exv10w4



 








EXHIBIT 10.4



THIS AGREEMENT made effective as of the 31st day of August, 2005.



BETWEEN:





NUCRYST PHARMACEUTICALS CORP., a body corporate duly
incorporated under the laws of the Province of Alberta
(hereinafter referred to as the “Borrower”)



OF THE FIRST PART




- and -





THE WESTAIM CORPORATION, a body corporate duly incorporated
under the laws of the Province of Alberta (hereinafter
referred to as the “Lender”)



OF THE SECOND PART




SECOND AMENDED AND RESTATED LOAN AGREEMENT




PREAMBLE



WHEREAS:



A. Westaim Biomedical Corp. (now known as Nucryst Pharmaceuticals Corp.) and the Lender
entered into a loan agreement made effective December 31, 1998, as amended by a loan amending
agreement between the Borrower and the Lender made effective January 1, 2004 (collectively the
“Original Agreement”);



B. The Original Agreement was superseded and replaced by the amended and restated loan agreement
between the Borrower and the Lender made as of the Effective Date (the “First Restated Agreement”);



C. The Borrower is the wholly owned subsidiary of the Lender;



D. In connection with the redemption of certain preferred shares of the Borrower held by the
Lender, the Borrower has issued a promissory note to the Lender in the principal amount of
$11,786,797.00 (the “Promissory Note”);



E. The entire principal amount of $11,786,797.00 evidenced by the Promissory Note remains
outstanding;




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F. The Borrower and the Lender have agreed that the entire principal amount evidenced by the
Promissory Note shall form part of the Indebtedness under this Agreement;



G. The Borrower and the Lender have agreed to amend and restate the First Restated Agreement in the
manner set forth in this Agreement and that this Agreement from and after the Effective Date shall
supersede and replace the First Restated Agreement and the Promissory Note in all respects;



H. The total Indebtedness of the Borrower to the Lender as of the Effective Date
is $52,192,505.38, and further advances may be made to the Borrower from time to time upon the
terms and conditions herein set forth.




           NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of these premises and the
promises herein contained the parties hereto agree as follows:



ARTICLE 1





	1.1	 	Definitions





          In this Agreement unless there is something in the subject matter or context inconsistent
therewith:





	 	(a)	 	“Change of Control” means the acceptance by the holders of voting securities of
the Borrower, representing in the aggregate fifty (50%) percent or more of all issued
voting securities of the Borrower, of any offer, whether by way of a takeover bid or
otherwise, for all or any of the outstanding voting securities of the Borrower;
provided that no Change of Control shall be deemed to have occurred if upon completion
of any such transaction individuals who were members of the board of directors of the
Borrower immediately prior to the effective date of such transaction constitute a
majority of the board of directors of the resulting corporation following such
effective date;
	 
	 	(b)	 	“Effective Date” means August 31, 2005;
	 
	 	(c)	 	Event of Default” or “event of default” means any of the events mentioned in
section 6.1 hereof;
	 
	 	(d)	 	“General Security Agreement” means the amended and restated general security
agreement to be executed and delivered by the Borrower in favour of the Lender
forthwith upon execution of this Agreement to secure all Indebtedness and providing for
a continuing security interest in all of the present and after acquired personal
property of the Borrower and a land charge;





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	 	(e)	 	“Generally Accepted Accounting Principles” means those accounting principles
recommended by the Canadian Institute of Chartered Accountants and includes any
recommendation in its Handbook concerning accounting treatment or statement presentation,
such recommendation to be regarded as the only generally accepted accounting principle
applicable to the circumstances that it covers and reference herein to “Generally Accepted
Accounting Principles” shall be interpreted accordingly;
	 
	 	(f)	 	“Hazardous Materials” means any substance which is hazardous to persons or property and
includes, without limiting the generality of the foregoing:






	 	(i)	 	radioactive material;
	 
	 	(ii)	 	explosives;
	 
	 	(iii)	 	any substance that, if added to any water, would degrade or alter or form
part of a process of degradation or alteration of the quality of that water to the
extent that it is detrimental to its use by man or by any animal, fish or plant;
	 
	 	(iv)	 	any solid, liquid, gas or odor or combination of any of them that, if
emitted into the air, would create or contribute to the creation of a condition of
the air that:






	 	(A)	 	endangers the health, safety or welfare of persons or the
health of animal life;
	 
	 	(B)	 	interferes with normal enjoyment of life or property; or
	 
	 	(C)	 	causes damage to plant life or to property;






	 	(v)	 	toxic substances including, without restriction ureaformaldehyde foam
insulation, asbestos and poly-chlorinated biphenyls; and
	 
	 	(vi)	 	substances declared to be hazardous or toxic under any law or regulation
now or hereafter enacted or promulgated over the Borrower, the Lender or any
property of the Borrower;






	 	(g)	 	“Hazardous Materials Claims” means any and all enforcement, cleanup, removal, remedial or
other governmental or regulatory actions, agreements or orders threatened, instituted or
completed pursuant to any Hazardous Materials Laws, together with any and all claims made or
threatened by any third party against the Borrower or its property relating to damage,
contribution, cost recovery compensation, loss or injury resulting from the presence, release
or discharge of any Hazardous Materials;





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	 	(h)	 	“Hazardous Materials Laws” means any federal, provincial or municipal laws, ordinances,
regulations or policies relating to the environment, health and safety, any Hazardous
Materials (including, without limitation, the use, handling, transportation, production,
disposal, discharge or storage thereof) or to industrial hygiene or the environmental
conditions on, under or about the property of the Borrower, including, without limitation,
all legislation and regulations thereunder;
	 
	 	(i)	 	“Indebtedness” means the principal sum or aggregate amount outstanding at any given time of
all loans and advances made, or which may be made, by the Lender to the Borrower (including
the Loan) and interest on such loans and advances and all costs, charges and expenses of, or
incurred by the Lender, in connection with any Security and in connection with all property
covered by or comprised in such Security (whether in protecting, preserving, realizing or
collecting any such Security or property or attempting so to do or otherwise), and all other
obligations and liabilities, present or future, direct or indirect, absolute or contingent,
matured or not, of the Borrower to the Lender arising from this or any agreement or dealings
between the Lender and the Borrower or from any agreement or dealings with any person by which
the Lender may be or become in any manner whatsoever a creditor of the Borrower or otherwise
howsoever arising and whether the Borrower be bound alone or with another or others and
whether as principal or surety. The definition of the word “Indebtedness”:






	 	(i)	 	applies even if the total lines of credit and advances, other outlays
and interest exceed the amount of the Loan; and
	 
	 	(ii)	 	includes all reasonable legal fees and disbursements incurred by the
Lender as between a solicitor and his own client in connection with the
preparation, execution and registration as appropriate, of this Agreement and any
and all promissory notes and the Security and in respect of any actions which may
be taken by the Lender to collect any monies constituting part of the Indebtedness,
including, without limitation, protecting, preserving, realizing or collecting on
any Security or property or attempting so to do or otherwise, it being the express
intention of the parties that the word “Indebtedness” include such amount as is
necessary to indemnify and save harmless the Lender from all such costs, expenses
and monies as aforesaid;






	 	(j)	 	“Interest Rate” means:






	 	(i)	 	during the period when and for so long as the Borrower is a
wholly-owned subsidiary of the Lender:






	 	(A)	 	the rate of fifteen percent (15%) per annum with respect to the portion of
the Loan advanced from time to time for the purposes






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	 	 	 	of funding the acquisition by the Borrower of manufacturing assets,
which portion of the Loan totals $7,005,129.60 as of the Effective
Date; and
	 
	 	(B)	 	the rate of ten percent (10%) per annum
with respect to the balance of the Indebtedness, which totals
$45,187,375.78 as of the Effective Date;






	 	(ii)	 	upon and from the happening of any event pursuant to
which the Borrower is no longer a wholly-owned subsidiary of the Lender,
the rate of ten percent (10%) per annum with respect to the entire
Indebtedness;






	 	(k)	 	“Loan” means the principal amount of funds advanced from time to time by the
Lender to the Borrower;
	 
	 	(l)	 	“Material Transaction” means any transaction or series of transactions
(whether by way of amalgamation, merger, winding-up, consolidation, reorganization,
transfer, sale, lease or otherwise) whereby all or substantially all of the
undertaking, properties, rights or assets of the Borrower would become the property of
any other person;
	 
	 	(m)	 	“Offering” means the initial public offering of any or all of the common
shares of the Borrower;
	 
	 	(n)	 	“Permitted Encumbrances” means those encumbrances registered against the
Borrower and described in Schedule “A” attached hereto;
	 
	 	(o)	 	“Security” means any security or security documentation (including any
evidences of debt) as more fully described in section 3.1 hereof, given or to be given
by the Borrower to the Lender to secure the Indebtedness or acquired or required by
the Lender, hereunder or hereafter and includes any additions or amendments thereto or
renewals or substitutions thereof from time to time.






	1.2	 	Preamble and Schedules





           The parties hereby confirm and ratify the matters contained and referred to in the Preamble
to this Agreement and agree that the Schedules attached hereto are expressly incorporated into and
form part of this Agreement.




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ARTICLE 2





	2.1	 	The Loan





           The provisions of this Agreement and all Security shall be of continuous effect and form a
continuous charge and security interest notwithstanding the balance owing under the Loan may be
fluctuating and even may, from time to time and at any time, be or have been reduced to a nil
balance and notwithstanding monies advanced may be repaid and further advances may be made and
shown from time to time and such continuous effect and charge shall be evidence and security for
any balance of the Indebtedness. Advances and repayments of the Loan shall be evidenced by the
records of the Lender indicating advances to the Borrower and showing repayments by the Borrower.
Such records shall be conclusive evidence of such advances and repayments.




	2.2	 	Repayment and Interest





           The Borrower agrees to repay the Indebtedness with interest thereon at the Interest Rate as
follows:




	 	(a)	 	Interest only at the Interest Rate on so much of the Loan as is outstanding
from time to time, calculated and computed monthly from the date of advances may be
paid on the first day of each and every month in each and every year commencing with
the first day of the month following the date of advances and continuing to and
including the date that the full amount of the Indebtedness is repaid to the Lender or,
if such interest is not paid monthly, then it shall be treated, as to the payment of
further interest, as principal and bear compound interest at the Interest Rate until
the full amount of the Indebtedness is repaid to the Lender;
	 
	 	(b)	 	Interest at the Interest Rate on the balance outstanding with respect to the
Loan from time to time shall be payable both before and after demand, default, maturity
and the obtaining of any judgment by the Lender against the Borrower and all interest
on becoming overdue shall be treated, as to payment of further interest, as principal
and shall bear compound interest at the rate payable with respect to the Loan both
before and after the obtaining of any judgment by the Lender against the Borrower to
the extent permitted by law;
	 
	 	(c)	 	upon completion of an Offering, all Indebtedness remaining outstanding
thirty-seven (37) days following the date of the final prospectus issued in connection
with the Offering shall on that date be repaid in full by issuance to the Lender from
the treasury of the Borrower of the number of newly issued common shares of the
Borrower equal to the amount of the then-outstanding aggregate principal Indebtedness
(excluding accrued but unpaid interest thereon) divided by the public offering price of
the shares offered in the






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	 	 	 	Offering and rounded up to the nearest number of full common shares (the
“Exchange”); and
	 
	 	(d)	 	all Indebtedness shall be paid in full upon the earlier of:






	 	(i)	 	the date of any Change of Control;
	 
	 	(ii)	 	the date of any Material Transaction;
	 
	 	(iii)	 	August 31, 2010; or
	 
	 	(iv)	 	such earlier date as the Indebtedness may become payable in
accordance with the terms and conditions herein contained.






	2.3	 	Prepayment





           Provided it is not in default hereunder or under any of the Security, the Borrower shall have
the right to prepay all or any part of the Indebtedness outstanding at any time without notice,
bonus or penalty in minimum payments of Ten Thousand DOLLARS ($10,000.00), or multiples thereof;
provided however, that any partial prepayment shall in no way release the Borrower from its
obligation to make any payments required pursuant to the provisions of the Security or this
Agreement.




	2.4	 	Place of Payment





           All sums to be paid to the Lender pursuant to this Agreement, whether for principal, interest
or otherwise, shall be paid to the Lender at its offices at 1010 Sun Life Plaza I West Tower, 144
- 4th Avenue S.W., Calgary, Alberta, T2P 3N4, or such other place as may be designated by the
Lender from time to time.




	2.5	 	No Obligations to Advance





           Notwithstanding anything herein contained the Lender shall be under no obligation to make any
advance or re-advance with respect to the Loan, to renew any promissory note given by the Borrower
to the Lender or to provide any credit contemplated herein, the same always being in the sole,
absolute, unfettered and arbitrary discretion of the Lender.



ARTICLE 3





	3.1	 	Security





           As security for the payment of the Indebtedness and the due observance and performance by the
Borrower of the obligations hereunder by it to be observed and performed, the Borrower agrees to
execute and deliver, or cause to be executed and delivered, to the Lender forthwith upon execution
of this Agreement (or if not so provided




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upon execution of this Agreement, then from time to time at the request of the Lender, before or
after the occurrence of an Event of Default), the following security, all of which shall be in a
form and content as approved and determined by the Lender in its sole and absolute discretion:





	 	(a)	 	certified copies of all fire and extended coverage policies of insurance
maintained by the Borrower, said policies of insurance to be satisfactory in form and
content to the Lender and with respect to the Lands to contain mortgage endorsement
clauses approved by the Insurance Bureau of Canada showing loss payable to the Lender;
	 
	 	(b)	 	the General Security Agreement;
	 
	 	(c)	 	mortgages of any lands owned by the Borrower from time to time;
	 
	 	(d)	 	such other security, agreements opinions, certificates or other instruments or
documents, as required by the Lender in its sole and absolute discretion from time to
time, including, without limitation, any guarantees and security agreements of
subsidiaries or any security upon the shares of any subsidiary of the Borrower.





ARTICLE 4





	4.1	 	Affirmative Covenants
	 
	 	 	The Borrower shall:






	 	(a)	 	Repayment
	 
	 	 	 	Duly and punctually repay to the Lender the Loan and interest thereon and all other
sums payable pursuant to the terms of this Agreement, on the dates, at the places,
in the monies and in the manner provided for herein and in the Security;
	 
	 	(b)	 	Perform Covenants
	 
	 	 	 	Perform, observe and comply at all times with the covenants, terms, conditions,
stipulations and provisos of this Agreement and the Security and other reasonable
requirements stipulated by the Lender from time to time;
	 
	 	(c)	 	Maintain Security
	 
	 	 	 	Fully and effectually maintain and keep maintained the Security hereby created as
valid and effective security at all times;






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	 	(d)	 	Further Security
	 
	 	 	 	Execute as required, and deliver to the Lender such other instruments of security,
assurances and documentation as the Lender may require in accordance with the terms and
conditions of this Agreement and the Security, all of which instruments of security,
evidences of indebtedness and documents shall be in such form and shall contain such terms
and conditions as may be required by the Lender’s solicitors;
	 
	 	(e)	 	Repair 
	 
	 	 	 	Repair and keep in repair and good order and condition all buildings, erections, machinery
and other plant and equipment and appurtenances thereto, the use of which is necessary or
advantageous in connection with its business, up to a modern standard of usage and maintain
the same consistent with the best practice of other corporations having similar
undertakings; renew and replace all and any of the same which may be worn, dilapidated,
unserviceable, obsolete, inconvenient or destroyed or may otherwise require renewal or
replacement and at all reasonable times allow the Lender or its representative access to
its premises in order to view the state and condition the same are in and in the event of
any loss or damage thereto or destruction thereof, the Lender may give notice to the
Borrower to repair, rebuild, replace or reinstate within a time to be determined by the
Lender and to be stated in such notice and upon the Borrower failing to so repair, rebuild,
replace or reinstate within such time, such failure shall constitute default hereunder, and
will keep all of its assets in good condition and repair and maintain and replace as
required according to the nature thereof;
	 
	 	(f)	 	Chattels
	 
	 	 	 	Keep in good repair and free from all encumbrances of any nature whatsoever any and all
chattels which are now or which may in the future be used either directly or indirectly in
the operation of the Borrower’s business;
	 
	 	(g)	 	Pay Workmen
	 
	 	 	 	Duly and punctually pay all debts and obligations to or on behalf of or in respect of
workmen, employees and others which, if unpaid, might under the laws of Canada or of the
Province of Alberta have priority over the Security hereby created or any part thereof;
	 
	 	(h)	 	Pay Liens, Charges, Costs, etc.
	 
	 	 	 	Promptly pay the full amount of:





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	 	(i)	 	any liens, charges and encumbrances upon its assets other than the
Permitted Encumbrances;
	 
	 	(ii)	 	any reasonable charges by or expenses of the Lender in inspecting,
protecting or valuing the Borrower’s assets;
	 
	 	(iii)	 	all costs, fees, disbursements, charges and expenses which have been or
may be incurred by the Lender in negotiating the Loan; in investigating or perfecting
title to the Borrower’s assets and the capacity of the Borrower to borrow the money
secured hereby; in preparing and registering the Security, and all documents
incidental or collateral hereto; in advancing any portion of the monies secured under
the Security, in taking, recovering and keeping or attempting to procure possession
of the Borrower’s assets or any part thereof; in enforcing or attempting to enforce
the personal remedies or any other remedies available under the Security; in
collecting or attempting to collect any of the monies secured under the Security; in
realizing or attempting to realize on any Security collateral hereto; in any
foreclosure or other proceedings, judicial or otherwise, to protect the Borrower’s
assets or to realize on the Security or any part thereof; or in connection with any
receivership and if a solicitor is retained in connection with any of the foregoing,
such solicitor’s fees and disbursements shall be paid on a solicitor and his own
client full indemnity basis; and if any other professional person or firm is retained
or employed such person’s or firm’s fees shall be paid on the basis of his or its
normal professional charges; and
	 
	 	(iv)	 	all other reasonable costs and expenses of the Lender incurred in
connection with the Loan;






	 	(i)	 	Pay Taxes
	 
	 	 	 	Pay or cause to be paid all taxes, rates, levies, assessments and impositions which are
now or may hereafter be levied, charged, assessed, imposed or payable against or in
respect of any of the assets or business of the Borrower as and when the same become
payable and produce to the Lender receipts evidencing payment thereof within thirty (30)
days from the due date thereof;
	 
	 	(j)	 	Make Payments
	 
	 	 	 	Make or cause to be made all payments that become due by the Borrower to any person,
including, without limitation, all payments required pursuant to any security interest,
mortgage, lease, charge or encumbrance to which the Borrower is party;






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	 	(k)	 	Maintain Insurance
	 
	 	 	 	Maintain insurance on all of its assets and properties with financially sound and reputable
insurance companies against such perils as is usual with corporations holding similar
assets and properties and in an amount not less than their full insurable value as is
acceptable to the Lender and its solicitors and provide proof of same to the Lender;
	 
	 	(I)	 	Fire Insurance
	 
	 	 	 	Maintain fire and extended coverage policies of insurance with financially sound and
reputable insurance companies on its assets as is usual for corporations conducting
business similar to the Borrower but in an amount not less than their full insurable value
with loss payable mortgage endorsement clauses in favour of the Lender as shall be approved
by the Lender and its solicitors from time to time and as approved by the Insurance Bureau
of Canada;
	 
	 	(m)	 	Public Liability Insurance
	 
	 	 	 	Maintain public liability insurance with financially sound and reputable insurance
companies as is usual for corporations conducting businesses similar to the Borrower and
as is acceptable to the Lender and its solicitors and provide proof of same to the Lender;
	 
	 	(n)	 	Boiler Insurance
	 
	 	 	 	Maintain boiler and pressure vessel policies of insurance with respect to the Lands with
financially sound and reputable insurance companies in such amount as is prudent and is
approved by the Lender and its solicitors and provide proof of same to the Lender;
	 
	 	(o)	 	Loss of Profits Insurance
	 
	 	 	 	Maintain use and occupancy coverage insurance with financially sound and reputable
insurance companies against loss of profits during reconstruction of improvements on any
lands owned or occupied by the Borrower as a result of damage caused by the boilers or
pressure vessels;
	 
	 	(p)	 	Proofs of Loss
	 
	 	 	 	Forthwith on the happening of any loss or damage, furnish at its own expense all necessary
proofs and do all necessary acts to enable the Lender to obtain payment of the insurance
monies; and any insurance monies received, may, at the option of the Lender, be applied in
rebuilding, reinstating or repairing the affected assets (including the repairing or






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	 	 	 	purchasing of additional chattels) or be paid to the Borrower or any other person appearing
to have a prior interest in the affected assets, or be applied or be paid partly in one way
and partly in another, or may be applied, in the sole discretion of the Lender in whole or
in part in repayment of the Loan, interest or other monies owing hereunder, whether due or
not then due, notwithstanding any law, equity or statute to the contrary, all rights and
benefits of the Borrower thereunder being hereby expressly waived;
	 
	 	(q)	 	Insurance Appraisal
	 
	 	 	 	Forthwith upon request furnish at its own expense, a certificate of a competent appraiser
or other competent person selected by the Lender as to the sufficiency or otherwise of any
insurance and as to the type and amount thereof;
	 
	 	(r)	 	Information
	 
	 	 	 	Provide upon request any information, whether financial or otherwise, which the Lender may
require from time to time;
	 
	 	(s)	 	Records
	 
	 	 	 	Keep adequate records and books of account in accordance with Generally Accepted
Accounting Principles and permit the Lender by its agents, accountants and solicitors to
enter upon the premises of the Borrower and examine the Borrower’s records and books of
account and make extracts therefrom and to discuss the records and books of account with
officers of the Borrower at such reasonable times as may be required by the Lender;
	 
	 	(t)	 	Financial Information
	 
	 	 	 	Provide to the Lender within a reasonable time after its request, such financial or other
information as the Lender shall request, including, without limitation, audited or
unaudited financial statements of the Borrower;
	 
	 	(u)	 	Balance Owing Statements
	 
	 	 	 	Within ten (10) days after receipt of a request to do so, certify to the Lender or any
person designated by the Lender the amount of the principal sum then due hereunder, the
date to which interest is paid and that there have been no amendments hereof or, if there
have been any such amendments, specifying them;






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	 	(v)	 	Inspect Premises
	 
	 	 	 	Permit the Lender and its servants and agents, to enter at all reasonable times into and
upon the lands and premises owned or occupied by the Borrower and view the state and
condition thereof and of all the Borrower’s assets;
	 
	 	(w)	 	Appraisal
	 
	 	 	 	At the request of the Lender, have any assets of the Borrower appraised annually in
writing and provide such appraisal to the Lender at the Lender’s request, said appraisal
to be satisfactory to the Lender at the Lender’s sole discretion;
	 
	 	(x)	 	Indemnity
	 
	 	 	 	Save the Lender harmless from all liability and damages of whatsoever nature which may be
incurred in connection with the use and operation of the Borrower’s assets;
	 
	 	(y)	 	Notice of Actions
	 
	 	 	 	Give to the Lender prompt and immediate notice of any statement of claim, petition or writ
or other court process, of distress or seizure that may affect the Borrower;
	 
	 	(z)	 	Notice of Default
	 
	 	 	 	Give written notice to the Lender of the occurrence of an Event of Default hereunder or of
any other event which, with the giving of notice or the lapse of time, would constitute an
event of default hereunder or which would materially or adversely affect the business or
prospects or financial condition of the Borrower or its assets, forthwith upon the
happening of such occurrence and provide the Lender with details of the action taken or
proposed to be taken by the Borrower to remedy same;
	 
	 	(aa)	 	Corporate Existence
	 
	 	 	 	Maintain its corporate existence and do all such acts as are required in order to permit
it to legally carry on its business;
	 
	 	(bb)	 	Carry on Business
	 
	 	 	 	Carry on and conduct the business of the Borrower in a proper and efficient manner without
allowing or causing any material change to such business;






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	 	(cc)	 	Comply With Laws
	 
	 	 	 	Do, observe and perform or cause to be done, observed and performed all of its obligations
and all matters and things necessary or expedient to be done, observed or performed under
or by virtue of any law of Canada or any province or municipality thereof;
	 
	 	(dd)	 	Payroll Source Deductions
	 
	 	 	 	Pay all statutory payroll source deductions when due and shall immediately advise the
Lender of any source deductions that are unremitted;
	 
	 	(ee)	 	Enforceable Obligations
	 
	 	 	 	Maintain this Agreement and the Security as legal, valid and binding obligations of the
Borrower enforceable in accordance with their respective terms;
	 
	 	(ff)	 	Compliance with Hazardous Materials Laws
	 
	 	 	 	Comply, and cause all of the Borrower’s tenants and all other persons on or occupying any
of the Borrower’s property to comply with all Hazardous Materials Laws. Without limiting
the generality of the foregoing, the Borrower covenants and agrees that it will not use,
generate, manufacture, store or dispose of, nor will it permit the use, generation,
storage or disposal of, Hazardous Materials on, under or about any of its property in
violation of Hazardous Materials Laws, nor will it transport or permit the transportation
of Hazardous Materials to or from any of its property in violation of Hazardous Materials
Laws;
	 
	 	(gg)	 	Hazardous Materials Audit
	 
	 	 	 	If requested by the Lender, submit a report, satisfactory to Lender in its sole and
absolute discretion, prepared by a consultant approved by Lender, specifying the methods
and procedures being used on any of the Borrower’s property for the use, production,
generation, treatment, storage or disposal of any Hazardous Material. The Lender reserves
the right, in its sole and absolute discretion, to retain, at the Borrower’s expense, an
independent professional consultant to review any report prepared by or for the Borrower
or to conduct its own investigation of any of the property of the Borrower. The Borrower
hereby grants to Lender, its agents, employees, consultants and contractors the right to
enter upon any of the real property owned by the Borrower and to perform such tests on
such property as are reasonably necessary to conduct such a review or investigation;






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	 	(hh)	 	Notice of Hazardous Materials Claims
	 
	 	 	 	Shall immediately advise the Lender in writing of:






	 	(i)	 	any and all Hazardous Materials Claims;
	 
	 	(ii)	 	the presence of any Hazardous Materials (other than Permitted Amounts)
on, under or about any of its property;
	 
	 	(iii)	 	any remedial action taken by the Borrower in response to any Hazardous
Materials on, under or about any of its property; or Hazardous Materials Claims;
	 
	 	(iv)	 	the Borrower’s discovery of any occurrence or condition on any real
property adjoining or in the vicinity of any of its property that could cause such
property or any part thereto to be subject to any restrictions on the ownership,
occupancy, transferability or use of such property under any Hazardous Materials
Laws.






	 	 	 	In addition, the Borrower shall provide Lender with copies of all communications to or
from the Borrower with federal, provincial and municipal governments or agencies relating
to Hazardous Materials Laws and all communications relating to Hazardous Materials Claims;






	 	(ii)	 	Remedial Action
	 
	 	 	 	Shall promptly take any and all necessary remedial action in response to the presence,
storage, use, disposal, transportation, discharge, or release of any Hazardous Materials
on, under or about any of its property in violation of Hazardous Materials Laws; provided,
however, that the Borrower shall take such remedial action in good faith so as to minimize
any impairment to any of the Security. In the event the Borrower undertakes any remedial
action with respect to any Hazardous Materials on, under or about any of its property, the
Borrower shall conduct and complete such remedial action:






	 	(i)	 	in compliance with all applicable federal, provincial and local laws,
regulations, rules, ordinances and policies;
	 
	 	(ii)	 	to the satisfaction of Lender; and
	 
	 	(iii)	 	in accordance with the orders and directives of all federal, provincial and local
governmental authorities.






Page 15 of 28









 







	4.2	 	Negative Covenants





           The Borrower shall not, without the prior written approval of the Lender first had and
received:




	 	(a)	 	Dispose of Assets
	 
	 	 	 	Sell or otherwise dispose of all or substantially all of its assets by conveyance,
transfer, lease or otherwise;
	 
	 	(b)	 	Create Prior Charges
	 
	 	 	 	Create, assume or permit to exist any mortgage or charge or security interest of
any nature or kind whatsoever on any of its assets charged in favour of the Lender
or any part thereof, ranking or purporting to rank in priority to or pari passu
with any charge or security held by the Lender with respect to such assets other
than Permitted Encumbrances;
	 
	 	(c)	 	Reduction of Capital
	 
	 	 	 	Reduce its capital or make any distribution of assets;
	 
	 	(d)	 	Redemption of Shares
	 
	 	 	 	Redeem or purchase any of its present or future outstanding shares or otherwise
retire or pay off any such shares;
	 
	 	(e)	 	Insurance Policies
	 
	 	 	 	Do or suffer anything to be done whereby any policy or policies of insurance
maintained by the Borrower may become vitiated; if the Borrower shall fail to insure
or cause to be insured all of its assets or any part thereof, or to pay or cause to
be paid the premiums with respect to such insurance or to deliver the policies or
contracts as aforesaid or if the Lender receives notice of the intended cancellation
of any such policy or contract, the Lender shall be entitled to insure all of the
Borrower’s assets, provided however that the Lender shall not be bound to insure all
of the Borrower’s assets or, in the event of insuring all of the Borrower’s assets
to insure any other than the interest of the Lender only, or to see to the payment
of the premiums on any policy or be liable or responsible for any loss arising out
of any defect in any policy or failure of any insurance company to pay for any loss
thereunder;
	 
	 	(f)	 	Loans to Shareholders
	 
	 	 	 	Lend any amount to any shareholder, director or officer of the Borrower or person
whose relationship to them is non-arms-length as that term is defined






Page 16 of 28









 









	 	 	 	in the Income Tax Act (Canada) or lend any amount to any other person, firm or
corporation other than in the ordinary course of the Borrower’s business;
	 
	 	(g)	 	Become a Guarantor
	 
	 	 	 	Become a guarantor of any obligation nor become endorser in respect of any
obligation or otherwise become liable upon any note or obligation of any nature or
kind whatsoever except for the benefit of the Lender;
	 
	 	(h)	 	Surrender Certificate of Incorporation
	 
	 	 	 	Surrender its Certificate of Incorporation, voluntarily wind up its business or
take any other steps toward its corporate discontinuance or discontinuance of its
business;
	 
	 	(i)	 	Fiscal Year
	 
	 	 	 	Change its present fiscal year;
	 
	 	(j)	 	Destruction of Records
	 
	 	 	 	Destroy any of its financial records;
	 
	 	(k)	 	Removal of Chattels
	 
	 	 	 	Remove any chattels forming part of the Borrower’s assets from the jurisdiction in
which the Borrower conducts its business with such assets;
	 
	 	(l)	 	Prohibited Acts
	 
	 	 	 	Do any other act that by the terms of this Agreement or the Security it is not
permitted to do.





ARTICLE 5





	5.1	 	Representations
	 
	 	 	The Borrower represents and warrants that:






	 	(a)	 	the Borrower has full power, authority and capacity to execute and deliver
this Agreement and the Security and to carry out the transactions contemplated herein
and therein, all of which have been duly and validly authorized by all necessary
corporate proceedings and that the documents hereinbefore referred to have been duly
executed and delivered by the Borrower and are in full force and effect and constitute
legal, valid and binding obligations of the Borrower;






Page 17 of 28









 









	 	(b)	 	neither the execution nor delivery of this Agreement or the Security, nor the
fulfillment of or compliance with the terms and provisions thereof will contravene
any provision of law, including, without limitation, any statute, rule, regulation,
judgment, decree, order, franchise or permit applicable to the Borrower or conflict
with or result in a material breach of the terms, conditions or provisions of or
constitute a default under any agreement or instrument to which the Borrower is now
a party or by which any of its property or assets may be bound or affected;
	 
	 	(c)	 	there are no pending or threatened actions or proceedings before any Court or
administrative agency which may materially adversely affect the financial condition or
operations of the Borrower;
	 
	 	(d)	 	the Borrower and its assets shall not be at any time during the time that the
Indebtedness remains outstanding, a party to or bound by any contract, agreement or
undertaking or subject to any restriction in constating documents or to any corporate,
contractual or personal restriction or inhibition howsoever imposed that would
materially or adversely affect the business, property, assets or financial condition of
the Borrower;
	 
	 	(e)	 	the Borrower lawfully owns and is lawfully in possession of all of its assets
and that it has a good right and lawful authority to grant, convey, assign, transfer,
hypothecate, mortgage, pledge and charge its assets as provided herein and in the
Security.




All representations and warranties of the Borrower shall be true and accurate as of the date of
any advance under the Loan and shall survive the advance of any funds by the Lender to the
Borrower or the delivery or registration (if applicable) of the Security and shall continue until
the Security has been discharged and released in full by the Lender.




ARTICLE 6





	6.1	 	Events of Default
	 
	 	 	The following are events of default:






	 	(a)	 	if the Borrower shall make default in payment of any principal, interest or
other amounts in regard to the Indebtedness;
	 
	 	(b)	 	if the Borrower should default or be in breach of the performance or observance
of any part of the covenants, agreements, conditions, warranties or representations on
the part of the Borrower to be kept, observed, performed or given herein or under the
Security, or any collateral or supplemental agreement hereto, or any other agreement
whatsoever entered into between the Borrower and the Lender, or should any other
person, firm,






Page 18 of 28









 









	 	 	 	or company being a party to this Agreement or to any agreement supplemental or collateral
hereto fail to carry out or observe any covenant or condition herein or therein on its part
to be observed or performed;
	 
	 	(c)	 	if the Borrower should fail to pay any charges, rents, taxes, or rates on leasehold property,
or other charges of a like nature, or if the Borrower fails to observe and perform any of the
covenants, payments or conditions in any lease, license, concession, agreement, agreement for
sale, charge or encumbrance;
	 
	 	(d)	 	if the Borrower makes default in the payment of any borrowed money, or in the performance of
any term, condition or covenant contained in any loan, mortgage or other security agreement to
which it is a party;
	 
	 	(e)	 	if the Borrower should create or attempt to create any mortgage or charge or permit any lien
to be created or arise on any of its assets except as otherwise permitted herein;
	 
	 	(f)	 	if an order shall be made or an effective resolution passed for the winding-up of the
Borrower, or if a Petition is filed for the winding-up of the Borrower;
	 
	 	(g)	 	if the Borrower shall make an assignment for the benefit of creditors or be declared
bankrupt, or if a custodian or receiver or receiver and manager or other officer with similar
powers be appointed with respect to the Borrower or any of its property or if the Borrower
voluntarily files a Petition in Bankruptcy or commits any act of bankruptcy, or proposes to
take the benefit of any provision of the Companies Creditors Arrangements Act (Canada) as now
or hereafter in force or makes any arrangement with its creditors pursuant to the terms of the
applicable corporations legislations as now or hereinafter in force;
	 
	 	(h)	 	if the Borrower ceases or threatens to cease to carry on its business or if the Borrower
commits any act of bankruptcy;
	 
	 	(i)	 	if the Borrower passes or purports to pass any resolution or takes or purports to take any
corporate proceedings to enable it to take proceedings for its dissolution or liquidation;
	 
	 	(j)	 	if the Borrower shall lose its charter by expiration, forfeiture or otherwise or if a
receiver or receiver-manager for all or any part of the Borrower’s assets or any other party
with like powers shall be appointed;
	 
	 	(k)	 	if any execution, distress, sequestration or any other process of any court becomes
enforceable against the Borrower of if a distress or analogous process is levied upon the
property of the Borrower or any part thereof, PROVIDED however that the Security shall not be
enforceable if:





Page 19 of 28









 








	 	(i)	 	such execution, sequestration or other process is in good faith being
disputed by the Borrower;
	 
	 	(ii)	 	the Lender does not, in its sole discretion, feel that
such execution, distress, sequestration or other process hereinbefore
referred to jeopardizes or impairs its Security, or prejudices the rights of
the Lender; and
	 
	 	(iii)	 	at the Lender’s request, the Borrower provides further
Security which the Lender in its absolute discretion deems sufficient to pay
in full the amount claimed in the event that the execution, distress,
sequestration or any other process as hereinbefore referred to is held to be
valid against the Borrower;






	 	(l)	 	if there is any Change of Control;
	 
	 	(m)	 	if the Security shall in any respect cease to be in full force and effect or
the validity thereof or the applicability thereof to this Agreement or of any of the
obligations of the Borrower thereunder or hereunder shall be disaffirmed by or on
behalf of the Borrower.




Upon the happening of any of the Events of Default which is not cured within ten (10) days after
receipt of written notice by the Borrower from the Lender (except for those Events of Default set
forth in Sections 6.1 (e) — 6.1(m) for which there is no cure period), the entire Indebtedness of
the Borrower to the Lender shall, at the option of the Lender, become due and payable whether with
or without further demand therefor, and the Security shall become enforceable in each and every
such event. The occurrence of an Event of Default which is not cured within any applicable cure
period shall be deemed to constitute due demand and presentment for payment of any promissory note
and shall constitute such demand as may be required with respect to any Security and shall be
deemed to constitute an event of default under any of the Security and the Lender shall thereupon
have all rights and remedies available to it at law or in equity consequent thereon, whether
arising by virtue of any promissory note, the Security, this Agreement or otherwise, including
without limiting the generality of the foregoing, the right and power of the Lender to take
possession of the undertaking, property and assets of the Borrower and/or appoint a Receiver of
Receiver-Manager with respect to such undertaking, property and assets.




ARTICLE 7





	7.1	 	Preserve Security





           In the event that the Borrower shall fail to pay or cause to be paid any sum payable by it,
whether according to the terms of this Agreement or otherwise, when they become payable, or shall
fail to repair or cause to be repaired any of its assets, the Lender may, without prejudice to any
other rights available to the Lender, pay said sum or make




Page 20 of 28









 







arrangements for such repairs and the Lender may make such other expenditures as it deems necessary
so as to protect any Security or to perfect title to any Security and all sums so expended or
indebtedness incurred by the Lender, together with all costs, charges and expenses, including legal
fees as between a solicitor and his own client on a full indemnity basis, shall be added to and
form part of the Indebtedness and be secured by the Security and bear interest until paid at the
Interest Rate.





	7.2	 	Enforcement





           The Lender may at any time without notice and without any other formality, all of which are
hereby waived, enforce any or all of the Security; provided that notwithstanding anything herein or
in any of the Security contained, the Lender shall not under any circumstances be bound or
obligated to enforce all or any of the Security nor shall the Lender be obligated to collect or
cause to be collected any amounts owing in respect of any of the Security.




	7.3	 	No Merger





           Nothing in this Agreement, in any promissory note given by the Borrower to the Lender or in
any of the Security given hereunder or which may be acquired by the Lender with respect to this
Agreement, and no act or omission by the Lender with respect to this Agreement, any such
promissory note or the Security shall in anyway prejudice the rights, remedies or powers of the
Lender against the Borrower with respect to the Indebtedness of the Borrower to the Lender, or any
Security now or hereafter held by the Lender. The Security held by the Lender shall not operate by
way of merger of any portion of the Indebtedness of the Borrower to the Lender hereunder or under
any deed, guarantee, contract, draft, bill of exchange, promissory note or other negotiable
instrument, or otherwise howsoever, by which the same may now or at any time hereafter arise or be
represented or evidenced, and no judgment recovered by the Lender shall merge or in any way affect
any of the Security or the Lender’s right to interest thereon.




	7.4	 	Right of Application





           The Lender may from time to time apply and re-apply (and notwithstanding any previous
application) in such manner as it, in its sole discretion sees fit, any monies received by it from
the Borrower or from collections, sales, or realizations of, on or under any Security, after first
deducting the charges therefor or any expenses thereof, including costs as between a solicitor and
his client, in or toward payment of any portion of the Indebtedness of the Borrower to the Lender;
and any such monies may be held by the Lender unappropriated in a collateral account for such time
as the Lender sees fit; and the Borrower shall have no right to make or require any appropriation
inconsistent with any such application by the Lender; and the taking of a judgment or judgments or
any other action or dealing whatsoever by the Lender in respect of any Security given or to be
given by the Borrower shall not operate as a merger of any other Security given to the Lender or
any part thereof, or in any way suspend payment or affect or prejudice the rights, remedies and
powers, legal or equitable, which the Lender may have in connection with such




Page 21 of 28









 






Security or the Indebtedness or the obligations of the Borrower; and the foreclosure, surrender,
cancellation, variation or any other dealing with or modification of any Security for such
Indebtedness shall not release or affect the liability of the Borrower for its total Indebtedness
or release or affect any other part of the Security held by the Lender. Notwithstanding the
foregoing, the Lender agrees that if the Borrower ceases to be a wholly owned subsidiary of the
Lender, then the Lender shall apply monies received from the Borrower firstly to the portion of the
Indebtedness bearing the highest rate of interest.





	7.5	 	Termination





           This Agreement shall continue in full force and effect, notwithstanding that there may be at
any time and from time to time no Indebtedness of the Borrower to the Lender, until terminated by
the Lender but this Agreement may be terminated by the Borrower upon written notice delivered to
the Lender at any time when there is no Indebtedness or other obligation outstanding of the
Borrower to the Lender. This Agreement and the General Security Agreement shall terminate
automatically upon the issuance to the Lender by the Borrower of the common shares pursuant to the
Exchange and the Lender shall take all such actions as may be necessary or appropriate to release
all Security on any property or assets of the Borrower or any of its subsidiaries created under,
pursuant to or in connection with this Agreement or the General Security Agreement, including the
filing of the appropriate discharges in connection therewith. Upon termination of this Agreement
the Borrower shall be entitled to discharges of all Security then held by the Lender hereunder
provided that the cost of preparing, executing, delivering and, if necessary, registering such
discharges shall be paid by the Borrower, including fees as between a solicitor and his client.




	7.6	 	Conflict





           In the event of a conflict between the terms of this Agreement and the Security or any other
agreements respecting the Indebtedness, the terms of this Agreement shall prevail. The Borrower
acknowledges that, notwithstanding the provisions of this Agreement, and for the purpose of
properly securing the Lender, the terms and conditions of the Security may, where deemed necessary
by the Lender or its solicitors, contain provisions which are not dealt with in this Agreement. To
the extent that this occurs, the said additional provisions shall not be inconsistent with this
Agreement.




	7.7	 	Indemnity





           The Borrower does hereby protect, indemnify and hold the Lender, its directors, officers,
employees and agents, and any successors to the Lender’s interest in any Security, and any other
person who acquires any portion of the Security or any of the Borrower’s property through the
Lender at a sale or otherwise through the exercise of Lender’s rights and remedies under the
Security, and any successors to any such other person or legal entity, and all directors,
officers, employees and agents of all of the aforementioned indemnified parties, harmless for,
from and against any and all actual or potential claims, proceedings, lawsuits, liabilities,
damages, losses, fines, penalties,




Page 22 of 28









 







judgments, awards, costs and expenses (including, without limitation, legal fees on a solicitor and
his own client basis and costs and expenses of investigation) which arise out of or relate in any
way to any breach of any of the covenants hereunder or any terms and provisions hereof or of the
Security, whether by the Borrower or any other person for whom the Borrower is responsible,
including, without limitation, all foreseeable and all unforeseeable consequential damages directly
or indirectly arising out of the use, production, generation, storage, discharge or disposal of
Hazardous Materials by the Borrower, any prior owner or operator of any of the Borrower’s property
or any person or entity on or about any of the Borrower’s property, any residual contamination
affecting any natural resource or the environment, and the costs of any required or necessary
repair, cleanup or detoxification of any property of the Borrower or of any other person whose
property has been affected.




ARTICLE 8





	8.1	 	Notices





           Any notice required to be given hereunder by any party shall be deemed to have been well and
sufficiently given if:




	 	(a)	 	personally delivered to the party to whom it is intended or if such party is a
corporation to an officer of that corporation; or
	 
	 	(b)	 	if mailed by prepaid registered mail, to the address of the party to whom it is
intended hereinafter set forth:






	 	(i)	 	if to the Borrower then to:
	 
	 	 	 	NUCRYST Pharmaceuticals Corp.

10102-114 Street

Fort Saskatchewan, Alberta T8L 3W4

Attention: President

Fax No.: (780) 992-5301
	 
	 	 	 	with a copy to:
	 
	 	 	 	Nucryst Pharmaceuticals Corp.

50 Audubon Road 

Wakefield, MA 01880

Attention: President

Fax No.: (781) 246-6012
	 
	 	(ii)	 	if to the Lender then to:
	 
	 	 	 	The Westaim Corporation

1010 Sun Life Plaza I West Tower





Page 23 of 28









 






	 	 	 	144-4th Avenue S.W. Calgary,

Alberta T2P 3N4
	 
	 	 	 	and a copy to:
	 
	 	 	 	The Westaim Corporation

10102-114 Street

Fort Saskatchewan, Alberta T8L 3W4

Attention: General Counsel

Fax No.: (780) 992-5301





           or to such other address as a party may from time to time direct in writing.


Any notice delivered as aforesaid shall be deemed to have been received on the date of delivery and
any notice mailed shall be deemed to have been received seventy-two (72) hours after the date it is
postmarked. If normal mail service is interrupted by strike, slowdown, force majeure or other cause
after the notice has been sent the notice will not be deemed to be received until actually
received. In the event normal mail service is impaired at the time of sending the notice, then
personal delivery only shall be effective.





	8.2	 	Headings





           The headings in this Agreement have been inserted for reference and as a matter of
convenience only and in no way define, limit or enlarge the scope or meaning of this Agreement or
any provisions hereof.




	8.3	 	Governing Law





           This Agreement shall be governed by and construed in accordance with the laws of the Province
of Alberta and the federal laws of Canada applicable in Alberta.




	8.4	 	Time of Essence





           Time shall be of the essence of this Agreement and of every part hereof.




	8.5	 	Payment of Monies





           The parties acknowledge and agree that any payment of monies required to be made hereunder
shall be made in Canadian funds and that any tender of monies or documents hereunder may be made
upon the solicitors acting for the party upon whom the tender is desired and it shall be
sufficient that a negotiable bank draft is tendered instead of cash.




Page 24 of 28









 









	8.6	 	Due Date Extended





           The parties acknowledge and agree that if any date for payment of monies hereunder or
fulfillment of any obligation hereunder shall fall on a Saturday, Sunday or statutory holiday such
date for the payment of such monies or fulfillment of such obligation hereunder shall be deemed
postponed and extended to the next following business day.




	8.7	 	Unenforceable Terms





           If any term, covenant or condition of this Agreement or the application thereof to any party
or circumstance shall be invalid or unenforceable to any extent the remainder of this Agreement or
application of such term, covenant or condition to a party or circumstance other than those to
which it is held invalid or unenforceable shall not be affected thereby and each remaining term,
covenant or condition of this Agreement shall be valid and shall be enforceable to the fullest
extent permitted by law.




	8.8	 	No Waiver





           No consent or waiver, express or implied, by the Lender to or of any breach or default by the
Borrower in the performance by the Borrower of its obligations hereunder or under any Security
shall be deemed or construed to be a consent or waiver to or of any other breach or default in the
performance of obligations hereunder by the Borrower. Failure by the Lender to complain of any act
or failure to act of the Borrower or to declare the Borrower in default, irrespective of how long
such failure continues, shall not constitute a waiver by the Lender of its rights hereunder.




	8.9	 	Assignment





           This Agreement shall not be assigned by the Borrower without the prior written consent of the
Lender, but the Lender may assign its position under this Agreement or under any Security to any
party without the consent of the Borrower.




	8.10	 	Singular, Plural and Gender





           Wherever the singular, plural, masculine, feminine or neuter is used throughout this
Agreement the same shall be construed as meaning the singular, plural, masculine, feminine,
neuter, body politic or body corporate where the facts or context so requires and the provisions
hereof and all covenants herein shall be construed to be joint and several when applicable to more
than one party.




	8.11	 	Enurement





           This Agreement shall enure to the benefit of and be binding upon the parties hereto and the
successors and permitted assigns of the Borrower and the successors and assigns of the Lender.



Page 25 of 28









 





           IN WITNESS WHEREOF the parties have hereunto set their corporate seals duly attested to by the
hands of their properly authorized officers in that behalf all on the day and year first above
written.



	 	 	 	 	 
	 	 	NUCRYST PHARMACEUTICALS CORP.
	 
	 	 	 	 
	 

	 	Per:
	 	/s/ (ILLEGIBLE)
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Per:
	 	/s/ (ILLEGIBLE)
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	THE WESTAIM CORPORATION
	 
	 	 	 	 
	 

	 	Per:
	 	/s/ (ILLEGIBLE)
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Per:
	 	/s/ (ILLEGIBLE)
	 

	 	 	 	 






Page 26 of 28









 








SCHEDULE“A”




PERMITTED ENCUMBRANCES





	 	 	The Permitted Encumbrances are:
	 
	1.	 	liens for taxes, assessments or governmental charges not at the time due or delinquent or the
validity of which is being contested at the time in good faith and as to which adequate
reserves have been set aside for payment of the same;
	 
	2.	 	liens under or pursuant to any judgment rendered, or claim filed which are contested in good
faith provided execution thereof has been stayed and as to which adequate cash reserves have
been set aside for payment of the same;
	 
	3.	 	undetermined or inchoate liens and charges incidental to construction or current operations
which have not at such time been filed pursuant to law or which relate to obligations not due
or delinquent;
	 
	4.	 	easements, rights-of-way, servitudes or other similar rights in land (including, without in
any way limiting the generality of the foregoing, right-of-way and servitudes for railways,
sewers, drains, gas and oil pipelines, gas and water mains, electric light and power and
telephone or telegraph conduits, poles, wires and cables) granted to or reserved or taken by
any other person which singly or in the aggregate do not materially detract from the value of
the land converted or materially impair its use in the operation of the business of the
Borrower;
	 
	5.	 	any security given to a public utility or any municipality or governmental or other public
authority when required by such utility or municipality or other authority in connection with
the operations of the Borrower in the ordinary course of its business which singly or in the
aggregate do not materially impair its use in the operation of its business;
	 
	6.	 	the reservation in any ordinary grants from the Crown of any land or interests therein and
statutory exceptions to title;
	 
	7.	 	any mortgage, charge, lien or other encumbrance created, issued or assumed by the Borrower to
secure part or all of the purchase price of property acquired in the ordinary course of
business provided that:






	 	(a)	 	the amount secured shall not exceed 100% of the actual purchase price or cost;
and
	 
	 	(b)	 	such security shall only be granted concurrently with the incurrence of the
indebtedness and such security shall be limited to the property so acquired;






Page 27 of 28









 









	8.	 	capitalized lease obligations;
	 
	9.	 	the interests of secured parties in the following registrations in the Personal Property
Registry for the Province of Alberta:






	 	(a)	 	Registration No. 01062114036 by Computershare Trust Company of Canada,
Corporate Trustee;
	 
	 	(b)	 	Registration No. 01062114572 by Computershare Trust Company of Canada,
Corporate Trustee;
	 
	 	(c)	 	Registration No. 04011929108 by Ikon Office Solutions, Inc.; and
	 
	 	(d)	 	Registration No. 02121015123 by Ikon Office Solutions, Inc.






Page 28 of 28