Document:

Exhibit 4.44

 

AMENDED
AND RESTATED LOAN AGREEMENT

 

DRAXIS HEALTH INC.,

as Borrower

 

- and -

 

NATIONAL
BANK OF CANADA,

as Lender

 

 

 

Credit
Facility

 

 

 

Made as of June 10, 2004

 

 

TABLE OF
CONTENTS

 

	
   

  	
  ARTICLE 1

  INTERPRETATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Definitions

  	
   

  
	
  1.2

  	
   

  	
  Headings

  	
   

  
	
  1.3

  	
   

  	
  Extended Meanings

  	
   

  
	
  1.4

  	
   

  	
  References to Lender

  	
   

  
	
  1.5

  	
   

  	
  Accounting Terms and Practices

  	
   

  
	
  1.6

  	
   

  	
  Non-Business Days

  	
   

  
	
  1.7

  	
   

  	
  References to Time of Day

  	
   

  
	
  1.8

  	
   

  	
  Severability

  	
   

  
	
  1.9

  	
   

  	
  Currency

  	
   

  
	
  1.10

  	
   

  	
  References to Statutes

  	
   

  
	
  1.11

  	
   

  	
  References to Agreements

  	
   

  
	
  1.12

  	
   

  	
  Consents and Approvals

  	
   

  
	
  1.13

  	
   

  	
  Schedules

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 2

  THE FACILITIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Original Loan Agreement

  	
   

  
	
  2.2

  	
   

  	
  The Facilities

  	
   

  
	
  2.3

  	
   

  	
  Purposes

  	
   

  
	
  2.4

  	
   

  	
  Term and Availability of Advances

  	
   

  
	
  2.5

  	
   

  	
  Repayment of Operating Facility

  	
   

  
	
  2.6

  	
   

  	
  Repayment of Term Facility

  	
   

  
	
  2.7

  	
   

  	
  Cancellation or Reduction of Facilities

  	
   

  
	
  2.8

  	
   

  	
  Interest on Prime Rate Advances

  	
   

  
	
  2.9

  	
   

  	
  Interest on U.S. Base Rate Advances

  	
   

  
	
  2.10

  	
   

  	
  Libor Advances

  	
   

  
	
  2.11

  	
   

  	
  Method and Place of Payment

  	
   

  
	
  2.12

  	
   

  	
  Fees

  	
   

  
	
  2.13

  	
   

  	
  Conversion Options

  	
   

  
	
  2.14

  	
   

  	
  Execution of Notices

  	
   

  
	
  2.15

  	
   

  	
  Evidence of Indebtedness

  	
   

  
	
  2.16

  	
   

  	
  Interest on Unpaid Costs and Expenses

  	
   

  
	
  2.17

  	
   

  	
  Criminal Rate of Interest

  	
   

  
	
  2.18

  	
   

  	
  Compliance with the Interest Act (Canada)

  	
   

  
	
  2.19

  	
   

  	
  Nominal Rate of Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 3

  LETTER OF CREDIT FACILITY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  Establishment of Letter of Credit Facility

  	
   

  

 

i

 

	
  3.2

  	
   

  	
  Term and Availability

  	
   

  
	
  3.3

  	
   

  	
  Reimbursement

  	
   

  
	
  3.4

  	
   

  	
  Obligations Absolute

  	
   

  
	
  3.5

  	
   

  	
  Indemnity for Costs

  	
   

  
	
  3.6

  	
   

  	
  Fees

  	
   

  
	
  3.7

  	
   

  	
  Refund of Overpayments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 4

  BANKERS’ ACCEPTANCES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Form of Bankers’ Acceptance Advance

  	
   

  
	
  4.2

  	
   

  	
  Minimum Amount

  	
   

  
	
  4.3

  	
   

  	
  Term and Interest Periods

  	
   

  
	
  4.4

  	
   

  	
  Purchase of Drafts and Acceptance Fee

  	
   

  
	
  4.5

  	
   

  	
  Payment on Maturity

  	
   

  
	
  4.6

  	
   

  	
  Waiver of Days of Grace

  	
   

  
	
  4.7

  	
   

  	
  No
  Market

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 5

  CHANGE OF CIRCUMSTANCES

  AND INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
   

  	
  Increased Costs

  	
   

  
	
  5.2

  	
   

  	
  Illegality

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 6

  CONDITIONS PRECEDENT TO DRAWDOWN

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Conditions for Closing

  	
   

  
	
  6.2

  	
   

  	
  Conditions for Subsequent Drawdowns

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 7

  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Representations and Warranties

  	
   

  
	
  7.2

  	
   

  	
  Survival of Representations and Warranties

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 8

  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Affirmative Covenants

  	
   

  
	
  8.2

  	
   

  	
  Negative Covenants

  	
   

  
	
  8.3

  	
   

  	
  Financial Covenants

  	
   

  

 

ii

 

	
   

  	
  ARTICLE 9

  SECURITY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
   

  	
  Guarantors to Provide Guarantees

  	
   

  
	
  9.2

  	
   

  	
  Borrower’s Security Documents

  	
   

  
	
  9.3

  	
   

  	
  Guarantors’ Security Documents

  	
   

  
	
  9.4

  	
   

  	
  Additional Security Documents

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 10

  DEFAULT AND ACCELERATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  Events of Default

  	
   

  
	
  10.2

  	
   

  	
  Acceleration

  	
   

  
	
  10.3

  	
   

  	
  Remedies Cumulative and Waivers

  	
   

  
	
  10.4

  	
   

  	
  Suspension of Lender’s Obligations

  	
   

  
	
  10.5

  	
   

  	
  Application of Payments and Proceeds of
  Realization After an Event of Default

  	
   

  
	
  10.6

  	
   

  	
  Disclosure of Information

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 11

  SUCCESSOR COMPANIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
   

  	
  Certain Requirements in Respect of Merger,
  Etc.

  	
   

  
	
  11.2

  	
   

  	
  Vesting of Powers in Successor

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 12

  COSTS, EXPENSES AND INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  Costs and Expenses

  	
   

  
	
  12.2

  	
   

  	
  Indemnification by the Borrower

  	
   

  
	
  12.3

  	
   

  	
  Funds

  	
   

  
	
  12.4

  	
   

  	
  General Indemnity

  	
   

  
	
  12.5

  	
   

  	
  Environmental Claims

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 13

  GENERAL

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  Term

  	
   

  
	
  13.2

  	
   

  	
  Survival

  	
   

  
	
  13.3

  	
   

  	
  Benefit of the Agreement

  	
   

  
	
  13.4

  	
   

  	
  Notices

  	
   

  
	
  13.5

  	
   

  	
  Amendment and Waiver

  	
   

  
	
  13.6

  	
   

  	
  Governing Law

  	
   

  
	
  13.7

  	
   

  	
  Further Assurances

  	
   

  
	
  13.8

  	
   

  	
  Enforcement and Waiver by the Lender

  	
   

  
	
  13.9

  	
   

  	
  Execution in Counterparts

  	
   

  
	
  13.10

  	
   

  	
  Assignment by the Borrower

  	
   

  
					

 

iii

 

	
  13.11

  	
   

  	
  Assignments and Transfers by the Lender

  	
   

  
	
  13.12

  	
   

  	
  Set-Off

  	
   

  
	
  13.13

  	
   

  	
  Time of the Essence

  	
   

  
	
  13.14

  	
   

  	
  Judgment Currency

  	
   

  
	
  13.15

  	
   

  	
  No
  Novation

  	
   

  
	
  13.16

  	
   

  	
  Consent

  	
   

  

 

SCHEDULES

 

	
  Schedule A

  	
   

  	
  –

  	
   

  	
  Applicable Margin, Appplicable Libor
  Margin, Aplicable BA Stamping Fee, LC Fee and Standby Fee

  
	
  Schedule B

  	
   

  	
  –

  	
   

  	
  Borrowing Base Certificate

  
	
  Schedule C

  	
   

  	
  –

  	
   

  	
  Conversion Notice

  
	
  Schedule D

  	
   

  	
  –

  	
   

  	
  Drawdown Notice

  
	
  Schedule E

  	
   

  	
  –

  	
   

  	
  Rollover Notice

  
	
  Schedule F

  	
   

  	
  –

  	
   

  	
  Transfer Certificate

  
	
  Schedule G

  	
   

  	
  –

  	
   

  	
  Compliance Certificate

  
	
  Schedule 7.1(h)

  	
   

  	
  –

  	
   

  	
  Outstanding
  Litigation

  
	
  Schedule 7.1(i)

  	
   

  	
  –

  	
   

  	
  Licenses

  
	
  Schedule 7.1(j)

  	
   

  	
  –

  	
   

  	
  Non-Compliance
  Matters

  
	
  Schedule 7.1(p)

  	
   

  	
  –

  	
   

  	
  Real
  Property

  
	
  Schedule 7.1(q)

  	
   

  	
  –

  	
   

  	
  Subsidiaries

  
	
  Schedule 7.1(u)

  	
   

  	
  –

  	
   

  	
  Bank
  Accounts

  

 

iv

 

AMENDED
AND RESTATED LOAN AGREEMENT

 

MEMORANDUM OF
AGREEMENT made as of the 10th day of June, 2004,

 

B E T W E E N:

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

 

(hereinafter referred to as the “Borrower”),

 

- and –

 

NATIONAL BANK OF
CANADA
a Canadian chartered bank

 

(hereinafter referred to as the “Lender”).

 

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

 

AND WHEREAS the Borrower and the Lender wish
to amend and restate the Original Loan Agreement by executing and delivering
this Agreement;

 

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

 

ARTICLE 1 

INTERPRETATION

 

1.1                                                                               Definitions

 

In this Agreement:

 

“Acceptance
Fee” means, with respect to each Bankers’ Acceptance drawn by the
Borrower hereunder, an amount equal to the product of (i) the Applicable BA
Stamping Fee, (ii) the Face Amount of such Bankers’ Acceptance and (iii) a
fraction (x) the numerator of which is the number of days in the term to
maturity of such Bankers’ Acceptance and (y) the denominator of which is 365
days (or 366 days in the case of a Bankers’ Acceptance which matures in a leap
year);

 

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

 

 

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

 

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

 

“Additional
Compensation” has the meaning specified in Section 5.1;

 

“Adjusted
EBITDA” means EBITDA less Taxes and Unfunded Capital Expenditures;

 

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

 

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

 

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

 

“Agreement
Currency” has the meaning specified in Section 13.14;

 

“Annual
Plan” has the meaning specified in Section 8.1(a)(vi);

 

“Applicable
BA Stamping Fee” has the meaning specified in Schedule A;

 

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

 

“Applicable
Libor Margin” has the meaning specified in Schedule A;

 

“Applicable
Margin” has the meaning specified in Schedule A;

 

2

 

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

 

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

 

“Available
Amount” means, (i) in respect of the Operating Facility, at any
time, the lesser of (a) the Committed Operating Amount, and (b) the Borrowing
Base, and (ii) in respect of the Term Facility, at any time, the Committed Term
Amount;

 

“BA
Purchase Price” means, in the case of a Bankers’ Acceptance to be
purchased by the Lender, the difference between (i) the result (rounded to the
nearest whole cent, with one-half of one cent being rounded up) obtained by
dividing the Face Amount of such Bankers’ Acceptance by the sum of one plus the
product of (x) the BA Reference Discount Rate multiplied by (y) a fraction, the
numerator of which is the number of days in the term to maturity of such
Bankers’ Acceptance, and the denominator of which is 365 or 366 in the case of
a Bankers’ Acceptance maturing in a leap year and (ii) the Acceptance Fee;

 

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

 

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

 

“Bankers’
Acceptance Advances” means the advance of funds to the Borrower by
way of creation and issuance of Bankers’ Acceptances in accordance with the
provisions of Article 4;

 

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

 

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

 

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

 

3

 

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

 

“Borrowing
Base Certificate” means a certificate to be executed by the Borrower
and delivered by the Borrower to the Lender from time to time substantially in
the form attached to this agreement as Schedule B;

 

“Borrower’s
Security” has the meaning specified in Section 9.2;

 

“Borrower’s
Security Documents” has the meaning specified in Section 9.2;

 

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

 

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

 

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

 

“Capital
Expenditures” means, with respect to any Person, any and all
expenditures of money or money’s worth made or committed to be made by such
Person for or in connection with the acquisition, repair, improvement or
extension of capital property or assets (other than an Acquisition), whether by
way of purchase, lease or otherwise and which, according to GAAP, should be
capitalized by such Person excluding, however, the amount of any Capital
Expenditures paid for or to be paid for with proceeds of casualty insurance,
condemnation awards or indemnity payments or any government grants received for
that purpose;

 

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

 

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

 

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

 

4

 

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

 

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

 

“Closing
Date” means June 10, 2004;

 

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

 

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

 

“Committed
Operating Amount” means the amount of Cdn. $15,000,000, as reduced
from time to time pursuant to Section 2.7;

 

“Committed
Term Amount” means the amount of Cdn. $10,000,000, as reduced from
time to time pursuant to Section 2.7;

 

“Compliance
Certificate” means a certificate to be executed by the Borrower and
delivered by the Borrower to the Lender from time to time substantially in the
form attached to this agreement as Schedule G;

 

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

 

“Consolidated
Working Capital Ratio” means the ratio of current assets to current
liabilities, each as reflected in the Borrower’s most recent audited financial
statements or unaudited quarterly financial statements determined in accordance
with GAAP but shall, in the case of current assets, exclude any intercompany
advances, deferred costs or any other assets of an intangible nature as
determined by the Lender.  Current
liabilities shall include the current portion of Long-Term Debt and amounts
outstanding under the Facilities;

 

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

 

5

 

affiliates of that Person or others with whom
that Person does not deal at Arm’s Length of securities of such corporation or
the right to vote or direct the voting of securities of such corporation to
which, in the aggregate, are attached more than 50% of the votes that may be
cast to elect directors of the corporation, provided that the votes attached to
those securities are sufficient, if exercised, to elect a majority of the
directors of the corporation and means, with respect to control of a Person
other than a corporation, the power to direct or cause the direction of the
management and policies of such Person, directly or indirectly, and whether
through the ownership or control of voting securities, voting rights, contract
or otherwise, without the cooperation of others;

 

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

 

“Conversion
Notice” means a notice substantially in the form set out in Schedule C;

 

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

 

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

 

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

 

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

 

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

 

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

 

(ii)           Purchase
Money Obligations;

 

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

 

(iv)          obligations
under Capital Leases and Synthetic Leases;

 

(v)           obligations
under letters of credit (other than documentary letters of credit contemplating
payment against delivery of property), letters of guarantee or bankers’
acceptances;

 

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

 

6

 

of any such
capital stock shall be the maximum fixed redemption or repurchase price
therefor);

 

(vii)         foreign
exchange liabilities and other derivative liabilities;

 

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

 

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

 

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

 

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

 

“Drawdown”
means a drawdown of an Advance;

 

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

 

“Drawdown
Notice” means a notice substantially in the form set out in Schedule D;

 

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

 

“EBITDA”
means, for any Person on a consolidated basis and for any period, without
duplication, the amount equal to net income, plus to the extent deducted from
net income, interest expense, depreciation expense, amortization expense, other
non-cash expenses and income tax expenses; provided that extraordinary
gains or losses, including gains or losses on the disposition of assets outside
the ordinary course of business, shall not be included in EBITDA;

 

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

 

7

 

“Eligible
Canadian Accounts Receivable” means the combined Canadian trade
accounts of the Borrower and the Guarantors as determined in accordance with
GAAP (net of all goods and services taxes, harmonized taxes and sales tax as
and all concessions, offsets, deductions, contras, chargebacks or
understandings with the account party that could be expected to adversely
affect the payment of, or the amount of, such trade account), but excluding the
following:

 

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

 

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

 

(c)           trade
accounts if the account debtors are located in a jurisdiction other than Canada
or the United States;

 

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

 

(e)           trade
accounts if the account debtors in respect thereof are Affiliates of the
Borrower or any of the Guarantors;

 

(f)            trade
accounts subject to a right of set-off if a claim of set-off has been asserted
by the applicable account debtor;

 

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

 

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

 

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

 

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

 

“Eligible
Inventory” means the combined inventory of raw materials, finished
and semi-finished goods of the Obligors which meet such standards of
eligibility as the Lender may establish from time to time; provided that no
inventory shall be deemed to be Eligible Inventory unless each of the following
statements is accurate and complete:

 

8

 

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

 

(b)           such
inventory is in good condition, meets all standards imposed by any Governmental
Authority having regulatory authority over it, its use and/or sale and is not
obsolete and is either currently usable or currently saleable in the normal
course of business of the applicable Obligor;

 

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

 

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

 

(e)           such
inventory does not consist of goods that are returned or repossessed or used
goods taken in trade;

 

(f)            any
portion of the value of such inventory which results from a profit or gain
resulting from an inter-company sale or other disposition of such inventory
shall be excluded;

 

(g)           such
inventory is not evidenced by negotiable documents of title unless delivered to
the Lender with endorsements;

 

(h)           where
such inventory is not finished goods, such inventory does not constitute
Hazardous Substances provided that this paragraph (h) shall not exclude
inventory which is handled at all times in accordance with Applicable Laws and
in accordance with good industry practices;

 

(i)            such
inventory is covered by casualty insurance; and

 

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

 

9

 

“Eligible
U.S. Accounts Receivable” means the combined United States trade
accounts of the Borrower and the Guarantors as determined in accordance with
GAAP (net of all goods and services taxes, harmonized taxes and sales tax as
and all concessions, offsets, deductions, contras, chargebacks or
understandings with the account party that could be expected to adversely
affect the payment of, or the amount of, such trade account), but excluding the
following:

 

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

 

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

 

(c)           trade
accounts if the account debtors are located in a jurisdiction other than Canada
or the United States;

 

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

 

(e)           trade
accounts if the account debtors in respect thereof are Affiliates of the
Borrower or any of the Guarantors;

 

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

 

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

 

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

 

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

 

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

 

“Environmental
Claims” means any and all enforcement, clean-up, removal or other
governmental or regulatory actions, orders, directions or proceedings
instituted, pending or completed or to the best of the knowledge of the
Borrower, threatened or anticipated pursuant to any Environmental Laws and all
claims made or, to the best of the knowledge of the Borrower, threatened, by
any third party against the Borrower, any property of the Borrower or its
Subsidiaries or any party having charge, management or control of any property
of the Borrower or its Subsidiaries relating to damage, contribution, cost

 

10

 

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

 

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

 

“Equivalent
Amount” on any given date in one currency (the “first currency”) of any amount denominated
in another currency (the “second currency”)
means the amount of the first currency which could be purchased with such
amount of the second currency at the rate of exchange quoted by the Lender at
11:00 a.m. (Toronto time) on such date for the purchase of the first currency
with the second currency;

 

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

 

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

 

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

 

“Federal
Funds Effective Rate” means, for any particular day, the variable
rate of interest per annum,
calculated on the basis of a 360-day year as determined by the Lender for the
actual number of days elapsed, equal to:

 

(i)            the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or

 

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

 

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

 

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

 

11

 

“Guarantees”
by any Person means all obligations (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection) of such
Person guaranteeing, or in effect guaranteeing, any Debt, dividend or other
obligation of any other Person (the “Primary
Obligor”) in any manner, whether directly or indirectly, including
all obligations incurred through an agreement, contingent or otherwise, by such
Person: (a) to purchase such Debt or obligation on any property or assets
constituting security therefor, (b) to advance or supply funds (i) for the
purchase or payment of such Debt or obligation, or (ii) to maintain working
capital or other balance sheet condition or otherwise to advance or make available
funds for the purchase or payment of such Debt or obligation, (c) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Debt or obligation against loss, or
(d) otherwise to assure the owner of the Debt or obligation of the Primary
Obligor against loss in respect thereof. 
For the purposes of all computations made under this Agreement, a
Guarantee in respect of any Debt, and a Guarantee in respect of any other
obligation or liability or any dividend, as of the date of any such
computation, shall be deemed to be an amount equal to (a) where such Guarantee
is unlimited in amount, the aggregate outstanding amount of the Debt being
Guaranteed and (b) where such Guarantee is limited in amount, the lesser of the
aggregate outstanding amount of such Debt and the maximum amount that may be
claimed under such Guarantee;

 

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

 

“Guarantors’
Security” has the meaning
specified in Section 9.1;

 

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

 

“Hazardous
Substance” means any contaminant, pollutant or substance that causes
harm or degradation to the surrounding environment or injury to human health
and, without restricting the generality of the foregoing, includes any
pollutant, contaminant, waste, hazardous waste, deleterious substance or
dangerous good present in such quantity or state that it contravenes any
Environmental Laws or gives rise to any liability or obligation under any
Environmental Law;

 

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

 

“Indemnifying
Party” has the meaning specified in Section 12.4(c);

 

“Interest
Date” means the first day of each calendar month;

 

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

 

12

 

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

 

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

 

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

 

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

 

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

 

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

 

“Letter of
Credit Facility” means the revolving credit facility forming part of
each of the Operating Facility and the Term Facility and to be made available
to the Borrower hereunder by way of the issuance of Letters of Credit as set
forth in Article 3;

 

“Libor
Advance” means a loan made by the Lender to the Borrower in, or
Conversion into, United States Dollars on which interest is payable at the Libor
Rate plus the Applicable Libor Margin;

 

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

 

13

 

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

 

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

 

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

 

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

 

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

 

“Material
Agreement” means any agreement, contract or document which is
material to the business, operations or financial condition of the Borrower and
its Subsidiaries taken as a whole;

 

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

 

“Net
Proceeds” means with respect to: (i) the issuance or creation of any
Debt, whether public or private, of any Person, the amount equal to the
aggregate amount received in cash in connection with such issuance or creation
less all reasonable fees (including without limitation, reasonable legal fees),
commissions and other out-of-pocket expenses incurred or paid for by such
Person in connection with such creation or issuance; and (ii) with respect to
any asset dispositions by any Person, an amount equal to the amount received in
cash (including any cash received by way of deferred payment pursuant to a note
receivable or other non-cash consideration but only as and when such cash is
received) in connection with any such disposition less all reasonable fees,
incurred or paid for by the Person in connection with the disposition and all
sales, goods and services or similar taxes incurred in connection with the
disposition;

 

“Non-Compliance
Matters” means those
matters described in Schedule 7.1(j);

 

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

 

“Notice of
Amount” has the meaning specified in Section 5.1;

 

14

 

“Notification
Date” has the meaning specified in Section 12.5(c);

 

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

 

“Officer’s
Certificate” means a certificate signed by any one of the President
and Chief Executive Officer, the Chief Financial Officer or the Vice President,
Finance of the Borrower;

 

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

 

“Operating
Facility” means the revolving credit facility, including the Letter
of Credit Facility (specified as being part of the Operating Facility), in an
aggregate principal amount of up to the Committed Operating Amount or its
Equivalent Amount in United States Dollars to be made available to the Borrower
hereunder as set forth in Article 2 and Article 3;

 

“Original
Loan Agreement” has the meaning specified in the recitals to this
Agreement;

 

“Outstanding
Operating Amount” has the meaning specified in Section 2.5(a);

 

“Outstanding
Term Amount” has the meaning specified in Section 2.6(a);

 

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

 

“Permitted
Charge” means, with respect to any Person:

 

(i)            any
Charge created by law that is assumed in the ordinary course of business and in
order to exercise same, which has not at such date been registered in
accordance with Applicable Laws against such Person, which relates to
obligations which are not yet due, which is not related to any loan of money or
obtaining of credit and which, in the aggregate, do not affect in a material
way the use, the income or the benefits flowing from the property so charged in
the conduct of the business of such Person; any Charge resulting from judgments
or decisions which such Person has, at such date, appealed or in respect of
which it has sought revision and obtained a suspension of execution pending the
appeal or the revision; any Charge for taxes, assessments or governmental claims
or other impositions not yet due or matured or in respect of which the validity
at such date has been contested in good faith by such Person before a competent
tribunal or other governmental body; or which relates to a deposit of monies or
securities in the ordinary course of business with respect to any Charge
referred to in this paragraph, or to secure worker’s compensation, surety or
appeal bonds or security for costs of litigation;

 

15

 

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

 

(iii)          any
real right granted by such Person to a public body, or to a municipal or
governmental authority or public utility, or which may be imposed by one or the
other, when required by such body or authority with respect to the operations
of such Person in the ordinary course of its business;

 

(iv)          real
rights granted in favour of municipal authorities or public utilities on real
property and immovables acquired from time to time by such Person which do not
adversely affect the value or marketability of such Person’s real and immovable
property;

 

(v)           minor
title defects, homologated lines, zoning and building by-laws, ordinances,
regulations and other governmental restrictions on the use of property, provided
that none of the foregoing adversely affects the value or marketability of such
Person’s real or immovable property;

 

(vi)          Charges
to secure Debt to renew, extend, refinance or refund, in whole or in part, Debt
secured by any Charge referred to in this definition, so long as such Charge
does not extend to any other property and the principal amount of Debt so
renewed, extended, refinanced or refunded, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms
of the Debt refinanced or the amount of any premium reasonably determined by
the Borrower as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase, plus the expenses of the Borrower in
connection with such refinancing;

 

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

 

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

 

“Permitted Debt”
means

 

(i)            Debt
to the Lender under the Facilities;

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

“Prime Rate
Advance” means a loan made by the Lender to the Borrower in, or
Conversion into, Canadian Dollars on which interest is payable at the Prime
Rate plus the Applicable Margin;

 

“Priority
Claims” means, at any time, the aggregate of any amounts due and
payable prior to such time, to the extent not paid by the Borrower or any of
the Guarantors in respect of:

 

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

 

(b)           vacation
pay;

 

(c)           deductions
at source for employees’ federal and provincial income taxes, Canadian Pension
Plan and Employment Insurance;

 

(d)           GST
and PST (net input tax credits);

 

17

 

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

 

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

 

(g)           all
payments in connection with an employee benefit plan, program and arrangement
including, without limitation, any “employee benefit plan” as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), maintained or contributed to by
the Borrower or any of the Guarantors, or any other applicable law covering
employee benefit plans (including, without limitation, the Internal Revenue
Code of 1986, as amended) or any applicable agreement controlling such employee
benefit plan(s);

 

(h)           all
payments in connection with workers’ compensation, workers’ disability
insurance, or any similar program as required by any applicable state or
federal law, such as, for example, the New York State “Workers’ Compensation
Law” (New York Consolidated Laws Chapter 67, §§1 et. seq.);

 

(i)            property
taxes;

 

(j)            rent;

 

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

 

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

 

“Purchase
Money Obligation” means, with respect to any Person, any Debt
incurred in respect of the cost of acquisition, including by way of conditional
sales contract, or leasing by way of a Capital Lease, of any property
(including shares of capital stock or Debt) or of the cost of construction,
improvement or extension of any property, acquired, constructed, improved or
extended or leased by way of a Capital Lease, which Debt existed at the time of
acquisition, construction, improvement or extension or leasing by way of a
Capital Lease or within 90 days after the completion thereof, excluding any
trade debt incurred in the ordinary course of business and without any extended
terms,

 

18

 

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

 

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

 

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

 

“relevant
period” has the meaning specified in Section 2.12(a);

 

“Reorganization”
has the meaning specified in Section 11.1;

 

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

 

“Rollover
Notice” means a notice substantially in the Form of Schedule E;

 

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

 

“Security
Documents” means, collectively, the Borrower’s Security Documents
and the Guarantors’ Security Documents and “Security
Document” means any of them;

 

“Securitization
Transaction” means any transaction providing for the sale,
securitization or other asset-backed financing of (i) receivables of or owing
to any Obligor or any of its Subsidiaries or (ii) any other assets of any Obligor
or any of its Subsidiaries;

 

“Standby
Fee” has the meaning specified in Section 2.12(a) and is
calculated in accordance with Schedule A;

 

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

 

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

 

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

 

“Successor
Corporation” has the meaning specified in Section 11.1;

 

19

 

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

 

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

 

“Term
Facility” means the revolving credit facility, including the Letter
of Credit Facility (specified as being part of the Term Facility), in an
aggregate principal amount of up to Cdn. $10,000,000 (or its initial Equivalent
Amount in United States Dollars) made available to the Borrower hereunder as
set forth in Article 2 and Article 3;

 

“Total
Funded Debt” means, with respect to the Borrower, on a consolidated
basis without duplication, the sum of (i) all interest bearing Debt; (ii) all
Debt referred to in paragraph (ix) of the definition Debt; and (iii) all
Capital Leases;

 

“Transfer
Certificate” means a certificate substantially in the form of Schedule F;

 

“Transferee”
has the meaning specified in Section 13.11;

 

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

 

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

 

“U.S. Base
Rate Advance” means a loan made by the Lender to the Borrower in, or
Conversion into, U.S. Dollars on which interest is payable at the Base Rate
plus the Applicable Margin;

 

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

 

“Voting
Shares” means shares of any class of any corporation carrying voting
rights under all circumstances, provided that, for the purpose of this
definition, shares which only carry the right to vote conditionally on the
happening of an event shall not be considered Voting Shares unless such right
has become exercisable.

 

1.2                                                                               Headings

 

The division of this Agreement into Articles
and Sections and the insertion of an index and headings are for convenience of
reference only and shall not affect the construction or interpretation
hereof.  The terms “this Agreement”, “hereof”, “hereunder”
and similar expressions refer to this Agreement and not to any particular
Article, Section, paragraph or other

 

20

 

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

 

1.3                                                                               Extended
Meanings

 

Words importing the singular number only
shall include the plural and vice versa,
and words importing any gender shall include all genders.  The term “including” means “including without
limitation”.

 

1.4                                                                               References
to Lender 

 

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

 

1.5                                                                               Accounting
Terms and Practices

 

Unless otherwise provided herein, all
accounting terms referred to herein shall be construed in accordance with GAAP
on the date of this Agreement and all financial data submitted pursuant to this
Agreement shall be prepared in accordance with such principles, consistently
applied.

 

1.6                                                                               Non-Business
Days

 

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

 

1.7                                                                               References
to Time of Day

 

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

 

1.8                                                                               Severability

 

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

 

1.9                                                                               Currency

 

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

 

21

 

1.10                                                                        References to Statutes

 

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

 

1.11                                                                        References
to Agreements

 

Except
as otherwise provided herein, any reference herein to this Agreement or any
other agreement or document shall be construed to be a reference to this
Agreement or such other agreement or document, as the case may be, as the same
may have been, or may from time to time be, amended, varied, novated or
supplemented.

 

1.12                                                                        Consents
and Approvals

 

Whenever
the consent or approval of a party hereto is required in a particular
circumstance, unless otherwise expressly provided for therein, such consent or
approval shall not be unreasonably withheld or delayed by such party.

 

1.13                                                                        Schedules

 

The
following are the Schedules attached hereto and incorporated by reference and
deemed to be part hereof:

 

	
  Schedule A

  	
   

  	
  Applicable
  Margin, Applicable Libor Margin, Applicable BA Stamping Fee, LC Fee and
  Standby Fee

  
	
  Schedule B

  	
   

  	
  Borrowing
  Base Certificate

  
	
  Schedule C

  	
   

  	
  Conversion
  Notice

  
	
  Schedule D

  	
   

  	
  Drawdown
  Notice

  
	
  Schedule E

  	
   

  	
  Rollover
  Notice

  
	
  Schedule F

  	
   

  	
  Transfer
  Certificate

  
	
  Schedule G

  	
   

  	
  Compliance
  Certificate

  
	
  Schedule 7.1(h)

  	
   

  	
  Litigation

  
	
  Schedule 7.1(i)

  	
   

  	
  Licenses

  
	
  Schedule 7.1(j)

  	
   

  	
  Non-Compliance Matters

  
	
  Schedule 7.1(p)

  	
   

  	
  Real Property

  
	
  Schedule 7.1(q)

  	
   

  	
  Subsidiaries

  
	
  Schedule 7.1(u)

  	
   

  	
  Bank Accounts

  

 

ARTICLE 2

THE FACILITIES

 

2.1                                                                               Original
Loan Agreement

 

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

 

22

 

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

 

2.2                                                                               The
Facilities

 

Upon
the terms and subject to the conditions hereof, the Lender hereby agrees to
make the Facilities available to the Borrower.

 

2.3                                                                               Purposes

 

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

 

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

 

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

 

(ii)          for Capital Expenditures requirements of the Borrower.

 

2.4                                                                               Term
and Availability of Advances

 

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

 

23

 

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

 

(b)                                 Availability
of Term Facility.  The Term Facility shall be available for
Drawdowns by the Borrower, at the option of the Borrower, (i) in a minimum
principal amount of Cdn. $50,000 and integral multiples of Cdn. $10,000
thereafter by way of Prime Rate Advances, (ii) in a minimum Face Amount of Cdn.
$50,000 and integral multiples of Cdn. $50,000 thereafter by way of Bankers’
Acceptance Advances, (iii) in a minimum amount of U.S. $50,000 and integral
multiples of U.S. $10,000 thereafter by way of U.S. Base Rate Advances, (iv) in
a minimum amount of U.S. $50,000 and integral multiples of U.S. $10,000
thereafter by way of Libor Advances, or (v) any combination thereof, in each
case by irrevocable Drawdown Notice given to the Lender not later than (x)
10:00 a.m. on the relevant Drawdown Date in the case of Prime Rate Advances,
Bankers’ Acceptance Advances and U.S. Base Rate Advances and (y) 10:00 a.m. on
the third Business Day prior to the relevant Drawdown Date in the case of a
Libor Advance.  The Term Facility shall
be a revolving credit facility and, subject to the terms and conditions
contained herein, the Borrower shall have the right and option to determine, in
addition to the Letters of Credit available pursuant to Article 3, in
which of these forms the Term Facility shall be utilized from time to time and
the Borrower may borrow, repay and reborrow the Term Facility at any time prior
to the Maturity Date but solely for the purposes set forth in Section 2.3(b),
and the Borrower shall have the right to convert the manner in which the Term
Facility is utilized from one form to another as it sees fit, subject to Section 2.13.  The Borrower may not make a Drawdown under
the Term Facility if as a result of such Drawdown the sum of (A) the aggregate
principal amount of all Prime Rate Advances outstanding under the Term
Facility, plus (B) the aggregate Face Amount of all Bankers’ Acceptances
outstanding under the Term Facility, plus (C) the maximum amount which may be drawn
under all Canadian Dollar denominated Letters of Credit outstanding under the
Term Facility portion of the Letter of Credit Facility plus (D) the Equivalent
Amount, expressed in Canadian Dollars, of the aggregate principal amount of all
Libor Advances outstanding under the Term Facility, plus (E) the Equivalent
Amount, expressed in Canadian Dollars, of the aggregate principal amount of all
U.S. Base Rate Advances outstanding under the Term Facility, plus (F) the
Equivalent Amount, expressed in Canadian Dollars, of the maximum amount which
may be drawn under all U.S. Dollar denominated Letters of Credit outstanding
under the Term Facility portion of Letter of Credit Facility, in each case
without duplication, would exceed the Available Amount.  The Lender shall have no obligation to make
any Advance hereunder at any time after demand has been made pursuant to Section 10.2,
or at any time that the Borrower or any of the Guarantors has failed to observe
or perform any of its covenants or obligations under any of the Loan Documents
and such default is continuing, regardless of whether the Lender has made
demand pursuant to Section 10.2 hereof.

 

24

 

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

 

2.5                                                                               Repayment
of Operating Facility

 

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

 

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

 

(c)                                  All
repayments of the Operating Facility by the Borrower, other than repayments
pursuant to paragraphs (a) and (b) of this Section 2.5 shall be in a
minimum amount of Cdn.

 

25

 

$50,000 and
incremental amounts of Cdn. $10,000 thereafter or the Equivalent Amount in U.S.
Dollars.  Repayments of any Advance
outstanding under the Operating Facility shall be made in the currency in which
such Advance is denominated.

 

2.6                                                                               Repayment
of Term Facility

 

(a)                                  If
the sum of  (i) the aggregate principal
amount of all Prime Rate Advances outstanding under the Term Facility, plus
(ii) the aggregate Face Amount of all Bankers’ Acceptances outstanding under
the Term Facility, plus (iii) the maximum amount which may be drawn under all
Canadian Dollar denominated Letters of Credit outstanding under the Term
Facility portion of the Letter of Credit Facility, plus (iv) the Equivalent
Amount, expressed in Canadian Dollars, of the aggregate principal amount of all
Libor Advances outstanding under the Term Facility, plus (v) the Equivalent
Amount, expressed in Canadian Dollars, of the aggregate principal amount of all
U.S. Base Rate Advances outstanding under the Term Facility, plus (vi) the
Equivalent Amount, expressed in Canadian Dollars, of the maximum amount which
may be drawn under all U.S. Dollar denominated Letters of Credit outstanding
under the Term Facility portion of the Letter of Credit Facility, (such amount
being referred to in this Section 2.6 as the “Outstanding Term Amount”), exceeds the amount allowed pursuant
to Section 2.4(b) for any reason whatsoever (including changes in the
Canadian Dollar/United States Dollar exchange rate), then the Lender may, by
notice to the Borrower, require the Borrower to repay, within two Business Days
of receipt of such notice, subject to the provisions of this Section 2.6,
that portion of the Outstanding Term Amount which is in excess of the maximum
amount allowed pursuant to Section 2.4(b) determined on the date of such
notice.

 

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

 

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

 

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

 

26

 

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

 

2.7                                                                               Cancellation
or Reduction of Facilities

 

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

 

2.8                                                                               Interest
on Prime Rate Advances

 

Interest
on each Prime Rate Advance shall accrue at a rate per annum equal to Applicable Margin plus the Prime Rate in
effect from time to time during the period of time that the Prime Rate Advance
is outstanding.  Such interest shall be
payable in Canadian Dollars monthly in arrears on the Interest Date commencing
with the Interest Date occurring in the calendar month following the initial
Drawdown Date for the period from and including the Drawdown Date for such
Advance (or, if applicable, the date on which such Advance was converted into a
Prime Rate Advance) or the preceding Interest Date for such Prime Rate Advance,
as the case may be, to and including the day preceding such Interest Date and
shall be calculated on the principal amount of the Prime Rate Advance
outstanding during such period and on the basis of the actual number of days
elapsed in a year of 365 days or 366 days, in the case of an Interest Date
occurring in a leap year.  Changes in the
Prime Rate shall cause an automatic and immediate adjustment of the interest
rate payable on Prime Rate Advances without the necessity of any notice to the
Borrower.

 

2.9                                                                               Interest
on U.S. Base Rate Advances

 

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

 

27

 

2.10                                                                        Libor
Advances

 

(a)                                  Libor
Advances shall be available for Drawdown in United States Dollars.  Each Drawdown Notice shall specify the
applicable Interest Period for the Libor Advance. The duration of each such
Interest Period shall be for periods of approximately one, two, three or six
months (or such other period as may be agreed to by the Lender), as the
Borrower may select in the applicable Drawdown Notice, Conversion Notice or
Rollover Notice.  No Libor Advance may
have an Interest Period ending after the applicable Maturity Date.  If any Interest Period would end on a day
which is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day falls in the
next calendar month, in which case such Interest Period shall be shortened to
end on the immediately preceding Business Day.

 

(b)                                 If
the Lender determines that deposits of the necessary amount for the relevant
Interest Period are not available in the London interbank market or if for any
other reason the Lender, acting reasonably, is unable to determine the
applicable Libor Rate, then the relevant Libor Advance will not be made to the
Borrower, and the Lender will notify the Borrower of such event forthwith and
the Lender will discuss with the Borrower the particular circumstances and
implications of such event.  In the event
that such determination is made by the Lender in the case of a proposed
Rollover of an existing Libor Advance or a proposed Conversion of another type
of Advance into a Libor Advance, the proposed Libor Advance will automatically
be deemed to be a U.S. Base Rate Advance.

 

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

 

(d)                                 If a
Libor Advance is neither repaid on the last day of an Interest Period nor
converted into another type of Advance on such date pursuant to Section 2.13,
and if the Lender has not received a Rollover Notice or a Conversion Notice
specifying the term of the next Interest Period for such Libor Advance on or
before 10:00 a.m. on the second Business Day prior to the last day of the then
current Interest Period, then the outstanding Libor Advance shall be deemed to
be converted, by way of Conversion on the last day of the then current Interest
Period, as a U.S. Base Rate Advance.

 

(e)                                  Except
as otherwise provided herein, Libor Advances shall not be repaid, prepaid or
converted into another type of Advance except on the last day of any Interest
Period relating thereto unless the Borrower pays to the Lender, all amounts
which may be payable under Section 12.2.

 

28

 

2.11                                                                        Method
and Place of Payment

 

(a)                                  Each
payment to be made by the Borrower under this Agreement shall be made without
deduction, set-off or counterclaim.

 

(b)                                 All
payments of principal, interest and fees hereunder shall be made for value at
or before 12:00 noon on the day such amount is due by deposit or transfer
thereof to the account of the Lender maintained at the principal office of the
Lender in Toronto or such other place as the Borrower and the Lender may from
time to time agree.  Payments received
after such time shall be deemed to have been made on the next following
Business Day.

 

(c)                                  All
payments and repayments of outstanding credit hereunder shall be made in the
same currency as such outstanding credit.

 

2.12                                                                        Fees

 

(a)                                  During
the period commencing on the Closing Date and ending on the Maturity Date (the “relevant period”) the Borrower shall pay to
the Lender a fee (the “Standby Fee”)
calculated at the rate per annum
set out in Schedule A on the aggregate amount of the undrawn Operating
Facility and the undrawn Term Facility available hereunder (after giving effect
to any cancellation and reduction pursuant to Section 2.7) during the
relevant period from day to day.  The
Standby Fee shall be payable quarterly, in arrears, on the Interest Date
immediately following the end of each fiscal quarter.

 

(b)                                 The
Borrower shall pay to the Lender on the Closing Date, a non-refundable
restructuring fee in the amount of $50,000, which amount shall be paid on the
Closing Date.

 

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

 

2.13                                                                        Conversion
Options

 

Subject
to the provisions of this Agreement (including, without limitation, Sections
2.10 and 4.6), the Borrower may convert any type of Advance outstanding under
the Term Facility into another type of Advance under the Term Facility and the
Borrower may convert any type of Advance outstanding under the Operating
Facility into another type of Advance outstanding under the Operating Facility,
in each case as follows:

 

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

 

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

 

29

 

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

 

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

 

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

 

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

 

(vii)                           a U.S. Base Rate Advance or a portion thereof into a Prime Rate
Advance in the Equivalent Amount by giving the Lender a Conversion Notice no
later than 10:00 a.m. on the date of the proposed Conversion; and

 

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

 

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

 

2.14                                                                        Execution
of Notices

 

All
Drawdown Notices, Conversion Notices, Rollover Notices, and notices of
repayment, prepayment or cancellation and, unless otherwise provided herein,
all other notices, requests, demands or other communications to be given to the
Lender by the Borrower hereunder shall be executed by any one officer or
director of the Borrower.

 

30

 

2.15                                                                        Evidence
of Indebtedness

 

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

 

2.16                                                                        Interest
on Unpaid Costs and Expenses

 

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

 

2.17                                                                        Criminal
Rate of Interest

 

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

 

2.18                                                                        Compliance
with the Interest Act (Canada)

 

For the
purposes of this Agreement, whenever any interest is calculated on the basis of
a period of time other than a calendar year, the annual rate of interest to
which each rate of interest determined pursuant to such calculation is
equivalent for the purposes of the Interest
Act (Canada) is such rate as so determined multiplied by the actual
number of days in the calendar year in which the same is to be ascertained and
divided by the number of days used in the basis of such determination.

 

2.19                                                                        Nominal
Rate of Interest

 

The
parties acknowledge and agree that all calculations of interest under this
Agreement are to be made on the basis of the nominal interest rate described
herein and not on the basis of effective yearly rates or on any other basis
which gives effect to the principle of deemed reinvestment of interest.  The parties acknowledge that there is a
material difference

 

31

 

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

 

ARTICLE 3

LETTER OF CREDIT FACILITY

 

3.1                                                                               Establishment
of Letter of Credit Facility

 

The
Letter of Credit Facility established hereunder shall form part of both of the
Facilities and shall be made available by way of Letters of Credit.

 

3.2                                                                               Term
and Availability

 

Upon
the terms and subject to the conditions hereof, the Lender shall, at the
request of the Borrower, issue irrevocable Letters of Credit in the Lender’s
usual form and expiring no later than the earlier of: (i) 364 days from the
date of issuance of such Letter of Credit; and (ii) the applicable Maturity
Date; provided that, subject to the forgoing, no earlier than 60 days prior to
the expiry of any Letter of Credit and no later than 30 days prior to the
expiry of such Letter of Credit the Borrower may request an extension or
renewal of such Letter of Credit in accordance with the terns hereof.  The Borrower may request Letters of Credit to
be denominated in Canadian Dollars or in United States Dollars or in such other
currency as the Lender, in its sole and absolute discretion, may agree.  The Borrower shall specify the Facility under
which each Letter of Credit requested is to be issued and, in the case of
Letters of Credit to be issued under the Term Facility, the purpose of such
Letter of Credit in accordance with Section 2.3(b).

 

3.3                                                                               Reimbursement

 

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

 

32

 

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

 

3.4                                                                               Obligations
Absolute

 

(a)                                  The
Borrower’s obligation to reimburse the Lender for disbursements made in
connection with Letters of Credit as provided in Section 3.3 shall be
absolute, unconditional and irrevocable (without prejudice, however, to the
Borrower’s right, after reimbursing the Lender, to claim for direct damages for
matters arising from the Lender’s wilful misconduct or gross negligence in
accordance with Section 3.4(b)), and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of
any Letter of Credit or this Agreement, or any term or provision therein or
herein, (ii) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent or invalid in any respect or any statement
therein being untrue or inaccurate in any respect, (iii) payment by the Lender
under a Letter of Credit against presentation of a draft or other document that
does not comply with the terms of such Letter of Credit, or (iv) any other
event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section 3.4,
constitute a legal or equitable discharge of, or provide a right of set-off
against, the Borrower’s obligations hereunder. 
The Lender shall have no liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of
the Lender.

 

(b)                                 Section 3.4(a)
shall not be construed to excuse the Lender from liability to the Borrower to
the extent of any direct damages (as opposed to consequential damages, claims
in respect of which are hereby waived by the Borrower to the extent permitted
by Applicable Law) suffered by the Borrower that are caused by the Lender’s failure
to exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof or the Lender’s gross
negligence or wilful misconduct.  The
parties hereto expressly agree that, in the absence of gross negligence or
wilful misconduct on the part of the Lender (as finally determined by a court
of competent jurisdiction), the Lender shall be deemed to have exercised care
in each such determination.  In
furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Lender may, in its sole discretion, either accept and make payment upon such
documents without responsibility for further investigation, regardless of any
notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.

 

33

 

3.5                                                                               Indemnity
for Costs

 

The
Borrower shall indemnify the Lender against any and all actions, proceedings,
costs, damages, expenses, Taxes (other than taxes on the Lender’s overall net
income, assets or capital), claims and demands which the Lender may incur or
sustain by reason of or arising in any way whatsoever in connection with the
operating, establishing or paying of the amounts payable under each Letter of
Credit or arising in connection with any amounts payable by the Lender
thereunder save and except for amounts which have resulted from the gross
negligence or the wilful misconduct of the Lender.

 

3.6                                                                               Fees

 

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

 

(b)                                 The
Borrower shall pay to the Lender, for the account of the Lender, an amendment
fee in respect of each amendment to any Letter of Credit in such amount as is
usual and customary for the Lender to charge its customers, and such fee shall
be payable by the Borrower to the Lender, for the account of the Lender, within
two Business days of the time of request for such amendment.

 

3.7                                                                               Refund
of Overpayments

 

With
respect to each Letter of Credit for which the Lender has been paid all of its
contingent liability pursuant to Sections 2.5(b), 2.6(d) or 10.2 and provided
that all amounts due by the Borrower to the Lender under Sections 2.5(b),
2.6(d) or 10.2 have been paid, the Lender agrees to pay to the Borrower, upon
the earlier of:

 

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

 

(b)                                 the
expiry of such Letter of Credit; and

 

(c)                                  the
Lender is permanently enjoined by a court of competent jurisdiction from
honouring such Letter pursuant to a final order of such court;

 

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

 

34

 

ARTICLE 4 

BANKERS’ ACCEPTANCES

 

4.1                                                                               Form
of Bankers’ Acceptance Advance

 

(a)                                  Bankers’
Acceptance Advances shall be available to the Borrower under the Term Facility
and the Operating Facility by way of Drawdown, Conversion or Rollover by the
Borrower delivering to the Lender a Drawdown Notice, Conversion Notice or
Rollover Notice, as applicable.  To
facilitate the procedures contemplated herein, the Lender is hereby appointed
the irrevocable agent of the Borrower with the power and authority to execute
the Bankers’ Acceptances to be issued and accepted by it.  Furthermore, the Lender is hereby appointed
the irrevocable agent of the Borrower with power and authority to make the
necessary arrangements for the negotiation, sale and delivery on the money
market, in accordance with normal market practice, of Bankers’ Acceptances by
the Lender.  Each Bankers’ Acceptance
executed and delivered by the Lender on behalf of the Borrower as provided
herein shall be binding upon the Borrower as if it had been executed and
delivered by a duly authorized officer or officers of the Borrower.  The dates, maturity dates and principal
amounts of all drafts shall be completed by the Lender as required hereby.

 

4.2                                                                               Minimum
Amount

 

The
minimum Face Amount of any draft shall be Cdn. $50,000 or any integral multiple
thereof.

 

4.3                                                                               Term
and Interest Periods

 

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

 

4.4                                                                               Purchase
of Drafts and Acceptance Fee

 

Each
Drawdown of a Bankers’ Acceptance Advance shall be made pursuant to a Drawdown
Notice, Conversion Notice or Rollover Notice given by the Borrower to the
Lender in accordance with the terms of this Agreement.  Each Drawdown Notice, Conversion Notice or
Rollover Notice shall be irrevocable and binding on the Borrower and shall
specify the Drawdown Date, date of Conversion or date of Rollover, the sum of
the aggregate Face Amount of the Bankers’ Acceptances to be purchased and the
maturity date for such drafts.  Not later
than noon on the applicable Drawdown Date or date of Conversion or Rollover,
the Lender shall complete one or more drafts in accordance with the Drawdown
Notice, Conversion Notice or Rollover Notice, accept such drafts and purchase
the Bankers’ Acceptances thereby created for the BA Purchase Price.  Bankers’ Acceptances purchased by the Lender
hereunder may be held by it for its own account until the maturity date or sold
by it at any time prior thereto in any relevant market therefor, in the Lender’s
sole discretion.

 

35

 

4.5                                                                               Payment
on Maturity

 

The
Borrower shall pay to the Lender on the maturity date of a Bankers’ Acceptance
an amount equal to the Face Amount of such maturing Bankers’ Acceptance;
provided that the Borrower may, at its option, so reimburse the Lender, in
whole or in part, by delivering to the Lender no later than 10:00 a.m. one
Business Day prior to the maturity date of a maturing Bankers’ Acceptance, a
Rollover Notice specifying the term of the Bankers’ Acceptances and presenting
drafts to the Lender for acceptance and purchase having, in the case of reimbursement
in whole by replacement Bankers’ Acceptances, an aggregate Face Amount equal to
the Face Amount of the maturing Bankers’ Acceptances.  The Borrower shall pay to the Lender on the
maturity date of the maturing Bankers’ Acceptance the difference between the
Face Amount of the maturing Bankers’ Acceptance and the BA Purchase Price for
such replacement Bankers’ Acceptances. 
If the Borrower fails to deliver a Conversion Notice or Rollover Notice
and fails to make payment to the Lender in respect of the maturing Bankers’
Acceptance Advance, the Face Amount of the maturing Bankers’ Acceptances
forming part of such Bankers’ Acceptance Advance shall be deemed to be
converted to a Prime Rate Advance on the relevant maturity date.

 

4.6                                                                               Waiver
of Days of Grace

 

The
Borrower renounces and shall not claim any days of grace for the payment of any
Bankers’ Acceptance.

 

4.7                                                                               No
Market

 

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

 

ARTICLE 5

CHANGE OF CIRCUMSTANCES

AND INDEMNIFICATION

 

5.1                                                                               Increased
Costs

 

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

 

36

 

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

 

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

 

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

 

(c)                                  will
have the effect of increasing the amount of overall capital required to be
maintained by the Lender, taking into account the existence of the Lender’s
participation in any Advance hereunder (including, without limitation, all or
any part of its Commitment),

 

and the result of any of the foregoing is to increase
the cost to the Lender, reduce the income receivable by it or reduce the
effective return on the capital of the Lender in respect of any Advances and/or
its Commitment to an extent which the Lender believes to be material, the
Lender shall give notice thereof to the Borrower (herein called a “Notice of Amount”) stating the event by
reason of which it believes it is entitled to Additional Compensation, such
cost and/or such reduction in such return (or such proportion of such reduction
as is, in the reasonable and bona fide
opinion of the Lender, attributable to its obligations hereunder) the amount of
such Additional Compensation (as hereinafter defined) incurred by the Lender
and supplying reasonable supporting evidence (including, in the event of change
of Applicable Law, a photocopy of the Applicable Law evidencing such change)
together with a certificate of a duly authorized officer of the Lender setting
forth the Additional Compensation and the basis of calculation of such
Additional Compensation; provided that the Lender shall not be required to
disclose any information required to be kept confidential by Applicable Law.  In the event the Lender subsequently recovers
all or part of the Additional Compensation paid by the Borrower, it shall repay
an equal amount to the Borrower.  The
Borrower shall pay to the Lender, within 10 Business Days of the date of
receipt of any Notice of Amount, the amount specified in such Notice of Amount
(in this Article 5 referred to as “Additional
Compensation”).  The
obligation to pay such Additional Compensation for subsequent periods will
continue until the earlier of termination of the Advance or the Commitment
affected by the change in law or the lapse or cessation of the change in law
giving rise to the initial Additional Compensation.  The Lender shall make reasonable efforts to
limit the incidence of any such Additional Compensation and seek recovery for
the account of the Borrower upon the Borrower’s request at the Borrower’s
expense, provided the Lender in its reasonable determination suffers no
appreciable economic, legal, regulatory or other disadvantage.  Notwithstanding the foregoing provisions, the
Lender shall only be entitled to rely upon the provisions of this Section 5.1
if and for so long as it is not

 

37

 

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

 

5.2                                                                               Illegality

 

If,
with respect to the Lender, the implementation of any existing provision of
Applicable Law or the adoption of any Applicable Law, or any change therein or
in the interpretation or application thereof by any court or by any statutory
board or commission now or hereafter makes it unlawful for the Lender to make,
fund or maintain all or any portion of an outstanding Advance, to maintain all
or any part of its Commitment hereunder or to give effect to its obligations in
respect of all or any portion of an outstanding Advance, the Lender may, by
written notice thereof to the Borrower (supported, at the request and expense
of the Borrower, by an opinion of the Lender’s counsel), declare the
obligations of the Lender under this Agreement to be terminated whereupon the
same shall forthwith terminate, and the Borrower shall repay within the time
required by such law (or as promptly as practicable if already unlawful or at
the end of such longer period, if any, as the Lender in its bona fide opinion may agree) the principal
of the Advances made by the Lender.  If
any such change shall affect only that portion of the Lender’s obligations
under this Agreement that is, in the bona
fide opinion of the Lender, severable from the remainder of this
Agreement so that the remainder of this Agreement may be continued in full
force and effect without otherwise affecting any of the obligations of the
Lender or the Borrower hereunder, the Lender shall declare its obligations
under only that portion so terminated.

 

ARTICLE 6 

CONDITIONS PRECEDENT TO DRAWDOWN

 

6.1                                                                               Conditions
for Closing

 

The
following conditions shall be satisfied by the Borrower on the Closing Date
Drawdown;

 

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

 

(b)                                 the
Borrower and each of the Guarantors shall have delivered to the Lender
certified copies of its constating documents and borrowing by-laws or
confirmation that there have been no amendments or modifications to such
documents since December 31, 2002, the resolution authorizing the Loan
Documents and the incumbency of officers signing the Loan Documents and any
documents to be provided pursuant to the provisions hereof or thereof and a
certificate of compliance, good standing or like certificate with respect to
the

 

38

 

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

 

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

 

(d)                                 no
Default or Event of Default shall have occurred and be continuing and the
Borrower shall have delivered an Officer’s Certificate to such effect or, in
the event of a Drawdown on the Closing Date, a Drawdown Notice;

 

(e)                                  no
Material Adverse Change shall have occurred since December 31, 2003 and
the Borrower shall have delivered an Officer’s Certificate executed by its
Chief Financial Officer of the Borrower to such effect;

 

(f)                                    opinions
of Counsel to the Borrower and counsel to each of the Guarantors addressed to
the Lender in form and substance satisfactory to the Lender, shall have been
delivered to the Lender;

 

(g)                                 none
of the undertaking, property or assets of the Borrower shall be subject to any
Charge other than a Permitted Charge;

 

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

 

(i)                                     the
Lender shall be satisfied, acting reasonably, that all material Authorizations
required in connection with the transactions contemplated hereby have been
obtained and are in full force and effect and that all consents and waivers
required to consummate such transactions have been obtained, to the extent that
consummation of such transactions would otherwise be restricted or prohibited
under the terms of any Material Agreement to which any Obligor is a party, or
by which it is bound, in each case without the imposition of any burdensome
provisions;

 

(j)                                     the
Lender shall have received confirmation of satisfactory policies of insurance
in place for the benefit of the Borrower and each Guarantor, with the Lender
endorsed thereon as loss payee;

 

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

 

39

 

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

 

(l)                                     all
fees and other amounts then payable under the Loan Documents shall have been
paid in full; and

 

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

 

The
conditions set forth in this Section 6.1 are inserted for the sole benefit
of the Lender and may be waived by Lender in whole or in part, with or without
terms or conditions.

 

6.2                                                                               Conditions
for Subsequent Drawdowns

 

The
following conditions shall be satisfied by the Borrower at or prior to the time
of each Drawdown of an Advance under the Facilities subsequent to the Closing
Date:

 

(a)                                  the
representations and warranties set forth in Section 7.1 shall be deemed to
have been given on the Drawdown Date and shall be, mutatis mutandis, true and correct in all material respects
on and as of the Drawdown Date, both before and after giving effect to the
Drawdown of such Advance and to the application of proceeds therefrom, by
reference to the facts and circumstances then existing and assuming that each
of such representations and warranties and the Schedules referred to therein
had been amended to reflect any notices provided by the Borrower to the Lender
(and consented to in writing by the Lender) in respect of the matters dealt
with therein and, with respect to the representation set forth in Section 7.1(g),
the reference to the financial statements of the Borrower as at December 30,
2003 shall be deemed to be a reference to the financial statements of the
Borrower most recently delivered pursuant to Section 8.1(a) and, with
respect to unaudited financial statements, that such statements fairly present
the financial condition of the Borrower and its Subsidiaries as at such date
and the results of their operations for the financial period then ended, in
accordance with GAAP consistently applied, subject to normal year end audit
adjustments; and

 

(b)                                 no
Default or Event of Default shall have occurred and be continuing, nor shall
any such event occur as a result of making the Advances or the application of
proceeds therefrom.

 

ARTICLE 7 

REPRESENTATIONS AND WARRANTIES

 

7.1                                                                               Representations
and Warranties

 

The
Borrower represents and warrants as follows to the Lender and the Lender
acknowledges and confirms that the Lender is relying upon such representations
and warranties:

 

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

 

40

 

duly incorporated or amalgamated and validly
existing under the laws of the jurisdiction of its incorporation and the
Borrower and each of the Guarantors has all necessary corporate power and
authority to conduct its business as presently conducted and to own or lease
its properties and assets in each jurisdiction where such properties and assets
are situated or such business is conducted.

 

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

 

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

 

(d)                                 Conflict with Constating Documents and Agreements.  Neither the execution and
delivery of the Loan Documents nor compliance by the Borrower and the
Guarantors with the terms, conditions and provisions hereof and thereof, will
conflict with or result in a breach of any of the terms, conditions or
provisions of:

                

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

                

(ii)                                     any
resolution of the shareholders, directors or any committee of directors of the
Borrower or any Guarantor;

                

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

 

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

 

(v)                                    any
Applicable Law.

 

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

 

41

 

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

 

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

 

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

 

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

 

(i)                                     Licences, etc. and Compliance with Laws.  Other than as disclosed in Schedule 7.1(i),
all grants, licences, franchises, certificates, consents, rights, privileges,
approvals, authorizations, registrations, orders, easements, entitlements and
permits (collectively “Authorizations”) required to enable the Borrower and
each of its Subsidiaries to carry on their respective businesses as now
conducted by them and to own, lease and operate their properties other than
those the absence of which would not reasonably be expected to result in a
Material Adverse Change have been duly obtained and are currently
subsisting.  The Borrower and each of its
Subsidiaries have complied in all material respects with all terms and
provisions presently required to be complied with by them in all such material
Authorizations and with all Applicable Law (other than Environmental Laws) and
they are not in violation of any of the respective provisions thereof and in
respect of which there is a reasonable possibility that such non-compliance or
violation could materially and adversely affect the ability of the Borrower or
any Guarantor to perform its obligations under this Agreement and the Loan
Documents.

 

(j)                                     Environmental Matters.  There are no existing
claims, demands, damages, expenses, suits, proceedings, actions, negotiations
or (to the best knowledge of the Borrower, after due enquiry) causes of action
of any nature whatsoever, whether threatened or pending, arising out of the
presence on any property owned or controlled by the Borrower or its
Subsidiaries, either past or present, of any

 

42

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(k)                                  Encumbrances.  The Borrower and each of the Guarantors has
good and marketable title to all of its assets and property and there are no
Charges on any of the assets or undertaking of the Borrower or any Guarantor other
than Permitted Charges.

 

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

 

43

 

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

 

(n)                                 Taxes.  The Borrower and each of its Subsidiaries has
filed within the prescribed delays all federal, provincial or other tax returns
which it is required by Law to file and all taxes, assessments and other duties
levied by the various Governmental Authorities with respect to the Borrower and
each of its Subsidiaries have been paid when due, except to the extent that
payment thereof is being contested in good faith by the Borrower or any of its
Subsidiaries in accordance with the appropriate procedures, for which adequate
reserves have been established in the books of the Borrower or its
Subsidiaries, as the case may be.

 

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

 

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

 

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

 

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

 

44

 

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

 

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

 

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

 

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

 

(w)                               Books and Records.  No books and records of the Borrower or any
Guarantor relating to inventory (including without limitation Eligible
Inventory) or trade accounts (including without limitation Eligible Accounts
Receivable) or which are otherwise material to the Business, affairs, financial
condition or prospects of the Borrower or any Guarantor are kept or stored at
the Ontario Property other than books and records for which duplicate copies or
the originals are kept or stored at the Quebec Property.

 

7.2                                                                               Survival
of Representations and Warranties

 

The
representations and warranties set out in this Article 7 shall survive the
execution and delivery of this Agreement and the making of any Advances to the
Borrower, notwithstanding any investigations or examinations which may be made
by the Lender or its counsel.

 

ARTICLE 8 

COVENANTS

 

8.1                                                                               Affirmative
Covenants

 

The
Borrower covenants and agrees with the Lender that, unless the Lender otherwise
consents in writing, so long as any amount payable hereunder is outstanding or
the Lender has any Commitment hereunder:

 

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

 

45

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(b)                                 Corporate Status.  Subject to Section 11.1, the Borrower
will remain a corporation duly continued and validly subsisting under the laws
of Canada or a province thereof and each Guarantor shall remain a corporation
duly incorporated and validly subsisting under the laws of its existing
jurisdiction of incorporation or the laws of Canada or any province thereof
and, in each case, registered or

 

46

 

otherwise qualified in all material respects
to carry on business in each jurisdiction where necessary to conduct its
business.

 

(c)                                  Conduct of Business. The
Borrower will, and will cause each Guarantor to, continue its business, except
as the board of directors or duly authorized officers of the Borrower may
otherwise, in good faith, determine is in the best interests of the Borrower,
and will not materially and adversely affect the business, operations or
financial condition of the Borrower and its Subsidiaries (taken as a whole), or
the Borrower’s ability to perform any of its obligations under this
Agreement.  The Borrower will, and will
cause each Guarantor to, manage its business in a proper, prudent and efficient
manner (as the board of directors of the Borrower may determine in good faith)
in all material respects.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

47

 

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

 

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

 

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

 

(h)                                 Insurance.  The Borrower shall maintain, or cause to be
maintained, on behalf of the Borrower and each Guarantor, insurance with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as would be prudent for companies engaged in similar
businesses and owning similar properties and assets in the same general areas
in which the Borrower or such Guarantor (as the case may be) operate and the
Borrower shall and shall cause each Guarantor to ensure that the Lender is
named as an additional loss payee on all such insurance policies.

 

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

 

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

 

(k)                                  Compliance with Material Leases, Contracts
and Other Agreements.  The Borrower shall, and shall cause each of
its Subsidiaries to, comply in all material

 

48

 

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

 

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

 

(m)                               Hedging Arrangements.  The Borrower will maintain
a responsible hedging strategy and will discuss such hedging strategy with the
Lender upon request.

 

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

 

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

 

8.2                               Negative
Covenants

 

The
Borrower covenants and agrees with the Lender that unless the Lender otherwise
consents in writing, so long as any amount payable hereunder is outstanding or
the Lender shall have any Commitment hereunder:

 

(a)                                  No Merger, Amalgamation, etc.  The Borrower shall not, and
shall not permit any Subsidiary to, liquidate or dissolve or take any steps to
amalgamate, consolidate or effect any restructuring or corporate or capital
reorganization or change its head or registered office to a location outside of
Canada except upon compliance with Article 11.

 

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

 

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

 

49

 

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

 

(e)                                  Distributions.  The
Borrower shall not make and shall not permit any Guarantor to make any
Distributions other than Distributions to the Borrower or, in the case of the
Guarantors only, to another Guarantor (so long as such Guarantor is directly or
indirectly wholly-owned by the Borrower and is incorporated or existing in
Canada or the United States or any political subdivision thereof or another
jurisdiction approved by the Lender in writing).

 

(f)                                    Investments.  The
Borrower shall not make and shall not permit any Subsidiary to make any
Investments other than Permitted Investments.

 

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

 

(h)                                 Acquisitions.  The Borrower shall not make, and shall not
permit any Subsidiary to make, any Acquisitions other than Permitted
Acquisitions.

 

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

 

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

 

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

 

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

 

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

 

50

 

(n)                                 Ontario Property.  The Borrower shall not and
shall not permit any Subsidiary to cause or permit more than $175,000 of
tangible assets to be kept or located at or on the Ontario Property at any
time.

 

(o)                                 Books and Records.  Neither the
Borrower nor any Guarantor shall permit any books and records of the Borrower
or any Guarantor relating to inventory (including without limitation Eligible
Inventory) or trade accounts (including without limitation Eligible Accounts
Receivable) or which are otherwise material to the Business, affairs, financial
condition or prospects of the Borrower or any Guarantor to be stored or kept at
the Ontario Property unless duplicate copies or the originals are kept or
stored at the Quebec Property.

 

8.3                                                                               Financial
Covenants

 

The
Borrower covenants and agrees with the Lender that so long as any amount
payable hereunder is outstanding or the Lender shall have any Commitment
hereunder, it shall:

 

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

 

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

 

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

 

ARTICLE 9

SECURITY

 

9.1                                                                               Guarantors
to Provide Guarantees

 

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

 

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

 

51

 

and a certificate of status, good standing or
like certificate with respect to such Guarantor issued by appropriate government
officials of its jurisdiction of incorporation and such jurisdiction in which
it carries on business.

 

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

 

9.2                                                                               Borrower’s
Security Documents

 

The
Borrower hereby confirms that  as
security for all Advances made to it and as security for all its other
liability or indebtedness, both present and future, hereunder, the Borrower
continues to assign, by way of security (the “Borrower’s
Security”) in favour of the Lender, all of its receivables howsoever
arising in connection with the sale or lease of goods or services by the
Borrower to customers located in Canada or the United States and shall deliver,
or cause to be delivered, the following documents (collectively called the “Borrower’s Security Documents”) all in form
satisfactory to the Lender:

 

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

 

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

 

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

 

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

 

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

 

(f)                                    an unlimited Guarantee of DPI; and

 

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

 

9.3                                                                               Guarantors’
Security Documents

 

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

 

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

 

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

 

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

 

52

 

9.4                                                                               Additional
Security Documents

 

The
Borrower shall, and shall cause each Guarantor to, execute all such
documentation as may be reasonably necessary from time to time to permit the
Lender to take, register, perfect and maintain a security interest in any
property or assets presently owned or hereafter required by any of them.

 

ARTICLE 10 

DEFAULT AND ACCELERATION

 

10.1                                                                        Events
of Default

 

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

 

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

 

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

 

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

 

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

 

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

 

(f)                                    if the Borrower or any Guarantor shall default in any material
respect in the observance or performance of any agreement, covenant or
condition contained in this Agreement (other than a covenant or condition whose
breach or default in performance is elsewhere in this Section 10.1
specifically dealt with) or in any of the Loan Documents and such default shall
not be remedied, if capable of remedy, within a period of 30 days after notice
in writing thereof is given by the Lender to the Borrower or Guarantor, as
applicable;

 

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

 

53

 

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

 

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

 

(i)                                     if any judgment or order or series of judgments or orders (whether
or not related) for the payment of money in an aggregate amount in excess of
Cdn. $2,000,000 (or the Equivalent Amount in any other currency), other than
any judgment or order for which one or more of the Borrower and its
Subsidiaries will recover under a policy of insurance, shall be rendered
against any one or more of the Borrower and its Subsidiaries and (i) such
judgment or order or series of judgments and/or orders are final with no
further right of appeal and the Borrower has not satisfied the Lender, acting
reasonably, that the Borrower or the relevant Subsidiary is able to satisfy
such judgment or order or series of judgments and/or orders; or (ii)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or series of judgments and/or orders, as the case may be; or
(iii) there shall be any period of 20 consecutive days during which a stay of enforcement
of such judgment or order or series of judgments

 

54

 

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

 

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

 

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

 

(l)                                     if the obligations of the Borrower hereunder or of the Borrower or
any Guarantor under any of the Loan Documents shall cease to constitute the
legal, valid and binding obligations of the Borrower or shall cease to be in
full force and effect or the Borrower or any Guarantor shall have contested the
validity of this Agreement or any of the Loan Documents or denied that it had any
liability hereunder;

 

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

 

(n)                                 if there is an Acquisition of Control of any of the Guarantors
without the prior written consent of the Lender;

 

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

 

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

 

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

 

10.2                                                                        Acceleration

 

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

 

(a)                                  declare the Advances made to the Borrower (including (i) the present
value of the face amount of all Bankers’ Acceptances issued and outstanding
hereunder based on their respective maturity dates, such present value to be
calculated using a discount rate equal to the yield of Government of Canada
treasury bills having a similar maturity date and (ii) the then contingent
liability of the Lender under all

 

55

 

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

 

(b)                                 declare that all of the Commitment shall be cancelled, whereupon the
same shall be cancelled and the Commitment of the Lender shall be reduced to
zero.

 

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

 

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

 

10.3                                                                        Remedies
Cumulative and Waivers

 

It is
expressly understood and agreed that the rights and remedies of the Lender
hereunder or under any other Loan Document or other instrument executed
pursuant to this Agreement are cumulative and are in addition to and not in
substitution for any rights or remedies provided by law or by equity; and any
single or partial exercise by the Lender of any right or remedy for a default
or breach of any term, covenant, condition or agreement contained in this
Agreement or any other Loan Document shall not be deemed to be a waiver of or
to alter, affect or prejudice any other right or remedy or other rights or
remedies to which the Lender may be lawfully entitled for such default or
breach.  Any waiver by the Lender of the
strict observance, performance or compliance with any term, covenant, condition
or other matter contained herein and any indulgence granted, either expressly
or by course of conduct, by the Lender shall be effective only in the specific
instance and for the purpose for which it was given and shall be deemed not to
be a waiver of any rights and remedies of the Lender under this Agreement as a
result of any other default or breach hereunder or thereunder.

 

10.4                                                                        Suspension
of Lender’s Obligations

 

Without
prejudice to the rights which arise out of this Agreement or by law, the
occurrence of a Default or Event of Default shall, while such Default or Event
of Default shall be continuing, relieve the Lender of all obligations to make
any Advances hereunder (whether or not a request for any Drawdown in respect of
any such Advance shall have been received by the

 

56

 

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

 

10.5                                                                        Application
of Payments and Proceeds of Realization After an Event of Default

 

If any
Event of Default shall occur and be continuing, all payments made by the
Borrower hereunder and all amounts realized by the Lender upon the enforcement
of the Security shall be applied in the following order:

 

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

 

(b)                                 to amounts due hereunder as fees;

 

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

 

(d)                                 to amounts due hereunder as interest;

 

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

 

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

 

10.6                                                                        Disclosure
of Information

 

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

 

(b)                                 Subject to Section 10.6(a), the Lender acknowledges the
confidential nature of the financial, operational and other information and
data provided and to be provided to it by the Borrower pursuant hereto that is
not at the time it is so provided or (other than through a breach of this
Agreement) thereafter in the public domain and agrees to use all reasonable
efforts to prevent the disclosure thereof by it; provided, however, that:

 

57

 

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

 

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

 

(iii)                               it shall inform the Borrower, prior to making such disclosure, so
that the Borrower or its Subsidiaries may seek a protective order or other
appropriate remedy (the Lender shall consent to the protective order or other
appropriate remedy which the Borrower or its Subsidiaries may seek for the
purpose of preventing disclosure of any of such information to the public). If
not practical to so inform prior to the disclosure, it shall inform the
Borrower as soon as is practicable, of any disclosure of such information made
by it, unless such disclosure is in the ordinary course of its business or such
tax or regulatory authority or such judicial authority or law enforcement
agency requires the Lender not to inform the Borrower of the disclosure of such
information to it.  In the event that a
protective order or other remedy is not obtained, or the Lender discloses
information without giving the Borrower prior notice thereof, the Lender will
furnish only the portion of such information which the Lender is advised by
written opinions of its counsel is legally required to be disclosed;

 

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

 

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

 

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

 

58

 

ARTICLE 11

SUCCESSOR COMPANIES

 

11.1                                                                        Certain
Requirements in Respect of Merger, Etc.

 

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

 

In
addition, in order to obtain the approval of any such Reorganization, the
Borrower shall deliver to the Lender the following, and shall satisfy the
Lender as to the following:

 

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

 

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

 

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

 

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

 

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

 

11.2                                                                        Vesting
of Powers in Successor

 

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

 

59

 

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

 

ARTICLE 12 

COSTS, EXPENSES AND INDEMNIFICATION

 

12.1                                                                        Costs
and Expenses

 

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

 

12.2                                                                        Indemnification
by the Borrower

 

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

 

12.3                                                                        Funds

 

Each
amount advanced, made available, disbursed or paid hereunder shall be advanced,
made available, disbursed or paid, as the case may be, in immediately available
funds

 

60

 

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

 

12.4                                                                        General
Indemnity

 

(a)                                  Indemnity.  Subject to paragraphs (b), (c) and (d) below,
the Borrower agrees to indemnify and save harmless the Lender and its officers,
directors, employees, agents, advisors, representatives and affiliates
(collectively, the “Indemnitees”
and individually, an “Indemnitee”)
from and against any and all liabilities, costs, claims, damages, penalties,
losses and expenses (including reasonable legal fees and disbursements of
counsel but excluding loss of profits and consequential damages) (collectively,
the “Losses”) as a result of any
claims, actions or proceedings (“Claims”)
asserted against the Indemnitees by a Person other than the Indemnitees in
connection with the agreement of the Lender to provide the Facilities, the
Commitment of the Lender and the Advances made by the Lender including, without
limitation: (i) the costs of defending and/or counterclaiming or claiming over
against third parties in respect of any Claim; and (ii) subject to the
provisions set forth in paragraph (d) below, any Losses arising out of a
settlement of any Claim made by the Indemnitees.

 

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

 

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

 

(d)                                 Defence and Settlement.  The Indemnifying Party
shall have the right, but not the obligation, to assume the defence of any
Claim in any jurisdiction with legal counsel of reputable standard in order to
protect the rights and interest of the Indemnitees.  In such respect, (i) the Indemnifying Party
shall require the consent of the Indemnitees to the choice of legal counsel in
connection with the Claim, which consent shall not be unreasonably withheld or
delayed; and (ii) without prejudice to the rights of the Indemnitees to retain
counsel and participate in the defence of the Claim, the Indemnifying Party and
the Indemnitees shall make all reasonable efforts to co-ordinate their course
of action in connection with the defence of such Claim.  The related costs and expenses sustained in
such respect by the Indemnitees shall be at the expense of the Indemnifying
Party, provided that the Indemnifying Party shall only be liable for the costs
and expenses of one firm of separate counsel in addition to the cost of any
local counsel that may be required.  If
the Indemnifying Party fails to assume defence of the Claim, the Indemnitees
will (upon further notice to the Borrower) have the right to undertake, at the

 

61

 

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

 

Notwithstanding
the foregoing, in the event the Indemnitee, acting reasonably, does not agree
with the manner or timeliness in which the legal counsel of the Indemnifying
Party is carrying on the defence of the Claim, or, pursuant to the opinion of a
reputable counsel retained by the Indemnitee, there may be one or more legal
defences available different from the one carried on by the legal counsel of
the Indemnifying Party, the Indemnitee shall have the right to assume its own
defence in the Claim by appointing its own legal counsel. The costs and the
expenses sustained by the Indemnitee shall be at the expense of the
Indemnifying Party provided that the Indemnifying Party shall only be liable
for the costs and expenses of one firm of separate counsel, in addition to the
costs of any local counsel that may be required.

 

The
Indemnifying Party shall not be liable for any settlement of any Claim effected
without its written consent (which shall not be unreasonably withheld or
delayed).  In addition, the Indemnifying
Party will not, without the prior written consent of the Indemnitee (which
consent shall not be unreasonably withheld or delayed), settle, compromise or
consent to the entry of any judgment in or otherwise seek to terminate any
Claim or threatened Claim in respect of which indemnification or contribution
may be sought hereunder.

 

If an
offer for settlement made to any Indemnitee and which the Indemnifying Party has
recommended for acceptance is rejected by the Indemnitee and the final
liability of the Indemnitee in respect of such action and all related damages
is greater than such offer, the liability of the Indemnifying Party will only
be to indemnify the Indemnitee up to the amount of such offer.

 

12.5                                                                        Environmental
Claims

 

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

 

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

 

62

 

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

 

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

 

ARTICLE 13 

GENERAL

 

13.1                                                                        Term

 

The
Facilities shall each expire on the applicable Maturity Date.

 

13.2                                                                        Survival

 

All
covenants, agreements, representations and warranties made herein or in
certificates delivered in connection herewith by or on behalf of the Borrower
shall survive the execution and delivery of this Agreement and the making of
the Drawdowns hereunder and shall continue in full force and effect so long as
there is any obligation of the Borrower to the Lender hereunder.

 

13.3                                                                        Benefit
of the Agreement

 

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

 

13.4                                                                        Notices

 

All
notices, requests, demands or other communications to or from the parties
hereto shall be in writing and shall be given by overnight delivery service, by
hand delivery or by telecopy (with a confirmation of receipt) to the addressee
as follows:

 

(i)                                     If to the Borrower:

 

16751 Trans Canada Highway

Kirkland, Quebec H9H 4J4

 

Attention: Mark Oleksiw, Chief Financial
Officer

 

Telecopier:                                     (514) 694-5968

Telephone:                                    (514) 630-7062

 

 

63

 

 

with a copy to:

 

16751 Trans Canada Highway

Kirkland, Quebec H9H 4J4

 

Attention: General Counsel & Secretary

 

Telecopier:                                     (514) 630-7159

Telephone:                                    (514) 630-7060

 

(ii)                                  If to the Lender:

 

130 King
Street West

Suite 820

PO Box 428

Toronto,
Ontario M5X 1E3

 

Attention:                                         Larry Yamamoto

 

Telecopier:                                     (416) 864-7819

Telephone:                                    (416) 864-7550

 

or at such other address or to such other individual
as the Borrower may designate by notice to the Lender or the Lender may
designate by notice to the Borrower.  If
any notice, request, demand or other communication is delivered or transmitted
on a day other than a Business Day or after 3:00 p.m. on any Business Day, the
same shall be deemed to have been effectively given and received on the next
following Business Day.

 

13.5                                                                        Amendment
and Waiver

 

This
Agreement and documents collateral hereto may be modified or amended and a
waiver of any breach of any term or provision of this Agreement shall be
effective only if the Borrower and the Lender so agree in writing.

 

13.6                                                                        Governing
Law

 

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

 

64

 

13.7                                                                        Further
Assurances

 

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

 

13.8                                                                        Enforcement
and Waiver by the Lender

 

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

 

13.9                                                                        Execution
in Counterparts

 

This
Agreement may be executed in counterparts, each of which shall be considered an
original and all of which taken together shall constitute a single agreement.

 

13.10                                                                 Assignment
by the Borrower

 

The
rights and obligations of the Borrower under this Agreement are not assignable
to any other Person, except in accordance with Article 11, without the
prior written consent of the Lender.

 

13.11                                                                 Assignments
and Transfers by the Lender

 

With
the prior written consent of the Borrower, such consent not to be unreasonably
withheld or delayed, the Lender may, at any time, assign all or any of its
rights and benefits hereunder or transfer all or any of its rights, benefits
and obligations hereunder to another Person (the “Transferee”). 
Notwithstanding the foregoing, the consent of the Borrower is not
required in connection with the assignment or transfer of all or any of the
rights, benefits and obligations hereunder to (i) any Subsidiary or Affiliate
of the Lender, provided that, in either case, any such assignment or transfer
does not give rise to a claim for increased costs pursuant to Article 5,
or (ii) to any financial institution or to any other Person if an Event of
Default has occurred and is continuing. 
In connection with any assignment or transfer by the Lender, the Lender
shall deliver a Transfer Certificate.

 

65

 

13.12                                                                 Set-Off

 

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

 

13.13                                                                 Time
of the Essence

 

Time
shall be of the essence in this Agreement.

 

13.14                                                                 Judgment
Currency

 

To the
extent permitted by applicable law, if any judgment or order is rendered and
expressed in a currency other than the currency (the “Agreement Currency”) in which amounts are
payable under the Facilities (i) for the payment of any amount owing by the
Borrower or a Guarantor in respect of the Facilities or the Loan Documents, or
(ii) in respect of a judgment or order of another court for the payment of any
amount described in (i) above, the Lender, after recovery in full of the
aggregate amount to which the Lender is entitled pursuant to the judgment or
order, will be entitled to receive immediately from the Borrower the amount of
any shortfall in the Agreement Currency received by the Lender as a consequence
of sums paid in such other currency and will refund promptly to the Borrower
any excess of the Agreement Currency received by the Lender as a consequence of
sums paid in such other currency if such shortfall or such excess arises or
results from any variation between the rate of exchange at which the Agreement
Currency is converted into the currency of the judgment or order for the
purposes of such judgment or order and the rate of exchange at which the Lender
is able, acting in a reasonable manner and in good faith in converting the
currency received into the Agreement Currency, to purchase the Agreement
Currency with the amount of the currency of the judgment or order actually
received by the Lender.  The term “rate of exchange” includes, without
limitation, any premiums and costs of exchange payable in connection with the
purchase of or conversion into the Agreement Currency.  Any amount due from the Borrower under the
provisions of this Section 13.14 shall be due as a separate debt and shall
not be affected by judgment being obtained for any other amounts due under or
in respect of the Facility or this Agreement.

 

13.15                                                                 No
Novation

 

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

 

13.16                                                                 Consent

 

Notwithstanding
Section 6.2(j) of the Original Loan Agreement, the Lender consents to the
Borrower and its Subsidiaries maintaining bank accounts set forth on Schedule 7.1(u)
, which consent shall be effective from and as of December 31, 2002, and
the Lender expressly agrees in favour of the Borrower and its Subsidiaries that
such maintenance of the bank accounts listed on Schedule 7.1(u) does not
constitute a Default or an Event of Default

 

66

 

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

 

67

 

IN
WITNESS WHEREOF the parties hereto have executed this Agreement.

 

 

	
   

  	
  DRAXIS HEALTH INC.

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  	
   c.s.

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  	
   c.s.

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NATIONAL BANK OF CANADA

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
    Larry
  S. Yamamoto

  
	
   

  	
   

  	
  Title:

  	
    Senior
  Account Manager

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
    Linda
  Smart

  
	
   

  	
   

  	
  Title:

  	
    Senior
  Account Manager

  
						

 

 

SCHEDULE A

 

APPLICABLE MARGIN, APPLICABLE LIBOR MARGIN,

APPLICABLE BA STAMPING FEE, LC FEE AND STANDBY FEE

 

“Applicable Margin” means:

 

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

 

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

 

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

 

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

 

“Applicable BA Stamping Fee”,
“LC Fee” and “Applicable Libor Margin” means, at any
time:

 

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

 

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

 

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

 

“Standby Fee” means, at
any time:

 

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

 

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

 

 

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

 

	
   

  	
   

  	
  LEVEL 1

  	
   

  	
  LEVEL 2

  	
   

  
	
  BASIS FOR PRICING

  	
   

  	
  Total Funded Debt to EBITDA

  <1.50

  	
   

  	
  Total Funded Debt to EBITDA

  >1.50

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Applicable
  Margin for Prime Rate Advances and U.S. Base Rate Advances

  	
   

  	
  0.00

  	
  %

  	
  0.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Applicable
  BA Stamping Fee, Applicable Libor Margin and LC Fee

  	
   

  	
  1.50

  	
  %

  	
  2.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Standby
  Fee

  	
   

  	
  0.25

  	
  %

  	
  0.30

  	
  %

  

 

A-2

 

SCHEDULE B

 

BORROWING BASE CERTIFICATE

 

TO:                          NATIONAL BANK OF CANADA

 

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

 

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

 

	
  (a)

  	
   

  	
  80% of
  Eligible Canadian Accounts Receivable is:

  	
   

  	
  $

  	
  •

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  75% of
  Eligible U.S. Accounts Receivable (based on the Equivalent Amount in Canadian
  Dollars) is:

  	
   

  	
  $

  	
  •

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  50% of
  Eligible Inventory is:

  	
   

  	
  $

  	
  •

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  Priority
  Claims are:

  	
   

  	
  $

  	
  •

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  The
  Borrowing Base (a) + (b) + (c) – (d) as at [•]
  is:

  	
   

  	
  $

  	
  •

  	
   

  

 

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

 

 

DATED                                                      
, 20        .

 

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  •

  
	
   

  	
   

  	
   

  	
  Title:    Chief
  Financial Officer

  

 

 

SCHEDULE
C

 

CONVERSION NOTICE

 

To:                              National
Bank of Canada

130 King Street West

Suite 820, PO Box 428

Toronto, Ontario

M5X 1E3

 

Attention:                                         Larry
Yamamoto

 

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

 

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

 

check the applicable boxes

 

o                                    Term
Facility:

 

	
  o

  	
   

  	
  (a)

  	
   

  	
  Prime Rate
  Advance in the principal amount of Cdn.$                        shall be converted into a Bankers’ Acceptance Advance having a term of           
  days.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (b)

  	
   

  	
  Prime Rate
  Advance in the principal amount of Cdn.$                        shall be converted into an Equivalent Amount U.S. Base Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (c)

  	
   

  	
  Bankers’
  Acceptance in the aggregate Face Amount of Cdn.$                        shall be converted into a Prime Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (d)

  	
   

  	
  Bankers’
  Acceptance in the aggregate Face Amount of Cdn.$                        shall be converted into an Equivalent Amount U.S. Base Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (e)

  	
   

  	
  Libor
  Advance in the principal amount of U.S.$                        shall be converted into a U.S. Base Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (f)

  	
   

  	
  Libor
  Advance in the principal amount of U.S.$                        shall be converted into an Equivalent Amount Prime Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (g)

  	
   

  	
  U.S. Base
  Rate Advance in the principal amount of U.S.$                        shall be converted into a Libor Advance having an Interest Period of           
  months.

  

 

 

	
  o

  	
   

  	
  (h)

  	
   

  	
  U.S. Base
  Rate Advance in the principal amount of U.S.$                        shall be converted into an Equivalent Amount Prime Rate Advance.

  

 

o                                    Operating
Facility:

 

	
  o

  	
   

  	
  (a)

  	
   

  	
  Prime Rate Advance in the principal amount of Cdn. $                        shall be converted into a Bankers’ Acceptance Advance having a term of           
  days.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (b)

  	
   

  	
  Prime Rate Advance in the principal amount of Cdn. $                        shall be converted into an Equivalent Amount U.S. Base Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (c)

  	
   

  	
  Bankers’ Acceptance in the aggregate Face Amount of
  Cdn.$                         shall be converted into a Prime Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (d)

  	
   

  	
  Bankers’ Acceptance in the aggregate Face Amount of
  Cdn.$                         shall be converted into an Equivalent Amount U.S. Base Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (e)

  	
   

  	
  Libor Advance in the principal amount of U.S.$                        shall be converted into a U.S. Base Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (f)

  	
   

  	
  Libor Advance in the principal amount of U.S.$                        shall be converted into an Equivalent Amount Prime Rate Advance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (g)

  	
   

  	
  U.S. Base Rate Advance in the principal amount of
  U.S.$                        shall be converted into a Libor Advance having an Interest Period of           
  months.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (h)

  	
   

  	
  U.S. Base Rate Advance in the principal amount of
  U.S.$                        shall be converted into an Equivalent Amount Prime Rate Advance.

  

 

The
representations and warranties set forth in Section 7.1 of the Loan Agreement
are, mutatis mutandis, true and
correct in all material respects on and as of the date hereof, both before and
after giving effect to the Conversion, by reference to the facts and
circumstances now existing.

 

No Default or
Event of Default has occurred, is continuing, nor shall any such event occur as
a result of making the requested Conversion.

 

DATED                                                    
, 20      .

 

C-2

 

	
   

  	
  DRAXIS HEALTH INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

C-3

 

SCHEDULE D

 

DRAWDOWN NOTICE

 

To:                              National
Bank of Canada

130 King Street West

Suite 820, PO Box 428

Toronto, Ontario

M5X 1E3

Attention:                                         Larry Yamamoto

 

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

 

We hereby request the following Advance on                                     ,
              .

The
Advance shall be pursuant to:

 

check the applicable boxes

 

o                                    Operating Facility:

 

	
  o

  	
   

  	
  (a)

  	
   

  	
  Prime
  Rate Advance in the principal amount of Cdn. $                           .

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (b)

  	
   

  	
  Bankers’
  Acceptance Advance in the aggregate Face Amount of Cdn.$                        having
  a term of            days.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (c)

  	
   

  	
  Libor
  Advance in the principal amount of U.S.$                          and
  having an Interest Period of
             months.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (d)

  	
   

  	
  U.S.
  Base Rate Advance in the principal amount of U.S.$                           .

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (e)

  	
   

  	
  Letter
  of Credit in the Face Amount of Cdn.$                           and/or
  U.S.$                           with
                                      
  as beneficiary with a term of           days.

  

 

o                                    Term Facility:

 

	
  o

  	
   

  	
  (a)

  	
   

  	
  Prime
  Rate Advance in the principal amount of Cdn.$                           .

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (b)

  	
   

  	
  Bankers’
  Acceptance Advance in the aggregate Face Amount of Cdn.$                         having
  a term of            days.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (c)

  	
   

  	
  Libor
  Advance in the principal amount of U.S.$                           and
  having an Interest Period of
             months.

  

 

 

	
  o

  	
   

  	
  (d)

  	
   

  	
  U.S.
  Base Rate Advance in the principal amount of U.S.$                               .

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (e)

  	
   

  	
  Letter
  of Credit in the Face Amount of Cdn.$               and/or
  U.S.$                                     with
                                      
  as beneficiary with a term of           days.

  

 

 

	
   

  	
  Payment
  instructions:  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

The
representations and warranties set forth in Section 7.1 of the Loan Agreement
are, mutatis mutandis, true and
correct in all material respects on and as of the date hereof, both before and
after giving effect to the Drawdown of the requested Advance and to the
application of proceeds therefrom, by reference to the facts and circumstances
now existing.

 

No Default or
Event of Default has occurred, is continuing, nor shall any such event occur as
a result of making the requested Advance or the application of proceeds
therefrom.

 

DATED                                                               
, 20      .

 

 

	
   

  	
  DRAXIS HEALTH INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

D-2

 

SCHEDULE E

 

ROLLOVER NOTICE

 

To:                                                                              National Bank of Canada

130 King Street West

Suite 820, PO Box 428

Toronto, Ontario

M5X 1E3

 

Attention:                                         Larry Yamamoto

 

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

 

We hereby
request the following:

 

check the applicable box

 

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

 

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

 

The representations and warranties set
forth in Section 7.1 of the Loan Agreement are, mutatis mutandis, true and correct in all material respects
on and as of the date hereof, both before and after giving effect to the
Rollover, by reference to the facts and circumstances now existing.

 

No Default or Event of Default has
occurred, is continuing, nor shall any such event occur as a result of making
the requested Rollover.

 

DATED                                                             
, 20        .

 

 

 

	
   

  	
  DRAXIS HEALTH INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

E-2

 

SCHEDULE F

 

TRANSFER CERTIFICATE

 

To:                              Draxis
Health Inc. (the “Borrower”)

 

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

 

AND WHEREAS
pursuant to and in accordance with Section 13.11 of the Loan Agreement, the
Lender, may, with the prior written consent of the Borrower, assign or transfer
certain rights, benefits and obligations under the Loan Agreement by duly
completing, executing and delivering to the Borrower this Transfer Certificate;

 

AND WHEREAS                                            (the
“Transferor”) wishes to assign or
transfer to                       (the
“Transferee”) the rights, benefits
and obligations of the Transferor under the Loan Agreement specified herein;

NOW THEREFORE
in consideration of the foregoing and of $1.00 and other good and valuable
consideration, the receipt and sufficiency of which is acknowledged, the signatories
hereto agree as follows:

 

1.                                       All capitalized terms defined in the Loan Agreement and not
otherwise defined herein have the same meaning as in the Loan Agreement.

 

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

 

[description of the
Transferred Rights, Benefits and Obligations, indicating retained interest or
fees, if applicable, and Transferee’s Commitment and Participation]

 

(the “Transferred
Rights”, the “Transferred Benefits”,
the “Transferred Obligations”, as
applicable, and collectively the “Transferred
Rights, Benefits and Obligations”).

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

DATED                                                                     
, 20        .

 

 

	
   

  	
  [TRANSFEROR]

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

F-2

 

	
   

  	
  [TRANSFEREE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

 

We hereby consent to the Transfer and Assumption.

 

DATED                                                             
, 20        .

 

 

	
   

  	
  DRAXIS HEALTH INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

F-3

 

SCHEDULE G

 

COMPLIANCE CERTIFICATE

 

To:                                                                              National Bank of Canada

130 King Street West

Suite 820, PO Box 428

Toronto, Ontario

M5X 1E3

 

Attention:                                         Larry Yamamoto

 

This
Compliance Certificate is being delivered pursuant to the amended and restated
loan agreement made as of June 10, 2004 (the “Loan Agreement”) between Draxis Health Inc.
(the “Borrower”) and National Bank
of Canada, as the same may be further amended, restated or modified from time
to time.  Capitalized terms used herein
but not defined shall have the meanings ascribed to such terms in the Loan
Agreement.

 

The
undersigned, Chief Financial Officer of the Borrower, hereby certifies on
behalf of the Borrower and not in [his/her]
personal capacity that:

 

(a)                                  the
information contained in the financial statements delivered on the date hereof
pursuant to Section [8.1(a)(i) or 8.1(a)(ii)]
of the Loan Agreement (the “Financial
Statements”) is prepared and presented in accordance with GAAP as
currently in effect and in a manner consistent with the past practices of the
Borrower;

 

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

 

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

 

(d)                                 except
as set out in Exhibit I hereto, each of the representations and warranties of
the Borrower set forth in Section 7.1 of the Loan Agreement is true and correct
in all material respects by reference to the facts and circumstances now
existing;

 

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

 

(f)                                    Exhibit
III sets out the Borrower’s computation of each of the financial covenants set
forth in Section 8.3 of the Loan Agreement.

 

 

DATED                                                             
, 20        .  

 

 

	
   

  	
  DRAXIS HEALTH INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:  Chief Financial Officer

  
				

 

G-2

 

SCHEDULE 7.1(h)

 

OUTSTANDING LITIGATION

 

 

SCHEDULE
7.1(i)

 

LICENSES

 

NIL

 

 

SCHEDULE
7.1(j)

 

NON-COMPLIANCE MATTERS

 

NIL

 

 

SCHEDULE
7.1(p)

 

REAL PROPERTY

 

Owned Real
Property

 

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

 

Leased
Real Property

 

1.                                                                                       Part
of Block E, Plan 919, designated as Part 1 Plan 43R-7830, City of Mississauga,
Regional Municipality of Peel, Land Registry Office for the Registry Division
of Peel (No. 43) at Brampton, Ontario (the “Goreway Property”).  The Goreway Property is municipally known as
6870 Goreway Drive, Mississauga, Ontario.

 

2.                                                                                       Suite
50, 75 Talcott Road, Willistor, Vermont.

 

 

SCHEDULE 7.1(q)

 

SUBSIDIARIES

 

Subsidiaries of Draxis Health Inc.

 

Subsidiaries

 

	
  Name

  	
   

  	
  Form of legal entity

  	
   

  	
  Jurisdiction

  	
   

  	
  Issued and

  Outstanding

  Capital

  	
   

  	
  Registered in the

  Name

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Draximage Inc.

  	
   

  	
  Private 

  Corporation

  	
   

  	
  Canada 

  (CBCA)

  	
   

  	
  5,635,100 

  common shares

  	
   

  	
  Draxis Health Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Draxis Pharma Inc.

  	
   

  	
  Private 

  Corporation

  	
   

  	
  Canada 

  (CBCA)

  	
   

  	
  23,493,186 

  common shares

  	
   

  	
  Draxis Health Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deprenyl Animal Health, Inc.

  	
   

  	
  Private 

  Corporation

  	
   

  	
  State of
  Louisiana 

  (U.S.A)

  	
   

  	
  9,149,698

  	
   

  	
  Draxis Health Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DAHI LLC

  	
   

  	
  Single member 

  Limited Liability 

  Company

  	
   

  	
  State of
  Delaware 

  (U.S.A)

  	
   

  	
  100% membership
  

  interest

  	
   

  	
  Draxis Health Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Draxis U.S. Inc.

  	
   

  	
  Private 

  Corporation

  	
   

  	
  State of
  Delaware 

  (U.S.A)

  	
   

  	
  1,000 shares

  	
   

  	
  Deprenyl Animal Health Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Draximage LLC

  	
   

  	
  Single member 

  Limited Liability 

  Company

  	
   

  	
  State of
  Delaware 

  (U.S.A)

  	
   

  	
  100% membership
  

  interest

  	
   

  	
  Draxis U.S. Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DAHI (Nevada), Inc.

  	
   

  	
  Corporation

  	
   

  	
  State of Nevada
  

  (U.S.A)

  	
   

  	
  1,000 shares

  	
   

  	
  Deprenyl Animal Health Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DAHI Animal Health (UK) Limited

  	
   

  	
  Private Company
 Limited by Shares

  	
   

  	
  England and 

  Wales

  	
   

  	
  1 ordinary
  share

  	
   

  	
  Draxis Health Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Draximage (UK) Limited

  	
   

  	
  Private Company
  

  Limited by Shares

  	
   

  	
  England and 

  Wales

  	
   

  	
  1 ordinary
  share

  	
   

  	
  Draximage Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DAHI Animal Health (New Zealand) Pty
  Limited

  	
   

  	
  Limited
  Liability
 Company

  	
   

  	
  New Zealand

  	
   

  	
  100 shares

  	
   

  	
  Draxis Health Inc.

  

 

 

SCHEDULE
7.1(u)

 

BANK ACCOUNTSExhibit
4.45

 

June 23, 2004

 

 

BY
PERSONAL DELIVERY

 

Dr. Martin Barkin

54 Old Forest Hill Road

Toronto, Ontario  M5P 2P9

 

Re:
Employment Agreement

 

Dear Dr. Barkin:

 

By this letter we hereby
confirm that your employment agreement with Draxis Health Inc. dated April 15,
1999, as amended by letter dated June 14, 2000 and further amended by letter
dated September 24, 2003 (the “Employment Agreement”) is amended as follows:

 

•                  By deleting Section 16(d) and
replacing it with the following Section 16(d):

 

(d)           Termination Payment Following a
Change of Control

 

(1)           In accordance with
section 16(d) (2) below, if there is a Change of Control (as hereinafter
defined) you shall be entitled to the following:

 

	
  A.

  	
   

  	
  the
  amounts of any unpaid Base Salary earned up to and including date of
  termination;

  
	
  B.

  	
   

  	
  any
  unpaid vacation pay earned up to and including date of termination;

  
	
  C.

  	
   

  	
  a lump sum amount, equal to: (A) five times your
  then current Base Salary in effect immediately prior to the date of the
  Change of Control: and (B) five times the amount paid to you, for the
  preceding calendar year immediately prior to the date of the Change of
  Control, as a discretionary bonus; and (C) five times the then current annual
  amount paid to you for your company car lease immediately prior to the date
  of the Change of Control;

  
	
  D.

  	
   

  	
  any
  additional statutory obligations imposed by the Act
  Respecting Labour Standards;

  
	
  E.

  	
   

  	
  the right to exercise all stock options and other
  securities including those not then otherwise exercisable as provided for
  below.

  

 

The payments referred to in
paragraph 16(d), above, shall be guaranteed and shall not be subject to set off
or deduction as a result of your obtaining alternate employment following
termination or otherwise mitigating any damages arising from termination.  Further, notwithstanding paragraph 16(d) (1)
(D) above, the payment referred to in paragraph 16(d) (1) (C) above, is
inclusive of all statutory payments, including statutory termination and
severance, which may be owed to you following termination.  However, the RCA Payments made as at and/or
subsequent to the date of termination shall be deducted from the lump sum
amount payable pursuant to 16(d)(1)(C).

 

 

The amounts paid to you pursuant to this paragraph shall be subject to
all required deductions.

 

For the purposes of this Agreement, a Change of Control shall be deemed
to occur in the following circumstances.

 

In
the event that at any date following the date of signature hereof:

 

(i)            any change in the ownership as of
the date hereof, direct or indirect, of the outstanding shares of the
Corporation as a result of which an individual, partnership, association,
trust, unincorporated organization, (“Person”) or group of Persons, hold shares
and/or other securities in excess of the number which, directly or following
conversion or exercise thereof,
will entitle the holders thereof to cast 20% or more of the votes attaching to
all such shares and/or other securities of Draxis which may be cast to elect
the directors of Draxis; or

 

(ii)                                  the sale, transfer or any manner of
disposition of 50% or more of the assets of Draxis to an arm’s length Person;

 

and the Board of Directors of Draxis (the “Board of Directors”)
recommends acceptance of such offer to the Shareholders of Draxis (the “Shareholders”)
or, if the Board of Directors has made no recommendation, the Shareholders have
approved or accepted the proposed transaction, then any option, including
options not then otherwise exercisable held by the you, shall become
immediately exercisable upon the issuance of the recommendation of the Board of
Directors or the approval or acceptance of the Shareholders, as the case may
be.

 

For greater clarity, no provision in this employment agreement shall be
deemed to supersede any provision of the Stock Option Plan of Draxis, as
amended from time to time, with respect to the right to exercise options held
by the employee in certain circumstances.

 

(2)           Except for the
ability to exercise all stock options upon a Change of Control as provided in
paragraph 16(d)(1)(E), the payments and entitlements outlined in
paragraph 16(d) (1) shall become due and payable if, and only if:

 

	
  A.

  	
   

  	
  there
  has been a Change of Control; and

  
	
  B.

  	
   

  	
  within
  12 months following any Change of Control:

  
	
   

  	
   

  	
  (i)                                  your
  employment is terminated without cause by Draxis or by any successor employer
  to Draxis, as the case may be; or

  (ii)                               by
  its conduct as described below, Draxis or any successor employer to Draxis,
  as the case may be, constructively terminates your employment by:

  •                  relocating
  without just cause the position and/or location of your principal office more
  than 20 kilometers from the location of your office on the date immediately
  prior to the Change of Control, without your consent; or

  •                  materially
  reducing without just cause your title, reporting relationship,
  responsibilities or authority without your consent; or

  •                  reducing
  without just cause the salary paid to you by the successor employer or
  terminating without just cause or

  

 

2

 

	
   

  	
   

  	
  materially reducing without just cause the value of
  your benefit programs, including, but not limited to, life insurance
  benefits, accidental death and dismemberment benefits, long term disability
  benefits, extended health coverage and dental benefits, which are referred to
  in Section 3 above;

  
	
  C.

  	
   

  	
  and,
  you elect in writing to receive the payments outlined in Section 16(d)(1)

  

 

•                  By deleting Section 16(h) and
replacing it with the following section 16(h):

 

(h)           No Further Notice or Compensation

Upon termination
of your employment under this Agreement, you shall not be entitled to any
further grants of stock options nor shall you be entitled to any further
participation in any other incentive plan of the Draxis Group other than as
specifically set forth in this agreement. For all purposes, “termination of
your employment” and “termination date” shall be the final day of employment
with Draxis, and shall not be deemed to include any period during which you may
be entitled to statutory notice, statutory termination pay or any contractual
or common law notice period and in particular, shall not be deemed to include
the notice period identified in Sections 16(c) (1) or 16(d) (1) (C).

 

All of the other terms
and conditions of your Employment Agreement, as amended, remain unchanged.  We would ask that you confirm your acceptance
of this modification by signing the duplicate of this letter.

 

If you have any questions
concerning this modification, please do not hesitate to communicate with the
undersigned.

 

Regards,

 

DRAXIS HEALTH INC.

 

 

Brian King.

Chair, Board of Director
of

Draxis Health Inc.

 

 

I hereby confirm having
read the above mentioned modification to my employment agreement dated April
15, 1999, as amended by letter dated June 14, 2000 and further amended by
letter dated September 24, 2003 and hereby confirm my acceptance of said
modification.

 

Signed this       
day of              ,
2004 at                  .

 

	
   

  	
   

  
	
  Dr.
  Martin Barkin

  

 

3

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