhibitIII sets out the Borrower’s computation of each of the financial covenants setforth in Section 8.3 of the Loan Agreement.

 

----

 

DATED                                                             , 20        .  

 

 
| ** ** | **DRAXIS HEALTH INC.** |
|------------|------------------------|
| ** ** | ** **             |
| ** ** | ** **             |
|       | By:                    |   |
|       |                   | Name: |
|       |                   | Title:  Chief Financial Officer |
|            |                        |  |  |

 

G-2

----

 

**SCHEDULE 7.1(h)**

** **

**OUTSTANDING LITIGATION**

 

----

 

**SCHEDULE7.1(i)**

** **

**LICENSES**

** **

**NIL**

 

----

 

**SCHEDULE7.1(j)**

** **

**NON-COMPLIANCE MATTERS**

** **

**NIL**

 

----

 

**SCHEDULE7.1(p)**

** **

**REAL PROPERTY**

 

**Owned RealProperty**

 

1.                                                                                       Lotnumber 1 993 280 of the Cadastre of Quebec, Registry Office for theRegistration Division of Montreal (the “**RegistryOffice**”), formerly (before September 17, 2001) known and designatedas being lots number 144-16 and 145-94 of the Cadastre of Parish ofPointe-Claire at the Registry Office (the “**KirklandProperty**”).  The KirklandProperty is municipally known as 16751 Transcanadienne, City of Montreal(Borough of Kirkland), Province of Quebec, H9H 4J4.

 

**LeasedReal Property**

 

1.                                                                                       Partof Block E, Plan 919, designated as Part 1 Plan 43R-7830, City of Mississauga,Regional Municipality of Peel, Land Registry Office for the Registry Divisionof Peel (No. 43) at Brampton, Ontario (the “Goreway Property”).  The Goreway Property is municipally known as6870 Goreway Drive, Mississauga, Ontario.

 

2.                                                                                       Suite50, 75 Talcott Road, Willistor, Vermont.

 

----

 

**SCHEDULE 7.1(q)**

** **

**SUBSIDIARIES**

** **

**Subsidiaries of Draxis Health Inc.**

 

***Subsidiaries***

 
| **Name**                                      | ** ** | **Form of legal entity**                    | ** ** | **Jurisdiction**              | ** ** | **Issued and  Outstanding  Capital** | ** ** | **Registered in the  Name** |
|-----------------------------------------------|------------|---------------------------------------------|------------|-------------------------------|------------|--------------------------------------|------------|-----------------------------|
| ** **                                    | ** ** | ** **                                  | ** ** | ** **                    | ** ** | ** **                           | ** ** | ** **                  |
| Draximage Inc.                                |       | Private   Corporation                       |       | Canada   (CBCA)               |       | 5,635,100   common shares            |       | Draxis Health Inc.          |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| Draxis Pharma Inc.                            |       | Private   Corporation                       |       | Canada   (CBCA)               |       | 23,493,186   common shares           |       | Draxis Health Inc.          |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| Deprenyl Animal Health, Inc.                  |       | Private   Corporation                       |       | State of  Louisiana   (U.S.A) |       | 9,149,698                            |       | Draxis Health Inc.          |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| DAHI LLC                                      |       | Single member   Limited Liability   Company |       | State of  Delaware   (U.S.A)  |       | 100% membership    interest          |       | Draxis Health Inc.          |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| Draxis U.S. Inc.                              |       | Private   Corporation                       |       | State of  Delaware   (U.S.A)  |       | 1,000 shares                         |       | Deprenyl Animal Health Inc. |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| Draximage LLC                                 |       | Single member   Limited Liability   Company |       | State of  Delaware   (U.S.A)  |       | 100% membership    interest          |       | Draxis U.S. Inc.            |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| DAHI (Nevada), Inc.                           |       | Corporation                                 |       | State of Nevada    (U.S.A)    |       | 1,000 shares                         |       | Deprenyl Animal Health Inc. |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| DAHI Animal Health (UK) Limited               |       | Private Company Limited by Shares      |       | England and   Wales           |       | 1 ordinary  share                    |       | Draxis Health Inc.          |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| Draximage (UK) Limited                        |       | Private Company    Limited by Shares        |       | England and   Wales           |       | 1 ordinary  share                    |       | Draximage Inc.              |
|                                          |       |                                        |       |                          |       |                                 |       |                        |
| DAHI Animal Health (New Zealand) Pty  Limited |       | Limited  Liability Company             |       | New Zealand                   |       | 100 shares                           |       | Draxis Health Inc.          |

 

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**SCHEDULE7.1(u)**

 

**BANK ACCOUNTS**

 

 

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