**Exhibit 4.69**

 

Execution Copy

** **

**US$12,200,000**

** **

**CREDIT AGREEMENT**

** **

Dated as of September 4, 2007

 

between

 

**DRAXIS PHARMA, a division of DRAXIS SPECIALTYPHARMACEUTICALS INC.**

** **

as Borrower

 

and

 

**JOHNSON & JOHNSON FINANCECORPORATION**

** **

as Lender

** **

----

 

**TABLE OF CONTENTS**
| ** **                                                                              |       | ** **                                                     |
|-----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|
| *** ***                                                                            |       | **Page**                                                       |
|                                                                                    |       |                                                           |
| **ARTICLE I  DEFINITIONS**                                                         | **1**      |
| ** **                                                                              | ** ** | ** **                                                     |
| **ARTICLE II  REPRESENTATIONS AND WARRANTIES**                                     | **11**     |
| ** **                                                                              | ** ** | ** **                                                     |
|                                                                                    | 2.1.1      | Existence;  Power:                                             | 11 |
|                                                                                    | 2.1.2      | Subsidiaries:                                                  | 11 |
|                                                                                    | 2.1.3      | Authorization  and Enforceability:                             | 11 |
|                                                                                    | 2.1.4      | Breach:                                                        | 11 |
|                                                                                    | 2.1.5      | Litigation:                                                    | 12 |
|                                                                                    | 2.1.6      | Compliance  with Applicable Laws:                              | 12 |
|                                                                                    | 2.1.7      | Governmental  Consents; No Required Filing:                    | 12 |
|                                                                                    | 2.1.8      | Taxes:                                                         | 12 |
|                                                                                    | 2.1.9      | Financial  Statements:                                         | 12 |
|                                                                                    | 2.1.10     | No Event of  Default:                                          | 12 |
|                                                                                    | 2.1.11     | Ownership of  Property; Location of Places of Business; Liens: | 13 |
|                                                                                    | 2.1.12     | Environmental  Matters:                                        | 13 |
|                                                                                    | 2.1.13     | No Stamp  Tax:                                                 | 14 |
|                                                                                    | 2.1.14     | Insurance:                                                     | 14 |
|                                                                                    |       |                                                           |
| **ARTICLE III  THE CREDIT FACILITIES**                                             | **14**     |
| ** **                                                                              | ** ** | ** **                                                     |
| **ARTICLE IV  INTEREST**                                                           | **16**     |
| ** **                                                                              | ** ** | ** **                                                     |
|                                                                                    | 4.2.1      | Overdue  Principal, Interest or Other Amounts                  | 16 |
|                                                                                    | 4.2.2      | Payment:                                                       | 17 |
|                                                                                    | 4.3.1      | Nominal Rate  of Interest:                                     | 17 |
|                                                                                    | 4.3.2      | Interest Act  (Canada) Disclosure:                             | 17 |
|                                                                                    |       |                                                           |   |
| **ARTICLE V  PAYMENT, TAXES, INCREASED COSTS, EVIDENCE OF INDEBTEDNESS AND NOTES** | **17**     |
| ** **                                                                              | ** ** | ** **                                                     |
|                                                                                    | 5.2.1      | Order of  Application:                                         | 18 |
|                                                                                         |            |                                                                |  |  |  |  |

 

i

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|                                                           | 5.2.2      | Event of  Default:                           | 18     |
|----------------------------------------------------------------|------------|----------------------------------------------|--------|
|                                                           | 5.3.1      | No set-off;  no withholding:                 | 18     |
|                                                           | 5.3.2      | Increased  Rate of Interest:                 | 19     |
|                                                           | 5.3.3      | Tax Credit:                                  | 19     |
|                                                           | 5.3.4      | Survival of  Obligations:                    | 20     |
|                                                           |       |                                         |   |
| **ARTICLE VI  PREDISBURSEMENT CONDITIONS**                | **20**     |
| ** **                                                     | ** ** | ** **                                   |
|                                                           | 6.1.1      | Conditions  Precedent to Initial Borrowing:  | 20     |
|                                                           | 6.1.2      | Conditions  Precedent to each Borrowing:     | 22     |
|                                                           |       |                                         |   |
| **ARTICLE VII  COVENANTS OF THE BORROWER**                | **23**     |
| ** **                                                     | ** ** | ** **                                   |
|                                                           | 7.1.1      | Payment  Covenant:                           | 23     |
|                                                           | 7.1.2      | Corporate  Existence:                        | 23     |
|                                                           | 7.1.3      | Conduct of  Business and Supply Agreement:   | 23     |
|                                                           | 7.1.4      | Compliance  with Laws:                       | 23     |
|                                                           | 7.1.5      | Insurance:                                   | 23     |
|                                                           | 7.1.6      | Financial  Statements and Information:       | 24     |
|                                                           | 7.1.7      | Access:                                      | 25     |
|                                                           | 7.1.8      | Environmental  Matters:                      | 25     |
|                                                           | 7.1.9      | To Register:                                 | 25     |
|                                                           | 7.1.10     | To Maintain  Security:                       | 25     |
|                                                           | 7.1.11     | Change of Name, New Locations:               | 25     |
|                                                           | 7.2.1      | Negative  Pledge:                            | 26     |
|                                                           | 7.2.2      | Sale of  Assets:                             | 26     |
|                                                           | 7.2.3      | No  Modification to Corporate Structure:     | 26     |
|                                                           | 7.2.4      | Unauthorized  Uses of the Credit Facilities: | 27     |
|                                                           | 7.2.5      | Location of  Charged Property:               | 27     |
|                                                           |       |                                         |
| **ARTICLE VIII  REIMBURSEMENT OF EXPENSES AND INDEMNITY** | **27**     |
| ** **                                                     | ** ** | ** **                                   |
| **ARTICLE IX  OTHER TAXES**                               | **28**     |
| ** **                                                     | ** ** | ** **                                   |
| **ARTICLE X  EVENTS OF DEFAULT**                          | **29**     |
| ** **                                                     | ** ** | ** **                                   |
|                                                           | 10.1.1     | Failure to  Pay:                             | 29     |

 

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|                                                            | 10.1.2                                            | Representations  and Warranties:                                  | 29     |
|-----------------------------------------------------------------|---------------------------------------------------|-------------------------------------------------------------------|--------|
|                                                            | 10.1.3                                            | Other  Breaches:                                                  | 29     |
|                                                            | 10.1.4                                            | Bankruptcy:                                                       | 29     |
|                                                            | 10.1.5                                            | Invalidity  or Unenforceability:                                  | 30     |
|                                                            | 10.1.6                                            | Cross-Default:                                                    | 30     |
|                                                            | 10.1.7                                            | Seizure:                                                          | 31     |
|                                                            | 10.1.8                                            | Change of  ownership:                                             | 31     |
|                                                            | 10.1.9                                            | Ceasing to  carry on business or termination of Supply Agreement: | 31     |
|                                                            |                                              |                                                              |   |
| **ARTICLE XI  REMEDIES**                                   | **32**                                            |
| ** **                                                      | ** **                                        | ** **                                                        |
| **ARTICLE XII  WAIVER OF DEFAULT**                         | **32**                                            |
| ** **                                                      | ** **                                        | ** **                                                        |
| **ARTICLE XIII  SUCCESSORS AND ASSIGNS**                   | **33**                                            |
| ** **                                                      | ** **                                        | ** **                                                        |
| **ARTICLE XIV  SET-OFF**                                   | **33**                                            |
| ** **                                                      | ** **                                        | ** **                                                        |
| **ARTICLE XV  JUDGMENT CURRENCY AND JUDICIAL PROCEEDINGS** | **34**                                            |
| ** **                                                      | ** **                                        | ** **                                                        |
| **ARTICLE XVI  GOVERNING LAW**                             | **35**                                            |
| ** **                                                      | ** **                                        | ** **                                                        |
| **ARTICLE XVII  NOTICE**                                   | **35**                                            |
| ** **                                                      | ** **                                        | ** **                                                        |
| **ARTICLE XVIII  MISCELLANEOUS**                           | **36**                                            |
| ** **                                                      | ** **                                        | ** **                                                        |
| **SCHEDULES**                                                   |
| ** **                                                      | ** **                                        | ** **                                                        |
| **SCHEDULE  1.1(A)**                                            | Borrower  Hypothec                                |                                                              |
|                                                            |                                              |                                                              |
| **SCHEDULE  1.1(B)**                                            | Equipment                                         |                                                              |
|                                                            |                                              |                                                              |
| **SCHEDULE  1.1(C)**                                            | Permitted  Encumbrances                           |                                                              |
|                                                            |                                              |                                                              |
| **SCHEDULE  2.1.5**                                             | Litigation                                        |                                                              |
|                                                            |                                              |                                                              |
| **SCHEDULE  2.1.11**                                            | Locations of  Head Offices and Places of Business |                                                              |
| ** **                                                      |                                              |                                                              |
| **SCHEDULE 2.1.12**                                             | Environmental  Matters                            |                                                              |
| ** **                                                      |                                              |                                                              |
| **SCHEDULE  7.1.1.7**                                           | Closing  Certificate of Compliance                |                                                              |
| ** **                                                      |                                              |                                                              |
|                                                                 |                                                   |                                                                   |        |  |

 

iii

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**THISCREDIT AGREEMENT** dated as of September 4, 2007 is made

 

| **BETWEEN** | **DRAXIS PHARMA, a division of  DRAXIS SPECIALTY PHARMACEUTICALS INC.**, a corporation amalgamated under the laws of Canada and having  its head office at 16751 Trans-Canada Autoroute, Kirkland, Quebec,  Canada, H9H 4J4 (the “**Borrower**”)       |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                       |
| **AND**     | **JOHNSON & JOHNSON  FINANCE CORPORATION**, a corporation  incorporated under the laws of the State of New Jersey and having a  place of business at 501 George Street, New Brunswick,  New Jersey, U.S.A. 08901 (the “**Lender**”) |

 

**WHEREAS** the Borrower has requested the Lender to make Credit Facilitiesavailable to the Borrower of up to US$12,200,000; and

 

**WHEREAS** the Lender has agreed to provide the Aggregate Commitment to theBorrower, subject to the terms and conditions set forth in this Agreement;

 

**WHEREAS**the Borrower, acting in accordancewith the terms of the Supply Agreement, is entitled to receive certain servicefee payments and will apply such payments to repay the Loans;

 

**THEREFORE**, in consideration of the premises, the mutual covenants containedherein and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties agree as follows:

 

**ARTICLE I**

 

**DEFINITIONS**

 

**Section 1.1****                                   Definitions**

 

In thisAgreement and the Schedules, as well as in all notices pursuant to thisAgreement, unless something in the subject matter or context is inconsistenttherewith, the following words and phrases shall have the following meanings:

 

**“Advance”** means a disbursement of funds to the Borrower pursuant to Section 3.4;

 

**“Affiliate”** means with respect to any Person, any other Person which, directlyor indirectly, controls or is controlled by, or is under common control with,such Person, and for the purposes of this definition, **“control”**(including, with correlative meanings, the terms **“controlledby”** and **“under common control with”**)means the power, directly or indirectly to direct or cause the direction of themanagement and policies of any Person, whether through the ownership of sharesor by contract or otherwise; and without restricting the above, one Personshall be deemed to be affiliated with another Person if one of them is theSubsidiary of the other or both are Subsidiaries of the same Person, and if twoPersons are affiliated with the same Person at the same time, they are eachdeemed to be affiliated with each other;

** **

----

 

**“AggregateCommitment”** means the aggregate ofthe Facility A Total Commitment and the Facility B Total Commitment;

 

**“Agreement”** or **“Credit Agreement”** means thiscredit agreement, including the Schedules, as the same may be amended,modified, supplemented or restated from time to time;

 

**“ApplicableLaw”** means, in respect of any Person,property, transaction or event, all present or future applicable laws,statutes, regulations, treaties, judgments and decrees and (whether or nothaving the force of law) all applicable official directives, rules, guidelines,orders and policies of any federal, provincial, state, regional, municipal orlocal governmental or regulatory or administrative bodies having authority overany of the parties hereto and all applicable orders and decrees of courts andarbitrators;

 

**“Assignee”** has the meaning set forth in Section 13.3;

 

**“Auditors”** means a recognized independent firm or recognized independent firmsof reputable chartered or public accountants acceptable to the Lender;

 

**“AvailabilityPeriod”** means the period commencingon the Formal Date and ending on December 31, 2008;

 

**“AvailabilityPeriod Maturity Date”** means the lastday of the Availability Period;

 

**“Borrower”** has the meaning set forth in the description of the parties on thefirst page of this Agreement and includes its successors and permittedassigns;

 

**“BorrowerHypothec”**means that certainfirst-ranking deed of hypothec granted by the Borrower in favour of the Lenderin the amount of Cdn$5,000,000 and charging all of the Borrower’s right, titleand interest in and to the Equipment, as security for the Borrower’sIndebtedness, obligations and liabilities under or in connection withFacility A, in form and substance similar to the deed of hypothec attachedhereto as **Schedule 1.1(A)**, as such deed ofhypothec may be amended, restated, supplemented or otherwise modified from timeto time;

 

**“Borrower’s Account”** meansfor all deposits by the Lender of the proceeds of each Borrowing madehereunder, the following account maintained by the Borrower:

 

**Payto:**

***

**Forcredit to:**

***

 

**Forfinal payment to:**

Draxis Pharma

a division ofDraxis Specialty Pharmaceuticals Inc.

***

 

2

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or such otherplace(s) or account(s) as may be agreed upon by the Lender and theBorrower from time to time;

 

**“Borrowing”** means a utilization, and **“Borrowings”**means the aggregate of the utilizations at the relevant time by the Borrower ofthe Credit Facilities by way of the Loans; the total amount of **“Borrowings”** outstanding at any time is the aggregate amountof all Loans outstanding at that time;

 

“**Bridge Loan**” means the loan in the amount of US$1,200,000made by the Lender in favour of the Borrower pursuant to the terms andconditions of a bridge loan agreement dated as of May 1, 2007 (asamended) between the Borrower and the Lender, a promissory note issued by theBorrower in favour of the Lender on May 1, 2007 (as amended) ***, thewhole in order to finance the acquisition by the Borrower of certain Equipment;

 

**“BusinessDay”** means any day other thanSaturday, Sunday and any other day which, in Montreal, Province of Quebec,Atlanta, Georgia, or New York, New York, is a legal holiday or a day on whichcommercial banks in Montreal, Province of Quebec, Atlanta, Georgia, or NewYork, New York, as the case may be, are required or authorized by law or bylocal proclamation to close;

 

**“CapitalStock”** means any and all shares,interests (including membership interests and partnership interests) or otherequivalents (however designated and whether voting or non-voting) of capitalstock of a corporation, any and all equivalent or similar ownership interestsin a Person (other than a corporation) and any and all warrants or options orother arrangement to purchase any of the foregoing, whether now outstanding orissued after the due date hereof;

 

**“CapitalizedLease”** means, with respect to aPerson, any lease or other arrangement relating to property or assets whichwould be required to be accounted for as a capital lease obligation on abalance sheet of such Person if such balance sheet were prepared in accordancewith GAAP; the amount of any Capitalized Lease at any date shall be the amountof the obligation in respect thereof which would be included within suchbalance sheet;

 

**“ChargedProperty”** means any and all presentand future movable or personal and immovable or real property of the Borrowernow or at any time hereafter affected by the Liens created by the SecurityDocuments;

 

**“Consolidated”** means produced by aggregating the relevant financial statements oraccounts of the Subsidiaries of a Person on a line-by-line basis(i.e.:  adding together corresponding items of assets, liabilities,revenues and expenses) with the relevant financial statements or accounts ofsuch Person, eliminating inter-company balances and transactions and providingfor any minority interest in Subsidiaries, all in accordance with GAAP;

 

**“Counsel”** means, with regard to the Lender, a barrister or solicitor or firmof barristers or solicitors or other legal counsel retained or employed by theLender and with regard to the 

 

3

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Borrower, abarrister or solicitor or firm of barristers or solicitors or other legalcounsel retained or employed by the Borrower and acceptable to the Lender;

 

**“CreditFacilities”** means, collectively, eachof Facility A and Facility B, and **“CreditFacility”** means any one of them;

 

**“Default”** means any event or circumstance which constitutes an Event ofDefault or which, with the giving of notice, the making of any determination orthe lapse of time or any combination thereof, would, unless cured or waived,become an Event of Default;

 

**“DrawdownDate”** means a Business Day notifiedby the Borrower to the Lender pursuant to Section 3.4, as being a date onwhich the Borrower has requested a Borrowing to be made available to theBorrower;

 

**“DRAXISHealth”**means DRAXIS Health Inc., acorporation incorporated under the laws of Canada and having its head office at6870 Goreway Drive, Mississauga, Ontario, Canada, L4V 1P1, andincludes its successors and permitted assigns;

 

**“EnvironmentalAffiliate”** means with respect to anyPerson, another Person whose liability for any Environmental Claim the firstPerson has retained, assumed or otherwise become liable for, eithercontractually or by operation of law. All references to compliance by or liabilities of an EnvironmentalAffiliate herein pertain only to those specific liabilities that the Borrowerhas retained, assumed, or become liable for and not to the entire business ofthe Environmental Affiliate;

 

**“EnvironmentalClaims”** means any and all materialadministrative, regulatory or judicial actions, suits, demands, demand letters,claims, liens, notices of non-compliance or violation, investigations orproceedings relating in any way to any Environmental Law or any EnvironmentalPermit (hereinafter in this definition, **“Claims”**)including without limitation:

 

(a)                                  any and all Claims by governmental or regulatory authorities forenforcement, cleanup, removal, response, remedial or other actions or damagespursuant to any applicable Environmental Law, and

 

(b)                                 any and all Claims by any third party, including a citizens group oremployee, seeking damages, contribution, indemnification, cost recovery,compensation or injunctive relief in connection with Hazardous Materials orarising from alleged injury or threat of injury to health, safety or theenvironment or alleging non compliance with any Environmental Law;

 

**“EnvironmentalLaws”** means all Applicable Lawsrelating to pollution or protection of human health, Hazardous Materials or theenvironment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata, emissions, discharges, releases orthreatened releases of Hazardous Materials, or otherwise relating to themanufacture, processing, distribution, use, treatment, storage, disposal,transport or handling of Hazardous Materials);

 

4

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**“EnvironmentalPermit”** means any permit, approval,identification number, license or other authorization required under anyEnvironmental Law;

 

**“Equipment”**means any and all now owned and hereafter acquired manufacturing andrelated equipment of the Borrower to be used by the Borrower for the purpose ofmanufacturing the Products, including, without limitation, the Equipmentdescribed in **Schedule 1.1(B)**;

 

**“Eventof Default”** means any of the eventsor circumstances set out in Section 10.1;

 

**“FacilityA”** means the term credit facilitymade available to the Borrower by the Lender pursuant to Section 3.2;

 

**“FacilityA Total Commitment”** means a maximumof US$4,200,000, to the extent not cancelled, reduced or otherwise terminatedas herein provided;

 

**“FacilityB”** means the term credit facilitymade available to the Borrower by the Lender pursuant to Section 3.2;

 

**“FacilityB Total Commitment”** means a maximumof US$8,000,000, to the extent not cancelled, reduced or otherwise terminatedas herein provided;

 

**“FacilityTotal Commitment”**means, asapplicable, the Facility A Total Commitment or the Facility B TotalCommitment;

 

**“FederalFunds Effective Rate”** means, for anyday, an interest rate per annum equal to the weighted average of the rates onovernight federal funds transactions with members of the Federal Reserve Systemin the United States of America arranged by federal funds brokers, as publishedfor such day (or if such day is not a Business Day, for the next precedingBusiness Day) by the Federal Reserve Bank of New York, or, if such rate is notso published for any day which is a Business Day in New York City, N.Y.,U.S.A., the average of the quotations for such day in respect of suchtransactions received by the Lender from three federal funds brokers ofrecognized standing selected by it;

 

**“FormalDate”** means the date set forth in Section 18.10;

 

**“GAAP”** means generally accepted accounting principles in effect from timeto time in Canada, applicable to the relevant period, applied in a consistentmanner from period to period;

 

**“Hazardous Materials”** meansany contaminant, pollutant or substance that causes harm or degradation to thesurrounding environment or injury to human health and, without restricting thegenerality of the foregoing, includes any pollutant, contaminant, waste,hazardous waste, deleterious substance or dangerous good present in suchquantity or state that it contravenes any Environmental Laws or gives rise toany liability or obligation under any Environmental Law;

 

**“Indebtedness”** of any Person means, without duplication, (in each case, whethersuch obligation is with full or limited recourse):

 

5

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(a)                                  all debts and liabilities of such Person which in accordance withGAAP would be recorded in determining total liabilities shown on the liabilitysection of the balance sheet of such Person,

 

(b)                                 all obligations of such Person evidenced by a bond, debenture, noteor other similar instrument,

 

(c)                                  all obligations of such Person to pay the deferred purchase price ofproperty or services (except a trade account payable that arises in theordinary course of business) or the balance of payments due in respect ofacquisitions or investments,

 

(d)                                 all obligations of such Person as lessee under a Capitalized Lease,

 

(e)                                  all obligations of such Person to reimburse any other Person inrespect of amounts drawn or drawable under any letter of credit or under anybankers’ or trade acceptance issued by such other Person, whether contingent ornon-contingent,

 

(f)                                    all obligations of such Person to purchase, redeem, retire, decreaseor otherwise make any payment in respect of any Capital Stock of or otherownership or profit interest in such Person or any other Person, valued, in thecase of redeemable preferred stock, at the greater of its voluntary orinvoluntary liquidation preference plus accrued and unpaid dividends,

 

(g)                                 all obligations of such Person under securities lending agreementsand securities repurchase or reverse repurchase agreements;

 

(h)                                 all obligations of such Person to repurchase or buy back goods soldto another Person in connection with, or in support of, financing granted by alender or other financier to such other Person;

 

(i)                                     all Indebtedness of others secured by a Lien on any asset of suchPerson, and

 

(j)                                     all Indebtedness of others guaranteed by such Person;

 

**“Indemnitees”** has the meaning set forth in Section 8.2;

 

**“ITA”** means the Income Tax Act (Canada) and the regulations promulgatedthereunder, as amended, supplemented or re-enacted from time to time;

 

**“JJCCI”** means Johnson & Johnson Consumer Companies, Inc. andincludes its successors and permitted assigns;

 

**“JudgmentConversion Date”** has the meaning setforth in Section 15.1;

 

**“JudgmentCurrency”** has the meaning set forthin Section 15.1;

 

6

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** **

**“Lender”**has the meaning set forth in the description of the parties on thefirst page of this Agreement and includes its successors and assigns;

 

**“Lender’sAccount for Payments”** means, for allpayments from the Borrower to the Lender pursuant to the terms and conditionshereof, the following account maintained by the Lender, to which payments andtransfers are to be effected as follows:

 

***

***

or such other place(s) oraccount(s) as may be agreed upon by the Lender and the Borrower from timeto time;

 

**“Lien”** means any hypothec, security interest, mortgage, pledge, priorclaim, lien, claim, charge, cession, transfer, assignment or encumbrance ofwhatever kind or nature (including servitudes and restrictions as to the use ofproperty) that secures the payment of any Indebtedness or liability or theobservance or performance of any obligation, including any title retentionagreement, lessor’s interest under a Capitalized Lease or analogous instrumentin, of, or on any asset or property or the income or profits therefrom of aPerson;

 

**“Loan Documents”** means this Agreement, each of the Security Documents and eachdocument, certificate, instrument or agreement entered into or to be enteredinto in respect of the Credit Facilities by or between the Borrower and theLender, as same may from time to time be amended, restated, supplemented orotherwise modified and **“Loan Document”**means any of the foregoing individually;

 

**“Loans”** means at any given time, the aggregate of the loans made availableby the Lender to, or to the order of, the Borrower under the Credit Facilitiesand **“Loan”** means any one of them;

 

**“Losses”** shall have the meaning set forth in Section 8.2;

 

**“Material Adverse Effect”** means any event, development or circumstance which has had or wouldreasonably be expected to have:

 

(a)                                  a material adverse effect on the business, assets, properties,operations or condition (financial or otherwise) of the Borrower, or

 

(b)                                 a material adverse effect on the ability of the Borrower to timelypay any amounts due under the Loan Documents or to fulfil any other covenant orobligation of a material nature arising under the Loan Documents, or

 

(c)                                  a material adverse effect on the validity or enforceability of anyof the Loan Documents or the rights and remedies of the Lender under any of theLoan Documents;

 

7

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**“Maturity Date”** means, in respect of Facility A and Facility B, the lastday of the Repayment Period;

 

**“Obligations”** means all obligations, indebtedness and liabilities (monetary orotherwise, present or future, direct or indirect, due or to become due, whetherabsolute or contingent, matured or unmatured) of the Borrower arising under orin connection with any Loan Document;

 

**“Permitted Encumbrances”** means the encumbrances on assets of the Borrower listed in **Schedule 1.1(C)**;

 

**“Person”** or **“Persons”** has the meaning setforth in Section 1.4;

 

**“Premises”** means the premises of the Borrower consisting of its productionfacilities located at 16751 TransCanadaHighway, Montreal, Quebec, and its secondary facilities in the Province ofQuebec, at which all of the Equipment shall be installed for thepurpose of manufacturing the Products;

 

**“Products”**means any and all products from time to time manufactured by theBorrower and delivered to JJCCI pursuant to the terms and conditions of theSupply Agreement;

 

**“Properties”** means the real or immovable properties now or hereafter owned oroccupied by the Borrower;

 

**“PurchaseMoney Lien”** means:

 

(a)                                  any Lien created, issued or assumed to secure Indebtedness or atrade account arising in the ordinary course of business, in each case in aprincipal amount not in excess of the value of the underlying property, grantedas security as a part of, or issued or incurred to provide funds to pay, thepurchase price of any real or immovable property or personal or movableproperty, provided that such Lien is limited to the property so acquired and iscreated, issued or assumed substantially concurrently with the acquisition ofsuch property; and

 

(b)                                 any renewal, refunding or extension of any such Lien securingIndebtedness or a trade account arising in the ordinary course of business, ineach case in a principal amount not in excess of the unpaid principal amount ofthe Indebtedness or trade account secured thereby immediately prior to suchrenewal, refunding or extension;

 

**“Repayment Period”** means the period commencing on the day immediately after theAvailability Period Maturity Date and ending on the fifth (5th)anniversary of such day;

 

**“Repayment Schedule”**means the repayment schedule in respect of the repayment by theBorrower to the Lender during the Repayment Period of all amounts owing underor in connection with the Credit Facilities, including, without limitation, theprincipal amount of all outstanding Borrowings under Facility A andFacility B, the interest and fees related thereto and all other amountsowing hereunder or under any other Loan Document, such repayment schedule toprovide for a lump sum payment by the Borrower to the Lender in December 2008in an 

 

8

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amount to be mutually agreedupon between the parties and the balance of all of the aforesaid amounts owingunder or in connection with the Credit Facilities to be due and payable by theBorrower to the Lender in equal consecutive monthly instalments on the fifth (5th)day of each calendar month during the Repayment Period;

 

**“Schedules”** means the schedules to this Agreement as the same may be amended,modified, supplemented or restated from time to time pursuant to the terms ofthis Agreement;

 

**“Security Documents”** means, collectively, the Borrower Hypothec****andany other security granted from time to time in favour of the Lender assecurity for the obligations of the Borrower under this Agreement and the otherLoan Documents, as same may be from time to time amended, restated,supplemented or otherwise modified from time to time;

 

**“Subsidiary”** means, with respect to any Person, any other Person **(a) **Capital Stock of which having ordinary voting powerto elect a majority of the board of directors (or other person having similarfunctions) or **(b) **other ownership interestsof which ordinarily constituting a majority voting interest are at the time,directly or indirectly, owned or controlled by such first Person, or by one ormore of its Subsidiaries, or by such first Person and one or more of itsSubsidiaries; unless otherwise specified, **“Subsidiary”**means a direct or indirect Subsidiary of DRAXIS Health;

 

**“Supply Agreement”** means that certain Manufacture and Supply Agreement dated as of September 4, 2007 between theBorrower and JJCCI, as same may be amended, restated, supplemented or otherwisemodified from time to time;

** **

**“Tax”** includes all present and future taxes, levies, imposts, stamptaxes, duties, charges to tax, fees, deductions, withholdings and anyrestrictions or conditions resulting in a charge to tax and all penalty,interest and other payments on or in respect thereof, imposed, assessed, leviedor collected under the laws of any country or any political subdivision thereofor by any governmental agency or body or taxing authority thereof;

 

**“Termination Date”** means the date all Obligations are indefeasibly paid in full incash and the Aggregate Commitment is permanently terminated;

 

**“US Dollars”**, **“Dollars”** the symbols **“US$”** and **“$”**, **“United States Dollars”** and **“lawfulmoney of the United States”** each means lawful currency of the UnitedStates of America  in immediatelyavailable funds; and

 

**“US Prime Rate”** in effect on any day means the greater of **(a) **theUS Prime Rate for corporate loans, as published in *The WallStreet Journal* for such day; and **(b) **therate of interest per annum that is the annual rate of interest equal to the sumof the Federal Funds Effective Rate then in effect plus 1⁄2 of 1 % perannum, as adjusted from time to time without notice to the Borrower; theparties hereto acknowledge that the **“US Prime Rate”**is an index rate and is not necessarily intended to be the lowest or best rateof interest charged to other customers in connection with extensions of credit.

 

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**Section 1.2**                                   Headingsand Table of Contents

 

The headings of the Articles,Sections, Subsections or paragraphs herein and the table of contents areinserted for convenience of reference only and shall not affect theconstruction or interpretation of this Agreement.

 

**Section 1.3**                                   References

 

Unless the context otherwiserequires or unless otherwise provided, all references to Sections, Subsections,Articles and Schedules are to Sections, Subsections, and Articles of andSchedules to, this Agreement.  The words **“hereto”**, **“herein”**, **“hereof”**, **“hereunder”** andsimilar expressions mean and refer to this Agreement.

 

**Section 1.4**                                   Rules ofInterpretation

 

In this Agreement, unless thecontext otherwise requires or unless otherwise provided,

 

(a)                                  the singular includes the plural and vice versa,

 

(b)                                 **“month”** means acalendar month,

 

(c)                                  **“person”** or **“Person”** includes any individual, sole proprietorship,corporation, partnership, trust, unincorporated organization, mutual company,joint stock company, limited liability company, or other entity, estate, union,employee organization, government or any agency or political subdivisionthereof, and

 

(d)                                 **“in writing”** or **“written”** includes printing, typewriting or any electronicmeans of communication capable of being legibly reproduced at the point ofreception, including telecopier or telegraph, but excluding electronic mail.

 

**Section 1.5**                                   AccountingTerms and Computations

 

Each accounting term used inthis Agreement has the meaning assigned to it under GAAP unless otherwisedefined herein and reference to any balance sheet item or income statement itemmeans such item as computed from the applicable statement prepared inaccordance with GAAP.

 

All financial statementsrequired to be delivered hereunder shall be made and prepared in accordancewith GAAP consistently applied throughout the periods involved.

 

**Section 1.6**                                   Time

 

Except where otherwiseindicated in this Agreement, any reference to a time shall mean local time in the City of Montreal, Province ofQuebec.

** **

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**ARTICLE II**

 

**REPRESENTATIONS AND WARRANTIES**

 

**Section 2.1**                                   Representationsand Warranties of the Borrower

 

The Borrower represents andwarrants to the Lender that:

 

**2.1.1**                                             **Existence; Power:  **the Borrower **(a) **is acorporation which is duly amalgamated, validly existing and in good standingunder the laws of its jurisdiction of amalgamation and in any otherjurisdiction in which the failure to qualify would reasonably be expected tohave a Material Adverse Effect, **(b) **isduly qualified and has the necessary corporate power and authority **(i) **to execute, deliver, and perform its obligationsunder each of the Loan Documents, and **(ii) **tocarry on its business and **(c) **holdsall requisite governmental licenses, permits and other approvals the failure tohold which would reasonably be expected to have a Material Adverse Effect;

 

**2.1.2**                                             **Subsidiaries:  **all of the outstanding Capital Stock of the Borrower is owned,directly or indirectly, by DRAXIS Health;

 

**2.1.3**                                             **Authorization and Enforceability:  **the execution, delivery and performance by the Borrower of thisAgreement and the other Loan Documents have been duly authorized by allnecessary actions and each of this Agreement and the other Loan Documentsconstitutes (or when executed and delivered will constitute) valid and legallybinding obligations of the Borrower enforceable against the Borrower inaccordance with its terms, except as enforceability may be limited byapplicable bankruptcy, insolvency, reorganization, moratorium or similar lawsrelating to or affecting creditors’ rights generally and by the effect of theprinciples of equity;

 

**2.1.4**                                             **Breach:  **neitherthe execution and delivery of this Agreement or other Loan Documents by theBorrower nor compliance with the terms and provisions hereof or thereof will:

 

(a)                                  conflict with, violate, or result in a breach of any of the terms,conditions or provisions of any Applicable Law binding on or affecting theBorrower, or any order, injunction, decree, determination or award of any courtor any governmental department, body, commission, board, bureau, agency orinstrumentality applicable to the Borrower, in each case which would reasonablybe expected to have a Material Adverse Effect,

 

(b)                                 conflict with, violate, result in a breach of, or constitute adefault under, **(i) **any charter or by-lawprovision of the Borrower or **(ii) **tothe extent that failure to so comply would reasonably be expected to have aMaterial Adverse Effect, any loan agreement, loan or trust indenture, trustdeed, or any other similar agreement or instrument to which the Borrower is aparty or by which it is bound, or

 

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(c)                                  result in the creation of a Lien upon any of the properties, assetsor revenues of the Borrower (other than in favour of the Lender under theSecurity Documents);

 

**2.1.5**                                             **Litigation:  **save as disclosed in **Schedule 2.1.5**,there are no actions, suits or arbitration proceedings and there are no legalproceedings (including without limitation insolvency proceedings andEnvironmental Claims) pending or, to the knowledge of the Borrower, threatened,involving the Borrower before any court or administrative agency or tribunal ofany country or jurisdiction which, separately or in the aggregate, wouldreasonably be expected to have a Material Adverse Effect;

 

**2.1.6**                                             **Compliance with Applicable Laws:  **the Borrower and its businesses and operations are in compliancewith all Applicable Laws, the non-compliance with which would reasonably beexpected to have a Material Adverse Effect;

 

**2.1.7**                                             **Governmental Consents; No RequiredFiling:  **no consent, authorization orapproval or other action by, and no notice to or filing or registration with,any governmental authority or regulatory body is required which has not beenobtained for the due execution, delivery and performance by the Borrower ofthis Agreement or the other Loan Documents or to ensure the legality, validity,binding nature and enforceability thereof, except for registrations required inrespect of the Security Documents;

 

**2.1.8**                                             **Taxes:  **theBorrower has filed when due with the appropriate governmental agencies all taxreturns, reports and statements required to be filed by the Borrower and haspaid when due all Taxes due and payable on or before the due date thereof(other than Taxes, the payment of which is being contested in good faith byappropriate proceedings and in respect of which adequate reserves have been madein the books of the Borrower) and, in the case of Taxes not yet due or payable,has made adequate provision for such Taxes in its books and records inaccordance with GAAP, except where the failure to make such filings, pay suchTaxes or provide such reserves would not reasonably be expected to have aMaterial Adverse Effect;

 

**2.1.9**                                             **Financial Statements:  (a) **the audited Consolidated and unaudited unconsolidated financialstatements of DRAXIS Health and its Subsidiaries for the fiscal year ended December 31, 2006 and theunaudited Consolidated and unconsolidated financial statements of DRAXIS Healthand its Subsidiaries for the fiscal quarter ended June 30, 2007 which have been provided to theLender prior to the Formal Date are complete and present fairly, in accordancewith GAAP, the Consolidated and unconsolidated financial position of DRAXISHealth and its Subsidiaries at such date and the Consolidated results ofoperations, retained earnings and, as applicable, changes in financial positionor cash flows of DRAXIS Health and its Subsidiaries, for such fiscal year and **(b) **since December 31,2006, there has been no change in the Consolidated financialcondition of DRAXIS Health and its Subsidiaries from that set forth in the saidConsolidated financial statements which would reasonably be expected to have aMaterial Adverse Effect;

 

**2.1.10**                                      **No Event of Default:  **there exists no Default or Event of Default and the Borrower is notin default under any material undertaking, agreement or instrument in respect of

 

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Indebtednessof the Borrower which default would reasonably be expected to have a MaterialAdverse Effect;

 

**2.1.11**                                      Ownershipof Property; Location of Places of Business; Liens:

 

(a)                                  the Borrower has good and marketable title to all of its propertyexcept where the failure to have such title would not reasonably be expected tohave a Material Adverse Effect, and all of the Charged Property is free andclear of all Liens, except Permitted Encumbrances;

 

(b)                                 **Schedule 2.1.11** setsforth, in respect of the Borrower, the location of **(i) **itschief executive office, head office and/or registered office **(ii) **its other places of business and **(iii) **all locations where it shall keep, maintain,consign or store the Charged Property;

 

(c)                                  once executed and duly registered,the Security Documents shall create in favour of theLender a first ranking Lien on the properties and assets purported to becharged thereunder.

 

**2.1.12**                                      **Environmental Matters:  **except as set forth in **Schedule 2.1.12** hereto, to the best knowledge andbelief of the Borrower after due enquiry:

 

(i)                                     the use of any contaminant, wastematerial (hazardous or other) or other substance on the Properties and theemission, transportation or disposal of such substances in or onto theProperties into the environment or by or allowed by the Borrower or any of itsEnvironmental Affiliates or by prior occupants of the Properties has at alltimes been effected in compliance with all applicable Environmental Laws;

 

(ii)                                  the operations and activities of theBorrower and its Environmental Affiliates and the use of the Properties by theBorrower and its Environmental Affiliates including the construction andmodification of any building or equipment on the Properties have been effectedin compliance with all applicable Environmental Laws and Environmental Permits;

 

(iii)                               no contaminant, waste material(hazardous or other) or other substance has been released or spilled into theenvironment from the Properties which has not been cleaned up in conformitywith all applicable Environmental Laws and to the satisfaction of theappropriate authorities;

 

(iv)                              there are no pending or threatenedEnvironmental Claims against the Borrower or any of its EnvironmentalAffiliates;

 

(v)                                 neither the Borrower nor any of itsEnvironmental Affiliates is undertaking, and has not completed, eitherindividually or together with other potentially responsible parties, anyinvestigation or assessment or remedial or response action relating to any actualor threatened release, discharge or disposal of Hazardous Materials at any ofthe Properties or any other site, location or operation, either 

 

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voluntarilyor pursuant to the order of any governmental or regulatory authority or therequirements of any Environmental Law; and all Hazardous Materials generated,used, treated, handled or stored at, or transported to or from, any Propertiesor any property formerly owned or operated by the Borrower or any of itsEnvironmental Affiliates have been disposed of in a manner not reasonablyexpected to result in material liability to the Borrower or any of itsEnvironmental Affiliates;

 

with the exception of any matter or mattersthat could not reasonably be expected to, separately or in the aggregate, havea Material Adverse Effect;

 

**2.1.13**                                      **No Stamp Tax:  **neither this Agreement nor any other Loan Document is subject to anyexecution, stamp or similar tax; and

 

**2.1.14**                                      **Insurance:  **theBorrower maintains insurance coverage as is customary for companies operatingin a business similar to that of the Borrower, all in conformity with therequirements of Section 7.1.5 and all premiums and other sums of moneycurrently payable for that purpose have been paid.

 

**Section 2.2**                                   Materialityand Survival of Warranties

 

All representations andwarranties of the Borrower contained herein, and in each other Loan Document orin any certificate or material delivered to the Lender hereunder or pursuant toany of the other Loan Documents shall be deemed to have been relied upon by theLender notwithstanding any investigation heretofore or hereafter made by theLender or by its Counsel or by any other representative of the Lender and allsuch representations and warranties shall be deemed to be given on the date ofthis Agreement and, except for the representations and warranties set forth in Section 2.1.9(which shall be read as if they referred to the most recent financialstatements delivered to the Lender pursuant to Section 7.1.6), on eachDrawdown Date with the same effect, subject to and to the extent consistentwith the transactions contemplated hereby, as if made at and as of each suchdate by reference to the facts and circumstances then prevailing.

 

**ARTICLE III**

 

**THECREDIT FACILITIES**

 

**Section 3.1**                                   Obligationsof the Lender

 

Relying on each of therepresentations and warranties set out in Article II and subject to theterms and conditions herein contained, the Lender agrees to make the AggregateCommitment available to the Borrower.

 

**Section 3.2**                                   FacilitiesA and B

 

The Lender hereby establishesin favour of the Borrower Facility A and Facility B, beingnon-revolving term credit facilities. The Borrower may request Borrowings from the Lender 

 

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under Facility A andFacility B during the Availability Period only in an aggregate principalamount not to exceed the Facility A Total Commitment and theFacility B Total Commitment, respectively, and to be disbursed by way ofseveral Advances during the Availability Period, subject to the terms andconditions of this Agreement.  The amountof any Borrowings under Facility A or Facility B which is repaid maynot be reborrowed.  Any amount of theFacility A Total Commitment or the Facility B Total Commitment thatis undrawn by the Borrower as of the Availability Period Maturity Date shallautomatically be cancelled and shall no longer be available for Borrowings andthe Lender’s Facility Total Commitments shall be reduced accordingly.

 

**Section 3.3**                                   Purposesof Advances

 

Facility A shall be usedby the Borrower solely to finance the acquisition and installation in thePremises of the Equipment. Facility B shall be used by the Borrower solely to finance the costof transfer of the technology required for the pre-validation work at thePremises in support of the manufacture by the Borrower of the Products.

 

**Section 3.4**                                   Mannerof Borrowing

 

Subject to the provisions ofthis Agreement and provided no Default or Event of Default has occurred and iscontinuing (without having been cured or waived as provided herein), theBorrower may from time to time during the Availability Period requestBorrowings from the Lender up to the amount of the Facility A TotalCommitment or Facility B Total Commitment, as the case may be, which mustbe in a minimum amount of US$250,000, and in whole multiples of US$50,000, inexcess thereof, upon **(i) **givingirrevocable written notice to the Lender at least by 12:00 noon fifteen(15) Business Days prior to the Drawdown Date, specifying the amount of theproposed Borrowing, the Business Day of the proposed Borrowing and theapplicable Credit Facility and **(ii) **providingthe Lender with the commercial invoices and such other supporting documentationin respect of the proposed Borrowing as the Lender may reasonably request, andsubject to the terms hereof, the Lender shall make each Advance available tothe extent that on the relevant Drawdown Date, the Aggregate Commitmentremaining unadvanced and uncancelled hereunder and, as appropriate, the amountremaining unadvanced and uncancelled under the applicable Facility TotalCommitment is, in each case, then sufficient to allow for the requestedBorrowing.

 

**Section 3.5**                                   MandatoryRepayment of Borrowings under the Credit Facilities

 

During the Availability Period, there shallbe no scheduled payments of principal or interest in respect of Borrowingsunder Facility A or Facility B, but interest shall accrue from day today on the outstanding balance of such Borrowings in accordance with Section 4.1and such accrued interest shall be capitalized and added to the outstandingbalance of such Borrowings as of the Availability Period Maturity Date.  Upon the expiry of the Availability Period,the Lender shall 

forthwith provide the Borrower with the RepaymentSchedule.  During the Repayment Period,all amounts owing under or in connection with the Credit Facilities, including,without 

 

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limitation, the principal amount of alloutstanding Borrowings under Facility A and Facility B (including,for greater certainty, the capitalized interest set forth above), the interestand fees related thereto and all other amounts owing hereunder or under anyother Loan Document shall be fully and finally paid by the Borrower to theLender in accordance with and on the dates specified by the Repayment Scheduleand no later than the Maturity Date, whereupon the Credit Facilities shall bepermanently cancelled and the Lender’s commitment in respect of the CreditFacilities shall automatically be reduced to zero and terminated. In addition,all amounts owing under or in connection with the Credit Facilities shall berepaid by the Borrower upon termination of the Supply Agreement.***

 

**Section 3.6**                                   Depositof Proceeds of Loans

 

The Lender shall deposit theproceeds of each Borrowing made by the Borrower on a Drawdown Date to theBorrower’s Account.

 

**Section 3.7**                                   BridgeLoan

 

The parties hereto acknowledgeand agree that as of the Formal Date, the Bridge Loan, consisting of US$1,200,000principal amount and US$27,369.86 accrued interest, shall be deemed to be anoutstanding Loan under Facility A of this Agreement, the whole withoutnovation.

 

**ARTICLE IV**

 

**INTEREST**

 

**Section 4.1**                                   Intereston the Loans

 

The rate of interest applicableto each outstanding Borrowing shall be the rate per annum equal to the US PrimeRate in effect on the Drawdown Date in respect of such Borrowing less 0.75%until the date at which the Lender provides the Borrower with the RepaymentSchedule.  Thereafter, the rate ofinterest applicable to each outstanding Borrowing shall be the rate per annumequal to the US Prime Rate in effect on the date at which the Lender providesthe Borrower with the Repayment Schedule less 0.75%.  Such interest shall accrue from day to dayfrom the applicable Drawdown Date until the date on which repayment in full ofeach Borrowing is received by the Lender, shall be payable in arrears inaccordance with this Agreement and shall be calculated on the daily outstandingbalance of each Borrowing on the basis of the actual number of days elapsed(including the first day but excluding the last day of any period of timeduring which such Loans are outstanding) in a year of 365 or 366 days, as thecase may be.

 

**Section 4.2**                                   Intereston Overdue Amounts

 

**4.2.1**               **Overdue Principal,Interest or Other Amounts  (a) **Upon a default in thepayment of principal due under this Agreement, the Borrower shall pay intereston all such principal at a 

 

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rate per annumequal to the interest rate which would otherwise be applicable to suchprincipal if it were not in default, increased, to the fullest extent permittedby Applicable Law, by 2% per annum, and **(b) **upon adefault in the payment of interest or any other amounts due under thisAgreement or any of the other Loan Documents, the Borrower shall pay intereston such overdue interest or other amounts at a rate per annum equal to the ratewhich would be applicable to a Borrowing if it were requested on the due dateof such interest or other amounts, increased, to the fullest extent permittedby Applicable Law, by 2% per annum;

 

**4.2.2**               **Payment:  **in**each** case under Section 4.2.1,interest shall be payable on demand and shall be calculated on a daily basisand compounded monthly from the date such amount becomes due and payable for solong as such amount remains unpaid and on the basis of a year of 365 or 366days, as the case may be.

 

All interest provided for inthis Agreement shall be payable both before and after maturity, default andjudgment.

 

**Section 4.3**                                   Computationof Interest for Interest Act (Canada) Purposes

 

**4.3.1**               **Nominal Rate ofInterest:  **Unless otherwise stated, wherever in thisAgreement reference is made to a rate of interest **“per annum”**or a similar expression is used, such interest shall be calculated on the basisof a calendar year of 365 or 366 days, as the case may be, and using thenominal rate method of calculation and shall not be calculated using theeffective rate method of calculation or  anyother basis that gives effect to the principle of deemed reinvestment ofinterest; and

 

**4.3.2**               **Interest Act (Canada)Disclosure:  **for the purpose of the Interest Act (Canada)and disclosure thereunder, whenever interest to be paid hereunder is to be calculatedon the basis of a year of 360 days or any other period of time that is lessthan a calendar year, the yearly rate of interest to which the rate determinedpursuant to such calculation is equivalent is the rate so determined multipliedby the actual number of days in the calendar year in which the same is to beascertained and divided by either 360 or such other period of time, as the casemay be.

 

**ARTICLE V**

 

**PAYMENT,TAXES, INCREASED COSTS, EVIDENCEOF INDEBTEDNESS AND NOTES**

 

**Section 5.1**                                   Placeof Payment of Principal, Interest and Charges

 

Except as otherwisespecifically provided herein, all payments of principal, interest, additionalinterest, fees and other charges to be made by the Borrower to the Lenderpursuant to this Agreement shall be made for value on the day such amount isdue or, if such day is not a Business Day, on the Business Day next following,by electronic transfer of moneys to the appropriate Lender’s Account forPayments.  Any amounts received by theLender from the Borrower after 12:00 noon on any Business Day shall be appliedon the next following Business Day to the appropriate payment, repayment orprepayment due on such day.  Until soapplied,

 

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 interest shall continue to accrue as providedin this Agreement on the amount of such payment, repayment or prepayment.

 

**Section 5.2**                                   Applicationof Payments

 

**5.2.1**                                             **Order of Application:  **All payments made by or on behalf of the Borrower pursuant to thisAgreement prior to the occurrence of an Event of Default shall be applied bythe Lender in the following order:

 

(a)                                  to amounts due pursuant to Section 8.1, as and by way ofexpenses,

 

(b)                                 to amounts due pursuant to Section 8.2, as and by way ofindemnity,

 

(c)                                  to amounts due pursuant to Section 4.2, as and by way ofdefault interest on overdue amounts,

 

(d)                                 to amounts due pursuant to Section 4.1, as and by way ofinterest,

 

(e)                                  to amounts due pursuant to Section 3.5 as and by way ofprincipal, and

 

(f)                                    in payment of any other amounts then due and payable by the Borrowerhereunder or under any of the other Loan Documents;

 

**5.2.2**                                             **Event of Default:  **after the occurrence and during the continuance of an Event ofDefault, all payments made by or on behalf of the Borrower pursuant to thisAgreement and the other Loan Documents and all sums received or realized onaccount of amounts owing hereunder or under the other Loan Documents shall bepaid to and be appropriated and applied proportionately by the Lender towardsthe obligations of the Borrower under all Credit Facilities as the Lender maydecide and any such appropriation and application shall override anyappropriations or applications made by the Borrower.

 

**Section 5.3**                                   Mannerof Payment and Taxes

 

**5.3.1**                                             **No set-off; no withholding:  **The Borrower shall make all payments to the Lender pursuant to thisAgreement and the other Loan Documents to which it is a party without set-off,compensation or counterclaim, free and clear of, and exempt from, and withoutdeduction for or on account of, any Tax except to the extent required byApplicable Law.  If a deduction orwithholding is required by Applicable Law, the Borrower shall:

 

(a)                                  pay or cause to be paid to the appropriate authority the amount ofthe withholding or deduction by no later than the latest date permitted by thatauthority (including any extension of time granted by that authority) or, inthe case of a Tax the payment of which is being contested prior to the date onwhich such Tax is due and payable, by no later than the date on which theauthority requires the Tax to be paid,

 

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(b)           Produce to the Lender notlater than 30 days after that payment a receipt of that authority evidencingthat it has received the proper amount from the Borrower,

 

(c)           pay such sums to the Lenderas may be necessary so that the net amount received by the Lender after allrequired deductions or withholdings (including deductions and withholdings foror on account of Taxes on any sums payable under this Section) will not be lessthan the amount the Lender would have received had no such deduction or withholdingbeen required, and

 

(d)           if any Tax based on ormeasured by the overall net income of the Lender is payable with respect to theadditional payments under paragraph (c) above, promptly following writtenrequest by the Lender accompanied by adequate supporting calculation (whichshall be evidence of the amount of incremental Taxes herein referred to, in theabsence of manifest error), the Borrower shall pay to the Lender an additionalamount equal to the Tax payable by the Lender;

 

**5.3.2**               **Increased Rate ofInterest:  **ifthe Borrower is prevented by operation of law or otherwise from paying orcausing to be paid to the Lender such sums as it may be required to pay inaccordance with Section 5.3.1, the applicable rates of interest or amountdue will be increased to the rates or amount necessary to yield and to remit tothe Lender the net amount in the appropriate currency equal to the full amountit would have received had such Tax not been so deducted or withheld;

 

**5.3.3**               **Tax Credit:  **if, as a result of any deduction orwithholding the Borrower makes any payment of any additional amountsto the Lender under sections 5.3.1 and 5.3.2 and the Lender, in its sole reasonable opinion, determines that it hasreceived or has been granted a credit against, or relief, or remission for, orrepayment of any tax paid or payable by it in respect of or which takes accountof the deduction, withholding or other matter giving rise to such payment, theLender will, to the extent it determines that it can do so without prejudice tothe retention of the amount of such credit, relief, remission or repayment,promptly after the time at which the Lender actually received the benefit ofthe relevant credit, relief, remission or repayment, as determined by it, payto the Borrower such amount as the Lender, in its sole reasonable opinion,determines to be attributable to such deduction or withholding or other matterand which will leave it (after such payment) in a position which it determinesto be no better or worse than it would have been if the Borrower had not beenrequired to make such deduction or withholding or if such other matter had notarisen, provided however, that the Borrower shall indemnify and hold harmlessthe Lender against any disallowance of any credit, relief, remission orrepayment in respect of which the Lender has made a payment to the Borrower.Nothing herein contained shall **(a) **interferewith the right of the Lender to arrange its taxes or other affairs in whatevermanner it may think fit, **(b) **obligethe Lender to disclose any information relating to its taxes or other affairsor any other computation thereof, **(c) **requirethe Lender to do anything that it may determine would or may prejudice itsability to benefit from any other credit, relief or remission for or repaymentto which it may be entitled, or **(d) **requirethe Lender to give any priority as to

 

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theorder in which it may allocate to any Person or class of Persons any suchcredit, relief, remission or repayment.

 

**5.3.4**               **Survival of Obligations:  **theobligations of the Borrower under this Section 5.3 to effect payments offurther sums in connection with the imposition of Taxes shall, if such sums orTaxes have not been paid, survive the payment of principal and interest on allthe Borrowings, the termination of the Aggregate Commitment and thesatisfaction of all other liabilities owed to the Lender pursuant to the LoanDocuments.

 

**Section 5.4****            Evidenceof Indebtedness**

 

The Lendershall open and maintain in its books, accounts and records evidencing theBorrowings made available by the Lender under this Agreement.  The Lender shall record therein the amount ofeach Borrowing made available by it by way of Loans and shall record thereineach payment of principal on account thereof and shall record all other amountsbecoming due to the Lender under this Agreement, including interest and allpayments on account thereof.  Suchaccounts and records maintained by the Lender will constitute, in the absenceof manifest error, prima facie evidence of the Indebtedness and otherliabilities of the Borrower owing to the Lender pursuant to this Agreement, thedate of each Borrowing made available by the Lender and the amount thereof andthe amounts which and the dates on which the Borrower has made payments to theLender  from time to time on account ofthe principal thereof and interest thereon.

 

Notwithstandingthe foregoing, the omission of the Lender to maintain any such accounts orrecords, or any error therein, shall not in any manner affect the obligation ofthe Borrower to repay (with applicable interest and fees) the Borrowings inaccordance with the terms of this Agreement.

 

**ARTICLE VI**

**PREDISBURSEMENT CONDITIONS**

 

**Section 6.1****            PredisbursementConditions**

 

The obligationof the Lender to make available to the Borrower the initial and subsequentBorrowings hereunder is subject to and conditional upon each of the followingterms and conditions first having been satisfied:

 

**6.1.1**               **Conditions Precedent to Initial Borrowing:  **the satisfaction of each of the terms and conditions hereinafter setforth and, as the case may be, delivery to the Lender, in form and substancesatisfactory to the Lender, of:

 

6.1.1.1             a duly executed copy of this Agreement,

 

6.1.1.2             a duly executed copy of the Supply Agreement,

 

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6.1.1.3             a duly certified copy of the constating documents and by-laws of theBorrower certified by a responsible officer of the Borrower, accompanied bygood standing or equivalent certificates issued by the appropriate governmentalbody of the Borrower’s jurisdiction of incorporation and principal place ofbusiness,

 

6.1.1.4             a duly certified copy of a resolution or resolutions of the board ofdirectors relating to the authority of the Borrower to execute and deliver andperform its obligations under the Loan Documents and all other instruments,agreements, certificates and papers and other documents provided for orcontemplated by the Loan Documents and the manner in which and by whom theforegoing documents are to be executed and delivered, certified by aresponsible officer of the Borrower,

 

6.1.1.5             a certificate of the Borrower setting forth specimen signatures ofthe individuals authorized to sign on its behalf the Loan Documents and theinstruments, agreements, certificates, papers and other documents provided foror contemplated by the Loan Documents,

 

6.1.1.6             a certificate of compliance of the Chief Financial Officer of theBorrower in form and substance substantially as set forth in **Schedule 7.1.1.7** confirming the accuracy of therepresentations and warranties contained herein, the absence of any Default orEvent of Default and that since the date of the most recent quarterlyConsolidated and unconsolidated financial statements of DRAXIS Health and theBorrower, there has been no change in the financial condition of DRAXIS Healthor the Borrower which could have a Material Adverse Effect,

 

6.1.1.7             in the case of any Borrowing under Facility B, a writtenstatement from JJCCI confirming that the pre-validation work that has beencarried out at the Premises in support of the manufacture by the Borrower ofthe Products is in accordance with the terms and conditions of the SupplyAgreement;

 

6.1.1.8             the favourable opinions of Counsel to the Borrower, as to the statusand capacity of the Borrower, its authority and legal right to enter into andperform its obligations under this Agreement, as to the validity, bindingeffect and enforceability against it of this Agreement and as to such othermatters as the Lender may reasonably require,

 

6.1.1.9             results of current searches of public records under all applicablejurisdictions relating to Lien filings and registrations disclosing no Liens onthe Charged Property other than Permitted Encumbrances;

 

6.1.1.10           confirmation from Draxis Health that the hypothec referred to inparagraph (f) of Schedule 1.1(c) Permitted Encumbrances, issubordinated

 

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to the rights of the Lender under the SecurityDocuments on terms and conditions satisfactory to the Lender;

 

6.1.1.11           copiesof certificates of insurance evidencing the enforceability and theeffectiveness of all insurance covering the Borrower and required to bemaintained by the Borrower pursuant to Section 7.1.5 and evidencing theinsurance referred to above naming the Lender as additional insured and, ifappropriate, as loss payee and notices acknowledged by the Borrower’s insurersnotifying such insurers of the security granted by the Borrower to the Lenderunder the Security Documents;

 

6.1.1.12           a duly executed copy of the Borrower Hypothec and evidence of thedue registration, recording or filing of the Borrower Hypothec in alljurisdictions necessary to protect or perfect the Liens created thereby; and  thefavourable opinions of Counsel to the Borrower, as to the status and capacityof the Borrower, its authority and legal right to enter into and perform itsobligations under the Security Documents, as to the validity, binding effectand enforceability against it of the Security Documents, and as to theperfection of the Liens created under the Security Documents in favour of theLender.

 

6.1.1.13           such other documentation as may be reasonably required by theLender;

 

**6.1.2**               **Conditions Precedent to each Borrowing:  **the obligation of the Lender to make any Borrowing available to anyBorrower is subject to the following conditions:

 

6.1.2.1             the representations and warranties of the Borrower contained in thisAgreement shall be true and correct as at each Drawdown Date, other than therepresentations and warranties set forth in Section 2.1.9 (which shall beread as if they referred to the most recent financial statements delivered tothe Lender pursuant to Section 7.1.6),

 

6.1.2.2             the Lender shall have received the timely notice of Borrowingrequired pursuant to Section 3.4,

 

6.1.2.3             no Default or Event of Default shall have occurred and be continuing(provided that if any Default or Event of Default shall have been waived asprovided herein, such Default or Event of Default shall not be deemed to existor continue in respect of the particular instance having been waived or duringthe waiver period, as applicable),

 

6.1.2.4             in the case of any Borrowing under Facility B, a writtenstatement from JJCCI confirming that the pre-validation work that has beencarried out at the Premises in support of the manufacture by the Borrower ofthe Products is in accordance with the terms and conditions of the SupplyAgreement, and

 

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6.1.2.5             the sum of the aggregate outstanding principal amount of all Loans **(i) **under Facility A does not exceed theFacility A Total Commitment; **(ii) **underFacility B does not exceed the Facility B Total Commitment; and **(iii) **under Facility A and Facility B doesnot exceed the Aggregate Commitment.

 

**Section 6.2****            Waiverof Conditions Precedent**

 

The terms andconditions of Section 6.1 are inserted for the sole benefit of the Lenderand may be waived by the Lender, in whole or in part, with or without terms orconditions, in respect of all or any portion of the Borrowings withoutprejudicing the rights of the Lender to assert such terms and conditions inwhole or in part in respect of any other Borrowing.

 

**ARTICLE VII**

**COVENANTSOF THE BORROWER**

 

**Section 7.1****            AffirmativeCovenants of the Borrower**

 

While anyamount remains outstanding under the Loan Documents or the Lender has anyobligations under any of the Loan Documents or the Lender has any commitmenthereunder, the Borrower covenants and agrees with the Lender that, unlessotherwise consented to in writing by the Lender:

 

**7.1.1**               **Payment Covenant:  **it will duly and punctually pay all sums of money due and payable byit under the terms of this Agreement and any other Loan Document at the timesand places, in the currencies, and in the manner specified;

 

**7.1.2**               **Corporate Existence:  **subject to Section 7.2.3, it will do or cause to be done allthings necessary to preserve and maintain its corporate or other existence and,if applicable and to the extent the absence or loss thereof would reasonably beexpected to have a Material Adverse Effect, all of its other franchises,licenses, rights, privileges, consents, government approvals and otherapprovals;

 

**7.1.3**               **Conduct of Business and Supply Agreement:  **it will **(i) **conductits business in a proper and efficient manner in accordance with normalindustry standards, **(ii) **keepproper books or records and accounts and **(iii) **performall its obligations under the Supply Agreement;

 

**7.1.4**               **Compliance with Laws:  **it will comply with all Applicable Laws, including withoutlimitation, all Environmental Laws, non-compliance with which would reasonablybe expected to have a Material Adverse Effect, and obtain and maintain allnecessary material Environmental Permits the lack of which would reasonably beexpected to have a Material Adverse Effect;

 

**7.1.5**               **Insurance**:**  **itwill:

 

(a)           maintain with financially sound, independent and reputable insurerspolicies of insurance covering the full risk of loss of the Charged Property,and that

 

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name the Lender as loss payee and include amortgage clause acceptable to the Lender,

 

(b)           duly and punctually pay or cause to be paid the premiums and othersums of money payable in connection with such insurance,

 

(c)           after an Event of Default has occurred and while such Event ofDefault is continuing, hold separate from all other funds, all insuranceproceeds received. The Borrower will make an offer to the Lender to repay theoutstanding loan with the received insurance proceeds,

 

(d)           promptly deliver to the Lender from time to time upon reasonablerequest such information relating to the insurances required to be maintainedunder this Section 7.1.5, including the entire insurance policies or, atthe discretion of the Lender, insurers’ certificates of insurance addressed tothe Lender confirming that such insurance is in effect and that the Lender mayrely on such certificates;

 

**7.1.6**               **Financial Statements andInformation:  **itwill furnish or cause to be furnished to the Lender:

 

(a)           ***Quarterly Financial Statements***:  as soon as practicable and in any event within45 days after the close of each quarterly accounting period in each fiscalyear of DRAXIS Health, the unaudited Consolidated balance sheets of DRAXISHealth and the related Consolidated statements of income, retained earnings andcash flows for such quarterly period and for the elapsed portion of the fiscalyear ended with the last day of such quarterly period, setting forth in each casein comparative form the figures for the corresponding periods of the previousfiscal year, subject to normal year-end auditing adjustments, as well as theunconsolidated unaudited financial statements of the Borrower;

 

(b)           ***Year-End Financial Statements; Accountants’Certificate***:  as soon as availableand in any event within 90 days after the end of each fiscal year ofDraxis Health:

 

(i)            the audited Consolidated balance sheet of DRAXIS Health as at theend of such fiscal year and the related Consolidated statements of income,retained earnings and cash flows for such fiscal year, setting forth incomparative form the figures as at the end of and for the previous fiscal year,accompanied by an audit report of the Auditors, which report shall include anopinion of such Auditors which opinion shall not be qualified in any materialrespect and shall state that such financial statements were prepared inaccordance with GAAP and that the audit by such Auditors in connection withsuch financial statements has been made in accordance with generally acceptedauditing standards, and

 

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(ii)           the unconsolidated and unaudited financial statements of theBorrower, together with the consolidating work sheet incorporating all theSubsidiaries of DRAXIS Health, the whole prepared in accordance with GAAP;

 

(c)           ***Requested Information***:  from time to time and promptly upon request of theLender, such information regarding the Loan Documents or the loans, business,assets, liabilities, financial condition, results of operations or businessprospects of the Borrower as the Lender may reasonably request;

 

(d)           ***Notice of Defaults and Material Adverse Effect***:  promptly after the Borrower obtains knowledge of anyevent or condition specified hereunder, notice of any Default or Event ofDefault or event or circumstance which has had or would reasonably be expectedto have a Material Adverse Effect.

 

**7.1.7**               **Access:  **it will permit the Lenderand any Person designated in writing from time to time by the Lender including,without limitation, independent accountants, at the Borrower’s expense, onreasonable written notice and at such reasonable time or times as will notinterfere with the normal operations of the Borrower **(a) **tovisit and inspect any of the properties of the Borrower where the ChargedProperty is located or that otherwise relate to this Agreement or the otherLoan Documents, **(b) **to discuss the affairs,finances and accounts of the Borrower that relate to this Agreement or theother Loan Documents with its officers and **(c) **toexamine the books of account, records, reports and other documents of theBorrower that relate to this Agreement or the other Loan Documents;

 

**7.1.8**               **Environmental Matters:  **it willcomply with Section 18.03 of the Supply Agreement;

 

**7.1.9**               **To Register:  **it will, at itsexpense, cooperate to the extent necessary to register the Security Documentswithout delay, at every office where the registration or recording thereof mayfrom time to time, in the reasonable opinion of Counsel to the Lender, be ofmaterial advantage in preserving and protecting the interests of the Lender,and to assist the Lender in such ways as may be necessary to allow the Lenderto register any renewals thereof;

 

**7.1.10**             **To Maintain Security:  **it will do,observe and perform or cause to be done, observed and performed, at is expense,all of its obligations and all matters and things necessary or expedient to bedone, observed and performed by virtue of Applicable Laws for the purpose ofcreating, perfecting or maintaining the Liens once created under the SecurityDocuments as valid, effective and perfected, first priority Liens over all theCharged Property (subject only to Permitted Encumbrances) and includingobtaining necessary consents in relation thereto from time to time; and

 

**7.1.11**             **Change of Name, NewLocations****:  **itwill advise the Lender in writing not less than 30 days before the Borrower

 

(a)           makes any change to itsname or

 

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(b)           changes the location of itschief executive office, head office or principal place of business or acquiresany new places of business, other than those set forth in **Schedule 2.1.11**;

 

Before anysuch change of name or of such location or before any acquisition of anotherplace of business (whether by purchase, lease or otherwise) by the Borrower,the Borrower shall provide the Lender with such financing statements, charges,assignments, hypothecs, security interests, other Security Documents and legalopinions as the Lender may reasonably require in order to assure and maintainperfected, first priority Liens on the Charged Property, and to assure accessthereto.

 

**Section 7.2            NegativeCovenants of the Borrower**

 

While anyamount remains outstanding under the Loan Documents or the Lender has anyobligations under any of the Loan Documents or the Lender has any commitmenthereunder, the Borrower covenants and agrees with the Lender that:

 

**7.2.1**               **Negative Pledge:  **it will not,directly or indirectly, at any time, assume, create, incur or suffer to existany Lien upon any of the Charged Property, whether now owned or hereafteracquired, or upon any income or profits therefrom, other than PermittedEncumbrances;

 

**7.2.2**               **Sale of Assets:  **it will not sell,alienate, assign, lease or otherwise dispose of any of the Charged Property,whether now owned or possessed or hereafter acquired or possessed, or enterinto any sale and leaseback transaction with respect to any of the ChargedProperty, or, except as provided in the Supply Agreement, grant any option orother right to purchase, lease or otherwise acquire any of the ChargedProperty;

 

**7.2.3**               **No Modification toCorporate Structure:  **itwill not, directly or indirectly, **(A) **wind-up,liquidate or dissolve its business, affairs or assets or enter into anytransaction of reorganization, amalgamation, merger or consolidation, orconvey, sell, lease or otherwise dispose of all or any substantial part of itsbusiness, property or assets (or agree to do any of the foregoing at any futuretime) except that the Borrower may merge into, reorganize with, liquidate into,amalgamate with or convey, lease or transfer all or substantially all of itsassets to any other Person, provided that, immediately after giving effect tothe transaction, **(w) **no event or circumstanceshall have occurred and be continuing which constitutes a Default or Event ofDefault, **(x) **the resulting entity or thePerson which acquires such assets is bound by the provisions of the LoanDocuments by operation of law or pursuant to an agreement in form and substancesatisfactory to the Lender, **(y) **theLender receives an opinion of counsel acceptable to the Lender confirming thatthe resulting entity or the Person which acquires such assets is bound by theLoan Documents and **(z) **therights and remedies of the Lender under the Loan Documents are not adverselyaffected by such transaction, **(B) **modifythe corporate structure of the Borrower in any manner which may be adverse tothe rights and interests of the Lender or **(C) **modifythe constating documents of the Borrower in any manner which may be adverse tothe rights and interests of the Lender;

 

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**7.2.4**               **Unauthorized Uses of theCredit Facilities:  **itwill not use the Credit Facilities or any proceeds of Borrowings for anypurpose other than in accordance with Section 3.3;

 

**7.2.5**               **Location of ChargedProperty:  **itwill not move any of the Charged Property to any location other than those setforth in **Schedule 2.1.11.**

 

**ARTICLE VIII**

**REIMBURSEMENT OF EXPENSES AND INDEMNITY**

 

**Section 8.1****            Reimbursementof Expenses**

 

The Borrowerwill reimburse the Lender within 30 days after written request is made,with interest after such 30 day period at a rate per annum equal to the rate ofinterest that would apply to a Borrowing made at such time increased by 2% perannum for any and all expenditures which the Lender may from time to time make,lay out or expend in providing protection in respect of insurance, discharge ofLiens, Taxes, dues, assessments, governmental charges, fines and penaltieslawfully imposed, repairs, Counsel’s fees and other matters as the Borrower isobligated in the Loan Documents to provide, but fail to provide after writtenrequest is made.  Such obligations toreimburse the Lender shall be an additional indebtedness due from the Borrowerand shall be payable by the Borrower within 30 days after demand.  The Lender though permitted so to do shall beunder no obligation to the Borrower to make any such expenditure and the makingthereof by the Lender shall not relieve the Borrower of any default in thatrespect.

 

**Section 8.2****            Indemnity**

 

Whether or nota Default or an Event of Default has occurred, the Borrower solidarilycovenants and undertakes to indemnify, defend, protect and hold harmless theLender, its Affiliates and their respective directors, officers, employees,advisors and agents (collectively, the **“Indemnitees”**)against and from all losses, damages (including punitive damages), expenses,liabilities, obligations, penalties, actions, judgments, suits, claims, costs,expenses and disbursements (including reasonable Counsel’s and consultants’fees and disbursements) (hereinafter, **“Losses”**) whichany Indemnitee may sustain or incur as a consequence of or in connection with(including, without limitation, in connection with any investigation,litigation or proceeding or preparation of a defence in connection therewith):

 

(a)           any use made by theBorrower or proposed to be made by the Borrower of the proceeds of the CreditFacilities,

 

(b)           the occurrence of a Defaultor an Event of Default,

 

(c)           the Loan Documents or anytransaction contemplated thereby, or

 

(d)           the actual or allegedpresence of Hazardous Materials on, under or in any Properties or the escape,seepage, leakage, spillage, discharge, emission or release from, any Propertyor into or upon any land, the atmosphere, or any watercourse, body of water orwetland,

 

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of any Hazardous Materials or anyEnvironmental Claim relating to the Borrower or any of the Properties orarising out of the use of any of the Properties,

 

in each caseexcept to the extent such Losses are found in a final non-appealable judgmentby a court of competent jurisdiction to have resulted from such Indemnitee’sgross fault or intentional fault.

 

In the case ofan investigation, litigation or proceeding to which the indemnity described inthis Section 8.2 applies, such indemnity shall be effective whether or notsuch investigation, litigation or proceeding is brought by the Borrower, itsshareholders, Affiliates or creditors or an Indemnitee, or an Indemnitee isotherwise a party thereto.  The Borrowerfurther agrees that no Indemnitee shall have any liability (whether direct orindirect, in contract or tort or otherwise) to the Borrower or any of itsSubsidiaries or Affiliates or its security holders or creditors arising out of,related to or in connection with the Credit Facilities, except for direct, asopposed to consequential or punitive, damages determined in a finalnon-appealable judgment by a court of competent jurisdiction to have resultedfrom such Indemnitee’s gross fault or intentional fault.

 

**Section 8.3****            Survivalof Indemnification Obligations**

 

Withoutprejudice to the survival or termination of any other agreement of the Borrowerunder the Loan Documents, the provisions of and undertakings andindemnification set forth under Section 8.1 and Section 8.2 shallsurvive the payment of principal and interest on all Borrowings, thetermination of the Aggregate Commitment and the satisfaction of all otherliabilities owed to the Lender pursuant to the Loan Documents.

 

**ARTICLE IX**

**OTHER TAXES**

 

**Section 9.1****            OtherTaxes**

 

The Borrowercovenants and agrees that it will pay any documentary, stamp or other Taxes(including interest and penalties) which may be payable or determined to bepayable by any governmental or taxation authority in respect of the executionand delivery of the Loan Documents to which it is a party or the performance ofthe terms and provisions of such Loan Documents, and will save the Lenderharmless against any loss or liability resulting from non-payment or delay inpayment of any such documentary, stamp or other Taxes.

 

**Section 9.2****            Survivalof Obligations**

 

The obligationof the Borrower under Section 9.1 to pay the Taxes referred to thereinshall, if such Taxes have not been paid, survive the payment of principal andinterest on all Borrowings, the termination of the Aggregate Commitment and thesatisfaction of all other liabilities owed to the Lender pursuant to the LoanDocuments.

 

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**ARTICLE X**

**EVENTS OF DEFAULT**

 

**Section 10.1****         Events of Default**

 

The occurrenceof any one or more of the following events or circumstances shall constitute anEvent of Default under this Agreement:

 

**10.1.1**             **Failure to Pay:  **anypayment of principal of or interest on any of the Loans or of fees or any otheramounts owing under the Loan Documents shall not be made when and as due(whether at maturity, by reason of notice of prepayment or acceleration orotherwise) and in accordance with the terms of this Agreement and, except inthe case of payments of principal, such failure shall continue for three (3) BusinessDays;

 

**10.1.2**             **Representationsand Warranties:  **any representation or warranty made by the Borrower in any of theLoan Documents shall prove at any time to have been materially incorrect ormisleading in any material respect, as at the date made or deemed to have beenmade;

 

**10.1.3**             **Other Breaches:  **theBorrower shall default in the performance or observance of or failure inrespect of:

 

(a)           anyterm, covenant, condition or agreement contained in Section 7.2 (otherthan Section 7.2.1),

 

(b)           anyterm, covenant, condition or agreement contained in Section 7.2.1 and suchdefault shall continue unremedied for a period of three (3) Business Daysafter the earlier of the date on which **(y) **theBorrower shall have actual knowledge of such default and **(z) **noticeshall have been given by the Lender to the Borrower requiring that such defaultbe cured.

 

(c)           anyterm, covenant, condition or agreement contained in this Agreement (other than Section 7.1.1or Section 7.2 or any other term, covenant, condition or agreement adefault in the performance or observance of which is elsewhere in this Section 10.1specifically dealt with) or any other Loan Document and such default, ifcapable of being remedied within the hereinafter mentioned 30-day period, shallcontinue unremedied for a period of 30 days after the earlier of the dateon which **(y) **the Borrower shall have actualknowledge of such default and **(z) **noticeshall have been given by the Lender to the Borrower requiring that such defaultbe cured; or

 

(d)           makingan offer under Section 7.1.5(c);

 

**10.1.4**             Bankruptcy:

 

(a)           *Voluntary*:  the Borrower shall **(i) **commenceany proceedings (including a notice of intention or a proposal under theBankruptcy and Insolvency Act

 

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(Canada) and an application for a compromiseor arrangement under the Companies’ Creditors Arrangement Act (Canada) or anysuccessor or equivalent legislation), **(ii) **filea petition seeking to take advantage of any other laws, domestic or foreign,relating to bankruptcy, insolvency, reorganization, winding up or compositionor adjustment of debts, **(iii) **consentto or fail to contest in a timely and appropriate manner any petition filedagainst it in any proceedings or involuntary case under such bankruptcy laws orother laws, **(iv) **apply for, or consentto, or fail to contest in a timely and appropriate manner, the appointment of,or the taking of possession by, a receiver, custodian, trustee, liquidator orthe like of itself or of a substantial part of its assets, domestic or foreign,**(v) **admit in writing its inabilityto pay, or generally not be paying, its debts (other than those that are thesubject of bona fide disputes) as they become due, **(vi) **makea general assignment for the benefit of creditors, or **(vii) **takeany corporate or partnership or other action for the purpose of effecting anyof the foregoing; or

 

(b)           *Involuntary*:  **(i) **anyproceedings or case shall be commenced against the Borrower seeking **(y) **relief under the laws referred to above inparagraph **(a) **of this Section 10.1.4(as now or hereafter in effect) or under any other laws, domestic or foreign,relating to bankruptcy, insolvency, reorganization, winding up or compositionor adjustment of debts, or **(z) **theappointment of a trustee, receiver, custodian, liquidator or the like of theBorrower, and such proceedings or case shall continue undismissed and unstayedfor a period of 60 days, or **(ii) **anorder granting the relief requested in such proceedings or case against theBorrower shall be made, granted or entered;

 

**10.1.5**             **Invalidity orUnenforceability:  **a court of competent jurisdiction shall render a judgment or order,or any law, ordinance, decree or regulation shall be enacted, the effect ofwhich is to render any material provision of the Loan Documents invalid, notbinding or unenforceable or any Loan Document shall cease to be in full forceand effect and valid and enforceable, provided that if such matter is (in thesole opinion of the Lender) capable of being remedied, the Borrower shall havefailed, within 30 days thereafter, to furnish or cause to be furnished tothe Lender replacement documents evidencing and, where applicable, securing theIndebtedness under the Loan Documents which are adequate in the opinion of theLender;

 

**10.1.6**             **Cross-Default:  **theBorrower fails to observe or perform any term, covenant or agreement under theSupply Agreement or the Borrower fails to pay when due or upon demand, in thecase of monies payable on demand, or at maturity, or within any applicableperiod of grace, any Indebtedness in an amount or amounts in the aggregate inexcess of US$5,000,000 (or the equivalent amount thereof in other currencies),or fails to observe or perform any term, covenant or agreement by which it isbound evidencing or securing any Indebtedness in an amount or amounts in theaggregate in excess of US$5,000,000 (or the equivalent amount thereof in othercurrencies) and, as a result, the holder or holders, or beneficiary orbeneficiaries, thereof or of any such obligations issued thereunder cause orare entitled to cause the acceleration of the maturity thereof or of any suchobligations;

 

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**10.1.7**             **Seizure:  **anencumbrancer takes possession of any part of the assets of the Borrower havingan aggregate value in excess of US$5,000,000 or a seizure, distress orexecution, or notice of intention to exercise a hypothecary or secured right orany similar process is levied, filed or enforced thereagainst and remainsunsatisfied for a period of 20 days, in respect of personal or movableproperty, or 30 days, in respect of real or immovable property, except ifsuch seizure, distress, execution, notice of intention or other similar processis an interim process prior to judgment in which case the cure period shall be30 days, in respect of personal or movable property, or 60 days, inrespect of real or immovable property;

 

**10.1.8**             **Change of ownership:  (a) **except as permitted under Section 7.2.3, DRAXIS Health ceasesto own, either directly or indirectly all of the outstanding Capital Stock ofthe Borrower or **(b) **a change of control ofDRAXIS Health occurs whereby the holders of DRAXIS Health’s Capital Stockimmediately before such change of control transaction cease to own at least 50%plus one of the outstanding voting rights (on a fully diluted basis) in respectof DRAXIS Health’s Capital Stock immediately after such change of controltransaction; or

 

**10.1.9**             **Ceasing tocarry on business or termination of Supply Agreement:  (a) **the Borrower ceases or threatens to cease to carry on in theordinary course its business or a substantial part thereof, except as theresult of a reorganization permitted by Section 7.2.3 or **(b) **the Supply Agreement is terminated, with cause, byJJCCI.

 

**Section 10.2****         Acceleration**

 

Upon theoccurrence and during the continuance of any Event of Default other than onedescribed in Section 10.1.4, the Lender may declare the AggregateCommitment to be terminated and reduced to zero and thereby terminate the rightof the Borrower to apply for further Borrowings, and in addition the Lender mayby written notice to the Borrower declare all Indebtedness and liabilities ofthe Borrower outstanding to the Lender hereunder to be immediately due andpayable without presentation, presentment, demand, protest or other notice ofany kind, all of which are expressly waived by the Borrower, provided that theAggregate Commitment and the right of any Borrower to apply for furtherBorrowings shall automatically be terminated and all Indebtedness andliabilities of the Borrower to the Lender outstanding hereunder shall beimmediately due and payable without any written notice to the Borrower as providedabove and without any other presentation, presentment, demand, protest or othernotice of any kind if an Event of Default has occurred in respect of theBorrower pursuant to Section 10.1.4. In such event, the Borrower shall pay immediately to the Lender allamounts owing or payable by it under this Agreement and the other LoanDocuments.  ***

 

**Section 10.3****         Notices**

 

Save asotherwise expressly provided for herein, no notice or mise en demeure of anykind shall be required to be given to the Borrower by the Lender for thepurpose of putting the Borrower in default, the Borrower being in default bythe mere lapse of time allowed for the performance of an obligation or by themere happening of an event or circumstance constituting an Event of Default.

 

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**ARTICLE XIREMEDIES**

** **

**Section 11.1****         Remedies Cumulative**

 

Subject to Section 12.1and for greater certainty, it is expressly understood and agreed that therights and remedies of the Lender under this Agreement or any other LoanDocument are cumulative and are in addition to and not in substitution for anyrights or remedies provided by law; any single or partial exercise by theLender of any right or remedy for a default or breach of any term, covenant, conditionor agreement herein contained shall not be deemed to be a waiver of or toalter, affect or prejudice any other right or remedy or other rights orremedies to which the Lender may be lawfully entitled for the same default orbreach, and any waiver by the Lender of the strict observance, performance orcompliance with any term, covenant, condition or agreement herein contained,and any indulgence granted by the Lender, shall be deemed not to be a waiver ofthat or any subsequent default.

 

The Lender may,to the extent permitted by Applicable Law, bring suit at law, in equity orotherwise for any available relief or purpose including but not limited to **(a) **the specific performance of any covenant oragreement contained in this Agreement or in any other document given pursuantto or incidental to this Agreement, **(b) **aninjunction against a violation of any of the terms hereof or thereof, **(c) **the exercise of any power granted hereby or therebyor by law, or **(d) **obtaining and enforcingjudgment for any and all amounts due in respect of the Borrowings or amountsotherwise due hereunder or under any documents given in connection with thisAgreement or the other Loan Documents.

 

**ARTICLE XIIWAIVER OF DEFAULT**

 

**Section 12.1****         Waiver of Default**

 

(a)           If atany time after the occurrence of an Event of Default, the Borrower offers tocure completely all Events of Default and to pay all expenses, advances anddamages to the Lender  consequent on suchEvent of Default, with interest at the rates then applicable to the respectiveoutstanding Borrowings, then the Lender may, but shall not be obligated to,accept such offer and payment, but such action shall not affect any subsequentEvent of Default or impair any rights consequent thereon;

 

(b)           nowaiver by the Lender of any Event of Default shall in any way be, or beconstrued to be, a waiver of any future or subsequent Event of Default, to theextent permitted by Applicable Law; and

 

(c)           noEvent of Default may be waived or discharged orally but (in each case) only byan instrument in writing signed by the Lender.

 

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**ARTICLE XIIISUCCESSORS AND ASSIGNS**

 

**Section 13.1****         Benefit and Burden of this Agreement**

 

This Agreementshall inure to the benefit of and be binding on the parties hereto, theirrespective successors and any permitted assignees or transferees of some or allof the parties’ rights or obligations hereunder.

 

**Section 13.2****         Assignment by the Borrower**

 

The Borrowershall not assign or transfer all or any part of its rights or obligationshereunder or under the other Loan Documents without the prior written consentof the Lender.

 

**Section 13.3****         Assignment by the Lender**

 

The Lender may, at no cost to the Borrower,assign all or any part of its rights to, and may have its obligations inrespect of the Credit Facilities assumed by any other Person (the **“Assignee”**); provided that no such assignment may beeffected to a Person other than an Affiliate of the Lender without the writtenconsent of the Borrower, which consent in each case shall not be unreasonablywithheld, and provided further that **(i) **notwithstandingthe foregoing, the Lender may, without the consent of the Borrower, assign allor part of its rights or obligations under the Loan Documents to any of itsAffiliates and **(ii) **if an Event of Defaultshall have occurred and not been waived, such consent from the Borrower shallnot be required.  Subject to theforegoing, an assignment shall become effective when the Borrower has beennotified of it by the Lender and has received from the Assignee an undertaking(addressed to the Lender and the Borrower) to be bound by this Agreement and toperform the obligations assigned to it. Any such Assignee shall be and be treated as the Lender for all purposesof this Agreement, shall be entitled to the full benefit hereof and of all theLoan Documents and shall be subject to the obligations hereunder to the sameextent as if it were an original party in respect of the rights or obligationsassigned to it, and the Lender shall be released and discharged accordingly andto the same extent.

 

**Section 13.4****         Disclosure**

 

The Lender maydisclose to any prospective Assignee, on a confidential basis, such informationconcerning the Borrower as it considers appropriate.

 

**ARTICLE XIVSET-OFF**

 

**Section 14.1****         Set-off**

 

The Lender isauthorized (but not obligated) at any time or from time to time, either beforethe occurrence of a Default or an Event of Default or thereafter, withoutnotice to the Borrower or to

 

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any otherPerson, any such notice being expressly waived by the Borrower, to set off,compensate and apply any Indebtedness, obligation or liability at any timeowing or payable by the Lender to or for the credit of or the account of theBorrower against and on account of the Indebtedness, obligations andliabilities of the Borrower owing or payable to the Lender under this Agreementor the other Loan Documents, irrespective of currency (which may be convertedfor this purpose at the**“rate of exchange”**as set forth in Section 15.1) and of whether or not the Lender has madeany demand under this Agreement or the other Loan Documents and whether or notthese obligations and liabilities of the Borrower, or any of them, havematured.  Any such set-off by the Lender,as contemplated by the prior sentence, shall constitute complete satisfactionof the applicable obligation or liability owing to the Borrower by the Lenderon a dollar for dollar basis.  Theprovisions of this Section 14.1 shall not restrict such rights as theLender may be entitled to without relying upon the provisions of thisAgreement.

 

**ARTICLE XVJUDGMENT CURRENCY AND JUDICIAL PROCEEDINGS**

 

**Section 15.1****         Judgment Currency**

 

If for thepurpose of obtaining judgment in any court in any jurisdiction with respect toany Loan Document, it becomes necessary to convert into the currency of suchjurisdiction (herein called the **“Judgment Currency”**)any amount due hereunder in any currency other than the Judgment Currency, thenconversion shall be made at the rate of exchange prevailing on the Business Daypreceding **(a) **the date of actual payment ofthe amount due, in the case of proceedings in the courts of any jurisdictionthat will give effect to such conversion being made on such day, or **(b) **the day on which the judgment is given, in the caseof proceedings in the courts of the Province of Quebec or of any otherjurisdiction (the applicable date as of which such conversion is made pursuantto this Section being hereinafter called the **“Judgment ConversionDate”**).  For this purpose, **“rate of exchange”** means the rate at which the Bank ofCanada would be prepared on the relevant date to sell the currency of theamount due hereunder against the Judgment Currency.  In the event that there is a change in therate of exchange prevailing between the Judgment Conversion Date and the dateof payment of the amount due, the Borrower will, on the date of payment, paysuch additional amounts (if any) as may be necessary to ensure that the amountpaid on such date is the amount in the Judgment Currency which, when convertedat the rate of exchange prevailing on the date of payment, is the amount thendue under the relevant Loan Document in US Dollars.  Any additional amount due under this Section 15.1will be due as a separate debt and shall not be affected by judgment beingobtained for any other sums due under or in respect of this Agreement or anyother Loan Document.

 

**Section 15.2****         Judicial Proceedings**

 

Any judicialproceeding brought against the Borrower with respect to any claim or disputerelated to this Agreement may be brought in any court of competent jurisdictionin the City of Montreal, Province of Quebec, and, by execution and delivery ofthis Agreement, the Borrower, to the extent permitted by Applicable Law, **(a) **accepts generally and unconditionally, and submitsto the nonexclusive jurisdiction of such courts and any related court of appealand

 

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irrevocablyagrees to be bound by any final judgment rendered thereby in connection withany claim or dispute related to this Agreement and **(b) **irrevocablywaives any objection it may now or hereafter have as to any such proceedinghaving been brought in such a court or that such a court is an inconvenientforum.  Nothing herein shall limit theright of the Lender to bring proceedings against the Borrower in the courts ofany other jurisdiction.  **THE BORROWER AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY****JUDICIAL PROCEEDING INVOLVING ANY CLAIM OR DISPUTERELATED TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.**

 

**ARTICLE XVIGOVERNING LAW**

 

**Section 16.1****         Governing Law**

 

The partiesagree that this Agreement is conclusively deemed to be made under, and for allpurposes to be governed by and construed in accordance with, the laws of theProvince of Quebec and federal laws of Canada applicable therein.

 

**ARTICLE XVIINOTICE**

 

**Section 17.1****         Address for Notice**

 

Unlessotherwise provided in this Agreement, any demand, request or notice to be givenunder this Agreement shall be given by delivering the same or by mailing, byregistered mail, postage prepaid or by telecopying the same, addressed **(a) **in the case of the Borrower, as indicated oppositeits name on the signature pages of this Agreement and **(b) **inthe case of the Lender, as indicated opposite its name on the signature pages ofthis Agreement, or **(c) **tosuch other address as may be notified by any party to the others pursuant to Section 17.2.  The parties agree that any and all reports tobe provided by the Borrower to the Lender pursuant to the terms and conditionsof this Agreement may also be sent by electronic transmission to a designatedrepresentative of the Lender.

 

**Section 17.2****         Notice**

 

Any suchdemand, request or notice sent as aforesaid shall be deemed to have beenreceived by the party to whom it is addressed **(a) **uponreceipt, if delivered or sent by registered mail, **(b) **iftelecopied before 3:00 p.m. on a Business Day, on that day provided aclear transmission report is received by the sender and if telecopied after3:00 p.m. on a Business Day, on the Business Day next following the dateof transmission, provided, however, that in the event normal mail service ortelecopier service shall be interrupted by strike, force majeure or othercause, then the party sending the demand, request or notice shall utilize anyother mode of communication which shall ensure prompt receipt of such demand,request or notice by the other party or parties.

 

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**ARTICLE XVIIIMISCELLANEOUS**

 

**Section 18.1****         Severability**

 

Any provisionof this Agreement which is or becomes prohibited or unenforceable in anyjurisdiction does not invalidate, affect or impair the remaining provisionshereof and any such prohibition or unenforceability in any jurisdiction doesnot invalidate or render unenforceable such provision in any otherjurisdiction.

 

**Section 18.2****         Survival of Representations and Undertakings**

 

Therepresentations and warranties made by the Borrower in Article II of thisAgreement and the covenants, undertakings and agreements contained in thisAgreement survive the execution and delivery of this Agreement and continue infull force and effect until the full payment and satisfaction of allliabilities and obligations of the Borrower to the Lender under this Agreementand the termination of the Aggregate Commitment.

 

**Section 18.3****         Whole Agreement**

 

This Agreementand the other Loan Documents constitute the whole and entire agreement betweenthe parties hereto with respect to the subject matter hereof, and, save ascontemplated herein, cancel and supersede any prior offers, agreements,undertakings, declarations and representations, written or verbal in respectthereof.

 

**Section 18.4****         Amendments**

 

Any amendment, modification or waiver of anyprovision of this Agreement or consent to any departure by the Borrower fromany provision of this Agreement must be in writing and will be effective onlyin the specific instance, for the specific purpose and for the specific lengthof time for which it is given.

 

Notwithstandingthe foregoing paragraph, the Lender is hereby authorized to correct anytypographical error or other error of an editorial nature in this Agreement andto substitute such corrected text in the counterparts of this Agreement,provided that such corrections do not modify in any manner the meaning or theinterpretation of this Agreement.

 

**Section 18.5****         Interest Limitation**

 

The partiesagree that no provision of this Agreement or any other Loan Document shall havethe effect of imposing on the Borrower any obligation to pay interest (as suchterm is defined in Section 347 of the Criminal Code of Canada) at a ratein excess of 60% per annum, taking into account all other amounts which must betaken into account for the purpose thereof; and, to such extent, the Borrower’sobligation to pay interest hereunder is so limited.

 

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**Section 18.6****         Counterparts**

 

This Agreementmay be executed in any number of counterparts, each of which when executed anddelivered is an original but all of which taken together constitute one and thesame instrument; any party may execute this Agreement by signing anycounterpart of it and may communicate such signing by telecopier or otherwise.

 

**Section 18.7****         Further Assurances**

 

Each partyhereto shall do all such further acts and execute and deliver all such furtherdocuments as shall be reasonably required in order to fully perform and carryout the terms of this Agreement.

 

**Section 18.8****         Good Faith and Fair Consideration**

 

The Borroweracknowledges and declares that it has entered into this Agreement freely and ofits own will.  In particular, theBorrower acknowledges that this Agreement was negotiated by it and the Lenderin good faith.

 

**Section 18.9****         Term of Agreement**

 

The term ofthis Agreement is until the later of the termination of the AggregateCommitment and payment in full of all the obligations of the Borrower incurredpursuant to this Agreement.

 

**Section 18.10****       Formal Date**

 

This Agreementshall bear the formal date of September 4, 2007,notwithstanding the actual date of execution thereof by the parties hereto andmay be referred to as bearing such date.

 

**Section 18.11****       USA Patriot Act**

 

The Lenderhereby notifies the Borrower that pursuant to the requirements of the USA PatriotAct (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), itis required to obtain, verify and record information that identifies theBorrower which information includes the name and address of the Borrower andother information that will allow the Lender to identify the Borrower inaccordance with said Act.

 

**Section 18.12****       Language**

 

The partieshereto confirm that they have requested that this Agreement and all documentsand notices contemplated hereby be drawn up in the English language*. **Les parties aux présentes**confirment avoir requisque cette convention et tous les documents et avis qui y sont envisagés soientrédigés en langue anglaise.*

 

[Signature Pages Follow]

 

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**INWITNESS WHEREOF** the parties heretohave caused this Agreement to be duly executed as of September 4, 2007.

 

 
| Address:                                                        |           | **DRAXIS  PHARMA, a division of DRAXIS  SPECIALTY PHARMACEUTICALS INC.** |
|-----------------------------------------------------------------|----------------|--------------------------------------------------------------------------|
| 16751  TransCanada Highway                                      |           |                                                                     |
| Kirkland,  Quebec                                               |           | By:                                                                      | /s/ *** |
| H9H 4J4                                                         |           | Name:    ***                                         |
|                                                            |           | Title:      Secretary                      |
| Attention:     President Draxis Pharma |           |                                                                     |
|                                                            |           |                                                                     |
| Tel:      ***                     |           |                                                                     |
| Fax:     ***                           |           |                                                                     |
|                                                            |           |                                                                     |
|                                                            |           |                                                                     |
| With a copy  to:                                                |           |                                                                     |
|                                                            |           |                                                                     |
| DRAXIS  Health Inc.                                             |           |                                                                     |
| 6870 Goreway  Drive,                                            |           |                                                                     |
| 2nd Floor                                                       |           |                                                                     |
| Mississauga,  Ontario                                           |           |                                                                     |
| L4V 1P1                                                         |           |                                                                     |
|                                                            |           |                                                                     |
| Attention:     General  Counsel        |           |                                                                     |
|                                                            | and  Secretary |                                                                     |   |
| Tel:     ***                           |           |                                                                     |
| Fax:     ***                           |           |                                                                     |
|                                                                 |                |                                                                          |  |  |

 

(Signature Page to Credit Agreement)

 

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| Address:                                                |   | **JOHNSON &  JOHNSON FINANCE  CORPORATION**       |
|---------------------------------------------------------|--------|------------------------------------------------------------|
| Johnson & Johnson Finance                      |   |                                                       |
| Corporation                                             |   | By:                                                        | /s/ *** |
| 501 George Street                                       |   | Name:    ***                           |
| New Brunswick, NJ 08901                                 |   | Title:      General  Manager |
| U.S.A.                                                  |   |                                                       |
|                                                    |   |                                                       |
| Attention:     General Manager |   |                                                       |
|                                                    |   |                                                       |
| Tel:    ***                         |   |                                                       |
| Fax:    ***                         |   |                                                       |
|                                                    |   |                                                       |
| With a copy  to:                                        |   |                                                       |
|                                                    |   |                                                       |
| Johnson & Johnson                              |   |                                                       |
| One Johnson & Johnson Plaza                    |   |                                                       |
| New Brunswick, NJ 08933                                 |   |                                                       |
| U.S.A.                                                  |   |                                                       |
|                                                    |   |                                                       |
| Attention:    General Counsel       |   |                                                       |
|                                                    |   |                                                       |
| Fax:    ***                         |   |                                                       |

 

(Signature Page to Credit Agreement)

 

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