Document:

Redemption Waiver Agreement dated September 4, 2008

 Exhibit 10.4 

AGREEMENT 
 THIS AGREEMENT made the 4th day of September, 2008. 
 B E T W E E N: 

 

					
		 	PATHEON INC.,	  	
		 	a corporation existing under the laws of Canada,	  	
			
		 	(hereinafter called the “Company”)	  	
			
		 	- and -	  	
			
		 	JLL PATHEON HOLDINGS, LLC,	  	
		 	a limited liability company existing under the laws of the	  	
		 	State of Delaware,	  	
			
		 	(hereinafter called the “Shareholder”).	  	

 WHEREAS, on April 27, 2007, the Company issued and sold, and the Shareholder subscribed for,
150,000 Class I preferred shares, Series C of the Company (the “Convertible Preferred Shares”) and 150,000 Class I preferred shares, Series D of the Company (together with the Convertible Preferred Shares, the “Preferred
Shares”); 
 AND WHEREAS, upon closing of the issue and sale of the Preferred Shares, the Company and the Shareholder
entered into an Investor Agreement dated April 27, 2007 (the “Investor Agreement”); 
 AND WHEREAS the
Shareholder has agreed to waive the application of certain provisions attaching to the Convertible Preferred Shares in consideration for which the Company has agreed to issue certain Restricted Voting Shares (as defined below) to the Shareholder and
to provide a limited waiver of the standstill provisions contained in the Investor Agreement, in each case on the terms and subject to the conditions contained in this Agreement; 

AND WHEREAS the transactions contemplated hereby have been reviewed by a special committee of the board of directors of the Company (the
“Special Committee”); 
 NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants
and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party, the parties hereto hereby covenant and agree as follows: 

 ARTICLE 1 
 INTERPRETATION 
  

	1.1	Definitions 

 Where
used in this Agreement, unless there is something in the context or the subject matter inconsistent therewith, the following terms shall have the following meanings, respectively: 

“affiliate” has the meaning given to that term in NI 45-106; 

“business day” means any day other than a Saturday or Sunday or statutory holiday in Toronto or New York;

 “Closing” means the closing contemplated by this Agreement in accordance with the provisions of this
Agreement; 
 “Closing Date” means the second business day after all of the conditions in Section 6.1 and
6.2 are satisfied or such later date as the Company and the Shareholder may agree upon; 
 “Closing Time” means
10:00 a.m. (Toronto time) on the Closing Date, or such other time as the Company and Shareholder may agree upon; 

“Consideration Shares” has the meaning set out in Section 2.2; 

“Convertible Preferred Shares” has the meaning set out in the first recital to this Agreement; 

“Investor Agreement” has the meaning set out in the second recital to this Agreement; 

“Mandatory Redemption Provision” has the meaning set out in Section 2.1; 

“Maturity Date” has the meaning set out in section 1.1 of schedule A to the articles of amendment dated April 26,
2007 of the Company; 
 “NI 45-106” means National Instrument 45-106 of the Canadian Securities Administrators;

 “person” includes any individual, firm, partnership, joint venture, venture capital fund, association, trust,
trustee, executor, administrator, legal personal representative, estate, group, corporation, unincorporated association or organization, governmental authority, syndicate or other entity, whether or not having legal status; 

“Restricted Voting Shares” means the restricted voting shares in the capital of the Company; 

“Transfer” means any sale, exchange, transfer, assignment, gift, pledge, encumbrance, hypothecation, alienation, grant of
a security interest or other transaction, whether 

  
 - 2 -

 
voluntary, involuntary or by operation of law, by which the legal or beneficial ownership of, or any security or other interest in, such security passes from one person to another person or to
the same person in a different capacity, whether or not for value, including to an affiliate of the Shareholder; 

“TSX” means the Toronto Stock Exchange; and 
 “Waiver Amendment” has the meaning set out in Section 2.4. 
  

	1.2	Construction 

 In
this Agreement, unless otherwise expressly stated or the context otherwise requires: 
  

	 	(a)	the division of this Agreement into Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation
of this Agreement; 

  

	 	(b)	the terms, “this Agreement”, “herein”, “hereby”, “hereof” and “hereunder” and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and include any agreement or instrument supplemental or ancillary hereto; 

  

	 	(c)	references to Articles, Sections and Schedules are to the specified Articles, Sections of or Schedules to this Agreement; 

 

	 	(d)	words importing the singular include the plural and vice versa and words importing any gender shall include the masculine, feminine and neutral genders; and

  

	 	(e)	the words “includes” and “including”, when following any general term or statement, are not to be construed as limiting the general term or
statement to the specific items or matters set forth or to similar items or matters, but rather as referring to all other items or matters that could reasonably fall within the broadest possible scope of the general term or statement,

 ARTICLE 2 
 MANDATORY REDEMPTION WAIVER 
  

	2.1	Mandatory Redemption Waiver 

 Subject to the satisfaction or waiver of the conditions to closing set forth in Section 6.1 and 6.2, effective as of and from the Closing, (i) the Shareholder agrees that, notwithstanding
section 7.1(b) of schedule A to the certificate and articles of amendment of the Company dated April 26, 2007 and Schedule A of the Purchase Agreement dated as of March 1, 2007, , as amended, between the Shareholder and the Company (the
“Mandatory Redemption Provision”), the Company shall not be required to redeem the Shareholder's Convertible Preferred Shares on the Maturity Date, and hereby irrevocably waives all of its rights pursuant to the Mandatory Redemption
Provision and (ii) the Shareholder agrees that it will not assert in any 

  
 - 3 -

 
manner any claim against the Company or otherwise that it is entitled to have its Convertible Preferred Shares redeemed under the Mandatory Redemption Provision; provided that such waiver
is without prejudice to any right of redemption or other right the Shareholder may have under any other provision of the Preferred Shares. 
  

	2.2	Issuance of Restricted Voting Shares 

 As consideration for the waiver contained in Section 2.1, the Company shall issue and deliver to the Shareholder at Closing 400,000 Restricted Voting Shares (the “Consideration
Shares”). 
  

	2.3	Withholding Rights 

The Company shall be entitled to deduct and withhold from any consideration payable to the Shareholder hereunder such amounts as the
Company determines, acting reasonably, upon the advice of the Company's outside counsel, are required to be deducted and withheld with respect to such payment under the Income Tax Act (Canada) (the “Tax Act”) or any
applicable provision of federal, provincial, territorial, or foreign tax law, in each case, as amended. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes hereof as having been paid to the
Shareholder, provided that such withheld amounts are actually remitted to the appropriate taxing authority, including any amount that the Company is entitled to deduct and withhold for purposes of section 116 of the Tax Act. To the extent that the
Company at any time determines that withholding is required in connection with any of the transactions contemplated by this Agreement, the Company shall confer with the Shareholder regarding the need for such withholding and will reasonably
cooperate with the Shareholder in an effort to mitigate any such withholding requirements. The Shareholder hereby agrees to indemnify and hold harmless the Company in respect of any withholding taxes that the Company becomes liable to pay (including
but not limited to any liability for taxes arising under or pursuant to sections 116, 215 or 227 of the Tax Act) as a result of the transactions contemplated herein, including the issuance of the Consideration Shares to the Shareholder, together
with any interest assessed against the Company in respect of such indemnified taxes that accrues from and after the date that the Shareholder receives notice of the assessment of any such taxes. For the avoidance of doubt, the Company shall not
be entitled to indemnification from the Shareholder under this Section 2.3 with respect to penalties or interest, except as expressly set forth above. 
  

	2.4	Shareholder Approval 

 The Company may, at its option, propose, at any future meeting or meetings of shareholders of the Company, the amendment of the articles of the Company to delete the Mandatory Redemption Provision and to
make such other incidental amendments as may be necessary or desirable to give full effect to such deletion (the “Waiver Amendment”). If the Company does so propose the Waiver Amendment, subject to the satisfaction or waiver of the
conditions to closing set forth in Section 6.1 and 6.2, effective as of and from the Closing, the Shareholder shall, and shall cause its affiliates to, support such proposal and vote all shares of the Company held by it or them, as the case may
be, in favour of any shareholder approval of the Waiver Amendment. 

  
 - 4 -

	2.5	Transfers 

 The
Shareholder shall not Transfer any of its Convertible Preferred Shares to any person (a “Transferee”) at any time prior to the time when the Waiver Amendment is effective, unless this Agreement has been terminated or the Transferee
first enters into an agreement with the Company, in form and substance satisfactory to the Company, acting reasonably, providing that the Transferee agrees to be bound by Sections 2.1, 2.3 and 2.5, and this Section 2.4 as if the Transferee were
the Shareholder; provided, in either case, that any such Transfer shall comply with all transfer restrictions contained in the articles of the Corporation that are applicable to such Transfer. 

 

	2.6	Share Exchange 

Subject to the satisfaction or waiver of the conditions to closing set forth in Section 6.1 and 6.2, effective as of and from the
Closing, if a Waiver Amendment has not become effective prior to the Maturity Date, the Company may, at its option, require the Shareholder to surrender and exchange, prior to the Maturity Date, all of the Convertible Preferred Shares held by it for
shares of another series of Class I preferred shares of the Company having an aggregate liquidation preference equal to the aggregate liquidation preference of the Convertible Preferred Shares surrendered for exchange and having the same terms as
such Convertible Preferred Shares except for the deletion of the Mandatory Redemption Provision. The Company may exercise its option to require such exchange prior to the Maturity Date by written notice to the Shareholder at least 10 days prior to
the Maturity Date. 
 ARTICLE 3 
 STANDSTILL WAIVER 
  

	3.1	Standstill Waiver 

The Company hereby irrevocably waives section 3.1(a) of the Investor Agreement to the extent required to permit the Shareholder to acquire
through the facilities of the TSX up to 1,256,929 Restricted Voting Shares during the period from the Closing Date to the first anniversary of the Closing Date. All other provisions of article 3 of the Investor Agreement shall remain in full force
and effect. 
 ARTICLE 4 
 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 
 The Company
represents and warrants to the Shareholder as follows, and acknowledges that the Shareholder is relying upon these representations and warranties in connection with the entering into of this Agreement: 

 

	4.1	Organization 

 The
Company is a corporation validly existing under the Canada Business Corporations Act. 

  
 - 5 -

	4.2	Authority and Non-Conflict 

 The Company has the requisite power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated by this Agreement have been duly authorized by the board of directors of the Company and no other proceedings on the part of the Company are necessary to authorize this Agreement and the performance by
the Company of its obligations hereunder. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable by the Shareholder against the Company in accordance with
its terms, subject, however, to limitations with respect to enforcement imposed by law in connection with bankruptcy, insolvency or similar proceedings and to the extent that equitable remedies such as specific performance and injunction are in the
discretion of the court from which they are sought. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder do not violate, conflict with or result in a breach, in any material
respect, of any provision of (a) its articles or the articles or other constating documents of the Company or (b) any law, regulation, order, judgment or decree to which it is subject or by which it is bound. 

 

	4.3	Consideration Shares 

 The Consideration Shares, when issued by the Company in accordance with the terms hereof, will be duly authorized, validly issued fully paid and non-assessable Restricted Voting Shares. 

ARTICLE 5 
 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER 
 The Shareholder
represents and warrants to the Company as follows, and acknowledges that the Company is relying upon these representations and warranties in connection with the entering into of this Agreement: 

 

	5.1	Organization 

 The
Shareholder is validly existing under the laws of its jurisdiction of the State of Delaware. 
  

	5.2	Authority and Non-Conflict 

 The Shareholder has the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by the Shareholder and
the performance by it of its obligations hereunder have been duly authorized by its board of directors and no other corporate proceedings on its part are necessary to authorize this Agreement and the performance of its obligations hereunder. This
Agreement has been duly executed and delivered by the Shareholder and constitutes a legal, valid and binding obligation of the Shareholder, enforceable by the Company against the Shareholder in accordance with its terms, subject, however, to
limitations with respect to enforcement imposed by law in connection with bankruptcy, insolvency or similar proceedings 

  
 - 6 -

 
and to the extent that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. The execution and delivery by the Shareholder
of this Agreement and the performance by it of its obligations hereunder do not violate, conflict with or result in a breach of any provision of (a) certificate of incorporation or by-laws or other applicable constating documents of the
Shareholder or (b) any law, regulation, order, judgment or decree to which it is subject or by which the Shareholder is bound. 
  

	5.3	Securities Law Matters 

 (a) The Shareholder has had access to such financial and other information, if any, concerning the Company as it has considered necessary in connection with its investment decision to acquire the
Consideration Shares; 
 (b) The Shareholder has not purchased the Consideration Shares as a result of any general solicitation
or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television or other form of electronic display, or any seminar or meeting
whose attendees have been invited by general solicitation or general advertising; 
 (c) No prospectus or offering memorandum
(within the meaning of Ontario Securities Laws) has been delivered to or summarized for or seen by the Shareholder in connection with the purchase and sale of the Consideration Shares and the Shareholder is not aware of any prospectus or offering
memorandum having been prepared by the Company; 
 (d) The Shareholder acknowledges it is solely responsible for obtaining such
tax, investment, legal and other professional advice, if any, as it considers appropriate in connection with the execution, delivery and performance by it of this Agreement and the transactions contemplated hereunder (including the resale and
transfer restrictions applicable to the Consideration Shares and Common Shares referred to herein); 
 (e) The Shareholder
understands that a prospectus has not and will not be filed under Ontario Securities Laws to qualify the distribution of the Consideration Shares, and that the Consideration Shares and Common Shares to be issued upon the exercise or deemed exercise
of the Consideration Shares have not been and will not be registered under the 1933 Act or any applicable state securities laws; 
 (f) The Shareholder is an “accredited investor” as defined in Rule 501 of Regulation D under the 1933 Act). 
 (g) the Shareholder agrees that if it decides to offer, sell or otherwise transfer any of the Consideration Shares, such securities may be offered, sold or otherwise transferred only (1) to the
Company, (2) outside the United States in accordance with Rule 904 of Regulation S under the 1933 Act, (3) inside the United States pursuant to an exemption from registration under the 1933 Act or (4) under an effective registration
statement under the 1933 Act, and in each case in accordance with any applicable state securities laws in the United States or securities laws of any other applicable jurisdiction; provided that, if the Consideration Shares are being sold under
(2) above, the legend set out in Schedule A may be removed by providing a declaration to the Computershare Trust Company of Canada to the effect set forth in Schedule B, or in such other 

  
 - 7 -

 
form Computershare Trust Company of Canada may from time to time prescribe; provided, further, that if any such Consideration Shares are being sold under (3) above, the legend may be removed
by delivery to Computershare Trust Company of Canada of an opinion of counsel of recognized standing reasonably satisfactory to the Company to the effect that such legend is no longer required under applicable requirements of the 1933 Act or state
securities laws; 
 (h) The Shareholder understands and acknowledges that upon the original issuance thereof, and until such
time as the same is no longer required under applicable requirements of the 1933 Act or applicable state securities laws, certificates representing the Consideration Shares, and all certificates issued in exchange therefor or in substitution
thereof, will bear a legend to the effect of the resale restrictions set forth in Schedule A; 
 (i) The Consideration Shares
are being acquired for the Shareholder's own account not with a view to resale or distribution in violation of the 1933 Act; 

(j) The Shareholder is acquiring the Consideration Shares as principal and is an “accredited investor” for the purposes of NI
45-106; and 
 (k) The Shareholder understands and acknowledges: 

 

	 	(a)	that prior to the four month anniversary of the date of issuance of the Consideration Shares, the Consideration Shares are subject to statutory “hold periods”
during which they may not be resold, except pursuant to a prospectus or further statutory exemption from the applicable prospectus and registration requirements under the Ontario Securities Laws, or unless an appropriate discretionary order is
obtained pursuant to applicable Ontario Securities Laws; and 

  

	 	(b)	that upon the original issuance thereof, and until such time as the same is no longer required under applicable requirements of Ontario Securities Laws, certificates
representing the Consideration Shares, and all certificates issued in exchange therefor or in substitution thereof, will bear a legend to the effect of the resale restrictions set forth in Schedule A. 

ARTICLE 6 
 CONDITIONS OF CLOSING 
  

	6.1	Conditions of Closing in Favour of the Company 

 The completion of the transactions contemplated by this Agreement is subject to the following terms and conditions for the exclusive benefit of the Company, to be fulfilled or performed at or prior to the
Closing Time: 
  

	 	(a)	No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or enforced by any court
or other tribunal or governmental entity that prohibits the consummation of the transactions contemplated hereby, and shall continue to be in effect. 

  
 - 8 -

	 	(b)	Representations and Warranties. The representations and warranties of the Shareholder contained in this Agreement shall be true and correct in all material
respects at the Closing Time, with the same force and effect as if such representations and warranties were made at and as of such time and a certificate of a senior officer of the Shareholder, dated the Closing Date to that effect shall have been
delivered to the Shareholder, such certificate to be in form and substance satisfactory to the Company, acting reasonably. 

  

	 	(c)	Covenants. The Shareholder shall have complied, in all material respects, with all of its covenants and agreements set forth in this Agreement.

  

	 	(d)	No Violation of Material Agreements. The execution and delivery by the Company and the Shareholder of this Agreement, the performance by the Company and the
Shareholder of their respective obligations hereunder and the implementation of the Waiver Amendment shall have been determined by the Company, acting reasonably, not to violate, conflict with or result in a breach of any agreement or indenture
material to the Company and its subsidiaries, taken as a whole. 

  

	 	(e)	TSX Approval. The TSX shall have accepted notice of the issuance of the Consideration Shares and conditionally approved the listing of the Consideration Shares
subject only to customary post-closing conditions, it being understood and agreed that the Company shall use its reasonable best efforts to obtain conditional approval as soon as practicable after the date hereof. 

Any condition contained in this Section 6.1 may be waived in whole or in part by the Company without prejudice to any claims it may
have for breach of covenant, representation or warranty. 
  

	6.2	Conditions of Closing in Favour of the Shareholder 

 The completion of the transactions contemplated by this Agreement is subject to the following terms and conditions for the exclusive benefit of the Shareholder, to be fulfilled or performed at or prior to
the Closing Time: 
  

	 	(f)	No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or enforced by any court
or other tribunal or governmental entity that prohibits the consummation of the transactions contemplated hereby, and shall continue to be in effect. 

  

	 	(g)	Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects
at the Closing Time, with the same force and effect as if such representations and warranties were made at and as of such time and a certificate of a senior officer of the Company, dated the Closing Date to that effect shall have been delivered to
the Purchaser, such certificate to be in form and substance satisfactory to the Shareholder, acting reasonably. 

  
 - 9 -

	 	(h)	Covenants. The Company shall have complied, in all material respects, with all of its covenants and agreements set forth in this Agreement.

  

	 	(i)	No Violation of Material Agreements. The execution and delivery by the Company and the Shareholder of this Agreement, the performance by the Company and the
Shareholder of their respective obligations hereunder and the implementation of the Waiver Amendment shall have been determined by the Shareholder, acting reasonably, not to violate, conflict with or result in a breach of any agreement or indenture
material to the Company and its subsidiaries, taken as a whole. 

  

	 	(j)	TSX Approval. The TSX shall have accepted notice of the issuance of the Consideration Shares and conditionally approved the listing of the Consideration Shares
subject only to customary post-closing conditions. 

 Any condition contained in this Section 6.2 may be
waived in whole or in part by the Shareholder without prejudice to any claims it may have for breach of covenant, representation or warranty. 
 ARTICLE 7 
 TERMINATION 

 

	7.1	Termination 

 This
Agreement may be terminated at any time prior to the Closing: 
  

	 	(k)	by mutual written consent of the Company and the Shareholder; 

  

	 	(l)	by either the Company or the Shareholder, If the transactions contemplated by this Agreement have not been consummated by October 31, 2008;

  

	 	(m)	by the Company upon a breach of any representation, warranty, covenant or agreement on the part of the Shareholder set forth in this Agreement such that the conditions
set forth in Section 6.1(b) or Section 6.1(c), respectively, would not be satisfied as of the time of such breach and in any such case such breach shall be incapable of being cured or shall not have been cured in all material respects
within thirty (30) days after written notice thereof shall have been received by the Shareholder; and 

  

	 	(n)	by the Shareholder upon a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement such that the conditions
set forth in Section 6.2(b) or Section 6.2(c), respectively, would not be satisfied as of the time of such breach and in any such case such breach shall be incapable of being cured or shall not have been cured in all material respects
within thirty (30) days after written notice thereof shall have been received by the Company. 

  
 - 10 -

 ARTICLE 8 

CLOSING ARRANGEMENTS 
  

	8.1	Place of Closing 

 The Closing shall take place at the Closing Time at the offices of Davies Ward Phillips & Vineberg LLP, 1 First Canadian Place, 44th Floor, Toronto, Ontario, Canada, M5X 1B1, or at such other place as may be mutually agreed upon by the Company and the
Shareholder. 
  

	8.2	Issuance of Consideration Shares 

 At the Closing Time, upon fulfillment of all of the conditions set out in Article 6 which have not been waived by the Company or the Shareholder, the Company shall issue and deliver to the Shareholder the
Consideration Shares. 
  

	8.3	Convertible Preferred Share Legend 

 At the Closing Time, the Shareholder shall surrender to the Company the original share certificate representing the Convertible Preferred Shares, and the Company shall deliver to the Shareholder a
replacement certificate representing such Convertible Preferred Shares bearing the following legend: 
 “THE SHARES
REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF AN AGREEMENT ENTERED INTO BETWEEN PATHEON INC. AND THE HOLDER, WHICH AGREEMENT CONTAINS RESTRICTIONS ON THE RIGHT TO TRANSFER, PLEDGE OR OTHERWISE DEAL WITH SUCH SECURITIES. NOTICE OF SUCH
RESTRICTIONS AND THE OTHER PROVISIONS OF SUCH AGREEMENT IS HEREBY GIVEN. 
 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER SAID ACT.” 
 ARTICLE 9 

GENERAL PROVISIONS 
  

	9.1	Notices 

 Any
notice, consent, waiver, direction or other communication required or permitted to be given under this Agreement by a party shall be in writing and may be given by delivering same or sending same by facsimile transmission or by delivery addressed to
the party to which the notice is to be given at its address for service herein. Any notice, consent, waiver, 

  
 - 11 -

 direction or other communication aforesaid shall, if delivered, be deemed to have been given and received on
the date on which it was delivered to the address provided herein (if a business day or, if not, on the next succeeding business day) and if sent by facsimile transmission, be deemed to have been given and received at the time of receipt (if a
business day or, if not, on the next succeeding business day) unless actually received after 4:00 p.m. (Toronto time) at the point of delivery, in which case it shall be deemed to have been given and received on the next business day. 

 

					
		 	The address for service for each of the parties hereto shall be as follows:
		
		 	If to the Company:
		
		 	Patheon Inc.
		 	7070 Mississauga Road
		 	Suite 350
		 	Mississauga, ON L5N 7J8
			
		 	Fax:	 	905-812-6705
		 	Attention:	 	Chief Executive Officer
		 		 	General Counsel, North America and Corporate Secretary
		
		 	With a copy (which shall not constitute notice) to:
		
		 	Davies Ward Phillips & Vineberg LLP
		 	44th Floor, 1 First Canadian Place
		 	Toronto, ON M5X 1B1
			
		 	Fax:	 	416-863-0871
		 	Attention:	 	William N. Gula
		
		 	If to the Shareholder:
		
		 	 c/o JLL Partners, Inc.
 450 Lexington Avenue
 Suite 3350
 New York, NY 10017

			
		 	Fax:	 	212-286-8626
		 	Attention:	 	Ramsey Frank
		
		 	 With a copy (which shall not constitute notice) to:

		
		 	 Skadden, Arps, Slate, Meagher & Flom LLP
 One Rodney Square
 Wilmington, DE 19801
 Fax: (302) 651-3001

		 	 Attention:
	 	Robert B. Pincus

  
 - 12 -

					
		 		 	Steven J. Daniels

 A party may change its address for
service from time to time by giving notice to the other party in accordance with this Section 9.1. 
  

	9.2	Severability 

 If
any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated and the parties shall negotiate in good faith to modify the Agreement to preserve each party's anticipated benefits under this Agreement. 

 

	9.3	Amendment 

 This
Agreement may not be amended except by an instrument in writing signed by each of the parties hereto. 
  

	9.4	Entire Agreement, Assignment and Governing Law 

  

	 	(a)	This Agreement constitutes the entire agreement and supersede all other prior agreements and undertakings, both written and oral, among the parties with respect to the
subject matter hereof and thereof. 

  

	 	(b)	This Agreement: (i) shall not be assigned by operation of law or otherwise; and (ii) shall be governed in all respects, including validity, interpretation and
effect, by the laws of the Province of Ontario and the laws of Canada applicable therein, without giving effect to the principles of conflict of laws thereof. Each party hereto irrevocably attorns to the non-exclusive jurisdiction of the courts of
such province. 

  

	9.5	Construction 

 The
parties hereto acknowledge that their respective legal counsel have reviewed and participated in settling the terms of this Agreement and that any rule of construction to the effect that any ambiguity is to be resolved against the drafting party,
including the rule or doctrine of contra proferentum, shall not be applicable in the interpretation of this Agreement. 

  
 - 13 -

	9.6	Effect of Certain Breaches 

 In the event that, at any time after the date hereof (whether before or after the Closing Date), the execution and delivery by the Company and the Shareholder of this Agreement, the performance by the
Company and the Shareholder of their respective obligations hereunder and the implementation of the Waiver Amendment shall have been mutually determined by the Company and the Shareholder, acting reasonably, to violate, conflict with or result in a
breach of any agreement or indenture material to the Company and its subsidiaries, taken as a whole, this Agreement and the transactions contemplated hereby shall be void ab initio and shall be unwound by the Company and the Shareholder,
acting reasonably. 
  

	9.7	Counterparts 

 This
Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument, and it shall not be necessary in making proof of this
Agreement to produce more than one counterpart. 

  
 - 14 -

 IN WITNESS WHEREOF, the parties have executed this Agreement. 

 

			
	PATHEON INC. 
		
	By:	 	   (signed) Wesley P. Wheeler

		 	Name: Wesley P. Wheeler
		 	Title: Chief Executive Officer
	
	JLL PATHEON HOLDINGS, LLC
		
	By:	 	   (signed) Ramsey Frank

		 	Name: Ramsey Frank
		 	Title: Managing Director

  
 - 15 -

 SCHEDULE A 
 LEGEND 
 “UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF
THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [    ], 2008 [4 months and 1 day after the date of issue]. 
 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT.” 

  
 - 16 -

 SCHEDULE B 

CERTIFICATE FOR LEGEND REMOVAL 
  

			
	TO:	 	Computershare Trust Company of Canada
		 	as registrar and transfer agent for Restricted Voting Shares of Patheon Inc.

 The undersigned: 
  

	 	•	 	 acknowledges that the sale of the securities of Patheon Inc. to which this declaration relates is being made in reliance on Rule 904 of Regulation S
(“Regulation S”) under the United States U.S. Securities Act of 1933, as amended (the “1933 Act”), and 

  

	 	•	 	 certifies that: 

  

	 	1.	it is not an affiliate of Patheon Inc. (as defined in Rule 405 under the 1933 Act); 

 

	 	2.	the offer of the securities was not made to a person in the United States and either (A) at the time the buy order was originated, the buyer was outside the United
States, or the seller and any person acting on its behalf reasonably believe that the buyer was outside the United States, or (B) the transaction was executed on or through the facilities of the Toronto Stock Exchange or any other designated
offshore securities market, and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; and 

 

	 	3.	neither the seller nor any affiliate of the seller nor any person acting on any of their behalves has engaged or will engage in any “directed selling efforts”
(as such term is defined in Regulation S) in the United States in connection with the offer and sale of the securities. 

 Unless otherwise indicated, terms used in this declaration have the meanings given to them in Regulation S. 
  

					
	Dated:
                                	 	By:	 	  

		 		 	Name:
		 		 	Title:

  
 - 17 -Settlement Agreement dated November 29, 2009

 Exhibit 10.5 
 [PATHEON] 
 November 29, 2009 

JLL Patheon Holdings, LLC 
 c/o JLL Partners,
Inc. 
 450 Lexington Avenue, Suite 3350 

New York, NY 10017 
 Attention: Paul S. Levy,
Ramsey A. Frank and Thomas S. Taylor 
 Patheon Inc. 
 This letter agreement sets out the terms and conditions on which Patheon Inc. (“Patheon”), the members of the Special Committee of the Board of Directors of Patheon, JLL Patheon Holdings, LLC
(“JLL”) and the nominees of JLL to the Board of Directors of Patheon have agreed to settle the currently pending litigation among them (the “Settlement”). 
 The terms of the Settlement are set out in the term sheet attached as Schedule A to this agreement. 
 The parties agree that this agreement is subject to obtaining all necessary court approvals of the Settlement. If such approvals are not obtained prior to December 11, 2009, this agreement shall be
null and void. 
 Subject to the conditions set out in Schedule A to this agreement, each party hereto agrees to use its commercial best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as is practicable and to otherwise give effect to the matters contemplated by this
agreement, including obtaining any necessary court approvals of the Settlement prior to December 11, 2009. Each of the parties hereto shall reasonably cooperate with the other party in taking such actions. 

This agreement is intended to be a binding agreement, enforceable against each of the parties hereto. In the event of any inconsistency between the terms
and provisions of this agreement and those contained in the Investor Agreement dated April 27, 2007 between Patheon and JLL, the terms and provisions of this Agreement shall prevail. 
 If any provision of this agreement is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, all other provisions of this agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto. 

 This agreement shall be construed, interpreted and enforced in accordance with, and the respective rights
and obligations of the parties hereto shall be governed by, the laws of the Province of Ontario. Each party hereto irrevocably attorns to the non-exclusive jurisdiction of the courts of such province. 

This agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be
deemed to constitute one and the same instrument. 
 [Signature Page Follows] 

  
 - 2 -

 If this agreement accurately sets forth the agreement among the parties, please return a fully-executed copy
of this agreement to us as soon as possible. 
  

			
	Yours very truly,
	
	PATHEON INC.
		
	by	 	 (signed) Paul W. Currie

		 	Paul W. Currie
		 	Chairman of the Special
		 	Committee of the Board of Directors
		 
		
		 	Claudio F. Bussandri
		 	Paul W. Currie
		 	Roy T. Graydon
		 	Derek J. Watchorn
		 	G. Wesley Voorheis
		
	by	 	 (signed) Paul W. Currie

		 	Paul W. Currie

  

 
 Confirmed and accepted this
30th day of November, 2009. 
  

			
	JLL PATHEON HOLDINGS, LLC
		
	by	 	 (signed) Ramsey A. Frank

		 	Ramsey A. Frank
		 	Authorized Person
		
		 	Ramsey A. Frank
		 	Paul S. Levy
		 	Thomas S. Taylor
		
	by	 	 (signed) Ramsey A. Frank

		 	Ramsey A. Frank

  
 - 3 -

 SCHEDULE A 
 LITIGATION SETTLEMENT TERMS 
 Set .forth below is a term sheet (this “Term Sheet” setting
out terms and conditions for the settlement of the currently pending litigation between Patheon Inc., the members of the Special Committee of the Board of Directors of Patheon Inc., JLL Patheon Holdings, LLC and the nominees of JLL Patheon Holdings,
LLC to the Board of Directors of Patheon Inc. 
  

			
	Resolution of Litigation	  	Each of Patheon Inc. (“Patheon”) and JLL Patheon Holdings, LLC (“JLL”), as well as their respective affiliates, will take all action necessary (including
obtaining required orders of the Court) to dismiss on consent, with prejudice and without costs all litigation proceedings and claims currently pending between or among the parties, including any and all claims made by JLL against the current and
former members of the Special Committee of the Board of Directors of Patheon (the “Special Committee”) and any and all claims made by Patheon against JLL and its affiliates and the members of the Board of Directors of Patheon
appointed by JLL (the “JLL Nominees”) pursuant to Patheon’s Class I Preferred Shares, Series D (collectively, the “Litigation”).
		
	Mutual Releases	  	Each of Patheon and JLL will release and forever discharge each other and their respective affiliates, as well as the JLL Nominees and each of the current or former members of the
Special Committee, from any and all claims arising from or relating to the offer (“Offer”) by JLL and its affiliates to purchase any and all of the issued and outstanding restricted voting shares of Patheon (“Restricted
Voting Shares”) at a price per Restricted Voting Share of U.S. $2.00 in cash, including (i) all claims asserted or which could have been asserted in the Litigation; (ii) any actions or omissions by Patheon, the members of the Special
Committee, JLL, and the JLL Nominees in connection with the announcement of the Offer or taken in response to the announcement or commencement thereof, whether before or after the commencement or consummation thereof, (iii) all actions or omissions
by any of the foregoing parties asserted as a basis for any claims raised or that could have been raised in connection with the Litigation, and (iii) the conduct of the Special Committee since its inception, including with respect to the discussions
between Patheon and Lonza Group AG.
		
	Board of Directors	  	Upon settlement of the Litigation by obtaining issued dismissal orders (the date on which such dismissal orders are issued being referred to herein as the “Effective
Date”), the composition of the Board of Directors of Patheon will be modified to consist of the following individuals:
		
		  	 •     three JLL Nominees;

		
		  	 •     one additional director selected by JLL;

		
		  	 •     Roy T. Graydon and Derek J. Watchorn (the “Board Nominees”), each of whom is
a resident Canadian within the

			
		  	 meaning of the Canada Business Corporations Act (the “CBCA”);

 
 •     Brian G.
Shaw (the “Third Independent Nominee” and, collectively with the Board Nominees, the “Independent Directors”);
  

•     the Chief Executive Officer of Patheon; and

 

•     Joaquín B. Viso.

		
		  	Subject to the next following sentence, at each meeting of shareholders of Patheon held prior to March 1, 2011 at which directors of Patheon are to be elected, JLL will vote
all of its shares in favour of the re-election of, and will otherwise use its reasonable commercial efforts to re-elect, each of the Independent Directors and, at any requisitioned meeting called for the purpose of removing and/or electing
directors, JLL will vote all of its shares against the removal of any of the directors specified above. If either of the Board Nominees is unable or unwilling to stand for re-election at any such meeting of shareholders, or vacates his office, a
replacement nominee will be selected by the Board with the unanimous approval of all of the remaining Independent Directors then in office, and JLL will vote all of its shares in favour of the election of, and will otherwise use its reasonable
commercial efforts to elect or cause to be appointed, such replacement nominee as a director of Patheon. If the Third Independent Nominee is unable or unwilling to stand for re-election at any such meeting of shareholders, or vacates his office, a
replacement nominee who would be a qualifying independent director will be identified by JLL. Following such election or appointment for the purposes of this Term Sheet, the term “Independent Directors” includes any such replacement
nominees.
		
		  	At each meeting of shareholders of Patheon held after March 1, 2011 and prior to March 1, 2012 (including any requisitioned meeting), JLL will vote all of its shares in
favour of the election of, and against the removal of, and will otherwise use its reasonable commercial efforts to elect, at least three persons (who may or may not be one or more of the Independent Directors then in office) to the Board of Patheon
who would be qualifying independent directors, and these individuals shall constitute the “Independent Directors” for purposes of any actions to be taken by the Independent Directors after March 1, 2011 hereunder. If any of
such Independent Directors vacates his office, a replacement nominee who would be a qualifying independent director will be selected by the Board, and JLL will vote all of its shares in favour of the election of, and will otherwise use its
reasonable commercial efforts to elect or cause to be appointed, such replacement nominee as a director of Patheon. For the purposes of this section “qualifying independent director” means a person who would be an independent director
under the definition in the TSX Company Manual; provided, however, that the Third Independent Nominee shall not be disqualified as an independent director under the definition in the TSX Company Manual solely by virtue of the fact that he or
she has been identified by JLL. Following such election or appointment, for the purposes of this Term Sheet, the term “Independent Directors” includes such replacement nominee.

  
 - 2 -

			
		  	Each member of the Special Committee who is not selected as an Independent Director will resign from the Board of Directors of Patheon effective as of the close of business on
the Effective Date.
		
		  	Promptly upon the resignation of these directors, Patheon shall pay to each such director all outstanding director fees (including any unpaid annual retainer amounts) payable to
him and shall redeem all of the deferred share units held by or issuable to each such director in accordance with section 11 of the Directors Deferred Share Unit Plan dated February 22, 2008, as amended March 27, 2008 (the “DSU
Plan”). For greater certainty, section 12 of the DSU Plan will not apply to any of such directors.
		
	Transition	  	Until the Effective Date, all decisions of the Board will require unanimity.
		
		  	Effective as of the Effective Date, Derek Watchorn will be appointed as a member of the Audit Committee, and Roy Graydon will be appointed as the Chairman of the Audit Committee.
The Audit Committee will continue to be composed of three members, the third member being Thomas Taylor, and no further changes will be made to the composition of the Audit Committee until after the date of the release of Patheon’s year-end
financial results (the “Release Date”). After the Release Date, the Board may reconstitute the Audit Committee as it deems appropriate.
		
		  	 Until the Release Date, all matters to be considered by the Board relating to Patheon’s fiscal year ended October 31, 2009 or
affecting Patheon’s financial results or financial statements for fiscal 2009 or any portion thereof (“Year-End Matters”), including without limitation the approval of Patheon’s earnings release, financial statements and
MD&A, and all determinations regarding discretionary compensation in respect of fiscal 2009 or any portion thereof, will be dealt with as follows:
  

(a)     Year-End Matters within the current mandate of the Audit Committee shall be
dealt with by the Audit Committee, acting reasonably, which shall make recommendations to the Board in accordance with its mandate. The Board, acting reasonably, will determine to either accept the recommendations of the Audit Committee or to
propose changes in respect of the subject-matter thereof, provided that no change will be implemented without the approval of the Audit Committee, acting reasonably; and
  

(b)     Year-End Matters not within the current mandate of the Audit Committee will be
dealt with by the Board, acting reasonably, provided that the Board shall take no action in respect of any such matter without the approval of each of the Board Nominees, acting reasonably.

 
 Patheon shall not take any action in respect of any Year-End Matter unless it has
been approved in accordance with the foregoing.

  
 - 3 -

			
	Special Committee	  	The Special Committee will be disbanded on the Effective Date. Patheon will pay all outstanding accounts for services rendered by advisors to the Special Committee prior to the
Effective Date, which accounts have been approved by the Special Committee. Appropriate documentation of such expenses will be provided to Patheon’s Chief Financial Officer.
		
	Investor Agreement	  	The Investor Agreement, dated April 27, 2007, by and between Patheon and JLL (the “Investor Agreement”) shall continue in effect.
		
	Standstill	  	JLL will not acquire, nor make any announcement of any intention to acquire, any additional Restricted Voting Shares for a period ending on the first anniversary of the Effective
Date. Thereafter, for so long as the standstill provisions of the Investor Agreement remain in effect, JLL will not acquire any additional Restricted Voting Shares unless such acquisition complies with the standstill provisions of the Investor
Agreement and (i) if the acquisition is to be effected by means of a merger, consolidation, amalgamation or similar transaction requiring a vote of shareholders, the acquisition is approved by a majority vote of the holders of the outstanding
Restricted Voting Shares not already held by JLL or its associates, affiliates and/or joint actors and (ii) if the acquisition is to be effected by means of a takeover bid, such takeover bid is subject to an irrevocable condition requiring the valid
tender to the bid of at least a majority of the outstanding Restricted Voting Shares not already held by JLL or its associates, affiliates and/or joint actors. For the purposes of (i) and (ii), above, the acquisition shall be effected on terms that
provide identical consideration to all holders of Restricted Voting Shares, other than JLL, and JLL shall not have entered into any agreement, arrangement or understanding with any other shareholder that provides different consideration (including
alternative investment choices) or any collateral benefit associated with the transaction.
		
		  	JLL will not request any waiver or amendment to the foregoing standstill provisions by public announcement or make any public announcement relating thereto or announce any
intention to do so.
		
	Independent Director Approvals of Patheon Actions	  	 Patheon shall not do any of the following, unless approved by a majority of the Independent Directors:

 
 •     until
April 27, 2012, enter into any transaction with JLL or any associate or affiliate of JLL, or in which any of the foregoing has a material interest (other than an interest solely through the holding of shares of Patheon) (a “JLL Related
Transaction”), including, for greater certainty, any amendment or waiver of the Investor Agreement or the terms hereof;
  

•     until April 27, 2011, acquire, or announce any intention to acquire, any
Restricted Voting Shares pursuant to an issuer bid or otherwise or thereafter until April 27, 2012 do so other than pursuant to an exempt issuer bid; or

  
 - 4 -

			
		  	 •     until April 27, 2012, (i) engage in any rights
offering (whether or not backstopped by JLL or one of its affiliates) at a price that is less than 85% of the volume weighted average trading price of the Restricted Voting Shares on the TSX, as calculated pursuant to Subsection 607(e) of the TSX
Company Manual, or (ii) for a period of 12 months after the Effective Date, engage in any rights offering that would produce aggregate gross proceeds to Patheon of more than $30 million.

 
 In the event of any uncertainty as to whether a particular transaction does or does
not fall within these approval requirements, the Independent Directors shall make the final determination, which shall be binding on the parties.

		
	Shareholder Arrangements by JLL	  	Unless approved in advance by a majority of the Independent Directors, until April 27, 2012, JLL will not enter into, or agree to, any oral or written agreement, arrangement or
understanding, formal or informal, direct or indirect, with any other shareholder of Patheon, in respect of the acquisition of any securities of Patheon or in respect of any merger, consolidation, amalgamation or similar transaction involving
Patheon.
		
	Consideration to JLL	  	In further consideration for the settlement contemplated hereby, on the Effective Date or as soon as practicable thereafter, Patheon will pay to JLL US$1.5 million in
cash.
		
	Litigation Fees and Expenses	  	The parties will jointly advise the Ontario Superior Court of Justice that any claims for costs relating to applications or motions decided prior to the Effective Date are no
longer being pursued. Patheon will pay the fees and expenses incurred by it and the members of the Special Committee in connection with the Litigation, and JLL will pay the fees and expenses incurred by it and the JLL Nominees in connection with the
Litigation.
		
	Announcements	  	Promptly after this Term Sheet is agreed to by the parties, the parties shall issue a joint press release regarding the Litigation settlement and mutual releases contemplated
hereby, which press release shall be mutually agreed to by all parties, acting reasonably. Neither Patheon nor JLL shall issue any other press release or make any other public announcement related to the matters contemplated hereby unless mutually
agreed to by the parties.

  
 - 5 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00185-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00185-of-00352.parquet"}]]