Exhibit 10.60

 

AGREEMENT RESPECTING CHANGE OF CONTROL

AND EXECUTIVE BENEFIT PLAN ENTITLEMENTS

 

This agreement respecting change of control and executive benefit plan
entitlements made as of the 12th day of November, 2009.

 

BETWEEN:

 

NEXEN INC., a corporation incorporated under the laws of Canada

 

(hereinafter referred to as the “Corporation”)

 

- and -

 

JAMES ARNOLD

 

(hereinafter referred to as the “Executive”)

 

RECITALS:

 

1.             The Executive, as Senior Vice President, Synthetic Oil of the
Corporation, is considered by the Board to be an essential officer and employee
of the Corporation, who is both integral to the operation and development of the
Corporation, and has acquired outstanding skills, unique experience and
possesses an extensive background in, and knowledge of, the Corporation’s
business, operations and the industry in which it is engaged.

 

2.             In the event of a Change of Control, there is a possibility that
the employment of the Executive would be terminated without just cause or
adversely modified and the Executive has expressed concern in that regard to the
Corporation.

 

3.             The Board recognizes that it is essential and in the best
interests of the Corporation and its shareholders that the Corporation retain
the continued dedication of the Executive to the Executive’s office and the
Executive’s employment during the uncertain period prior to, during and
following a Change of Control.

 

4.             The Board further believes that the past service of the Executive
and the Executive’s integral role in the development and operation of the
Corporation requires that the Corporation ensure that in the event of a Change
of Control the Executive is treated in a manner that is fair, reasonable,
consistent with industry standards and in the best interests of the Corporation.

 

5.             The Corporation and the Executive wish to enter into this
Agreement to: a) agree on the terms and conditions which would govern the
termination or modification of the employment of the Executive following a
Change of Control; and b) detail the Corporation’s security and funding
obligations in respect of the Change of Control

 

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Obligations (as hereinafter defined), to provide for the securitization and
funding of the Executive Benefit Plan Obligations (as hereinafter defined) and
to provide for the cessation of the Executive’s coverage under the Statement of
Company Procedure Regarding the Securitization of Nexen Inc. Restated Executive
Benefit Plan, as amended or replaced from time to time (the “Securitization
Procedure”).

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth
in this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Parties, the Parties agree
as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1           In this Agreement, the following terms shall mean as follows:

 

(a)           “Acting Jointly or in Concert” for the purposes of this Agreement,
a Person is acting jointly or in concert with another Person if such Person has
any agreement, arrangement or understanding (whether formal or informal and
whether or not in writing) with such other Person for the purpose of acquiring,
offering to acquire, or voting any Common Shares of the Corporation (other than
customary agreements with and between underwriters and banking group or selling
group members with respect to a distribution of securities by way of prospectus
or private placement or pursuant to a pledge of securities in the ordinary
course of business).

 

(b)           “Actuary” has the meaning referred to in Section 10.2 of this
Agreement.

 

(c)           “Affiliate” and “Associate” have the meaning ascribed to such
terms in National Instrument 45-106.

 

(d)           “Agreement” means this agreement respecting change of control and
executive benefit plan entitlements as it may be amended, restated or
supplemented from time to time, and the expressions “hereof”, “herein”,
“hereto”, “hereunder” “hereby”, and similar expressions refer to this Agreement
and, unless otherwise indicated, refer to Articles or Sections in this Agreement
only,

 

(e)           “Anniversary Date” has the meaning referred to in Section 10.3 of
this Agreement.

 

(f)            “Annual Base Salary” means the annual base salary of the
Executive payable by the Corporation at the end of the month immediately
preceding the Date of Termination.

 

(g)           “Annual Target Bonus” means the Executive’s annual target bonus as
determined by the Board to be in effect for the calendar year in which a Change
of Control occurs.

 

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(h)           “Bank” has the meaning referred to in Section 10.2 of this
Agreement.

 

(i)            “Beneficial Owner” for the purposes of this Agreement, a Person
shall be deemed to be the “Beneficial Owner” and to have “Beneficial Ownership”
of and to “Beneficially Own”:

 

(i)            any securities as to which such Person or any of such Person’s
Affiliates or Associates is the owner at law or in equity;

 

(ii)           any securities as to which such Person or any of such Person’s
Affiliates or Associates has a right to acquire (i) upon the exercise of any
Convertible Securities or (ii) pursuant to any agreement, arrangement or
understanding, whether such right is exercisable immediately within a period of
sixty (60) days thereafter and whether or not on condition or the happening of
any contingency, (other than (a) customary agreements with and between
underwriters and banking group and selling group members with respect to the
distribution to the public or pursuant to a private placement of securities, or
(b) pursuant to a pledge of securities in the ordinary course of business); and

 

(iii)          any securities which are Beneficially Owned within the meaning of
clauses (a) or (b) above by any other Person with which such Person is Acting
Jointly or in Concert,

 

provided, however, that a Person shall not be deemed the “Beneficial Owner” or
to have “Beneficial Ownership” of or to “Beneficially Own” any security where
such Person is the registered holder of securities as a result of carrying on
the business of or acting as nominee for a securities depository.

 

For purposes of this Agreement, the percentage of Common Shares Beneficially
Owned by any Person, shall be and be deemed to be the product determined by the
formula:

 

100 x A/B

 

Where:

 

A =         the number of votes for the election of all directors generally
attaching to the Common Shares Beneficially Owned by such Person; and

 

B =          the number of votes for the election of all directors generally
attaching to all outstanding Common Shares.

 

For the purposes of the foregoing formula, where a Person Beneficially Owns
unissued Common Shares which may be acquired pursuant to Convertible Securities,
such Common Shares shall be deemed to be outstanding for the purpose of
calculating the percentage of Common Shares Beneficially Owned by

 

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such Person in both the numerator and the denominator, but no other unissued
Common Shares which may be acquired pursuant to any other outstanding
Convertible Securities shall, for the purposes of that calculation, be deemed to
be outstanding.

 

(j)            “Board” means the Board of Directors of the Corporation as
constituted from time to time.

 

(k)           “CBCA” means the Canada Business Corporations Act, as amended from
time to time, and any successor legislation thereto.

 

(l)            “Calculation Date” has the meaning referred to in Section 10.5 of
this Agreement.

 

(m)          “Change of Control” means the occurrence of any of:

 

(i)            the purchase or acquisition of any Common Shares or Convertible
Securities by a Beneficial Owner which results in the Beneficial Owner owning,
or exercising control or direction over, Common Shares or Convertible Securities
such that, assuming only the conversion of Convertible Securities Beneficially
Owned  or over which control or direction is exercised by the Beneficial Owner,
the Beneficial Owner would own, or exercise control or direction over, Common
Shares carrying the right to cast more than thirty-five percent (35%) of the
votes attaching to all Common Shares; or

 

(ii)           the substantial completion of: (i) the liquidation, dissolution
or winding-up of the Corporation; or (ii) the sale, lease or other disposition
of all or substantially all of the assets of the Corporation; or

 

(iii)          a situation in which individuals who were members of the Board
immediately prior to:

 

(A)          a meeting of the shareholders of the Corporation involving a
contest for, or an item of business relating to, the election of directors; or

 

(B)           an amalgamation, arrangement, merger or other consolidation or
combination of the Corporation with another Person,

 

shall not constitute a majority of the Board following such election or
transaction; or

 

(iv)          the completion of any transaction or the first of a series of
transactions which would have the same or similar effect as any transaction or
series of transactions referred to in paragraphs (i), (ii) or (iii) above; or

 

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(v)           a determination by the Board that, for the purposes of this
Agreement, a Change of Control has occurred or is imminent.

 

(n)           “Change of Control Obligations” means the Company’s obligations to
make the lump sum payments described in Section 7.1 of this Agreement to the
Executive.

 

(o)           A “Change of Control Obligations - Designated Event” shall be
deemed to have occurred if:

 

(i)            the Corporation fails to arrange for the extension or replacement
of a Letter of Credit in accordance with the terms of this Agreement; or

 

(ii)           the Executive’s employment is terminated in accordance with
Section 5.1 or 6.1 of this Agreement.

 

(p)           “Common Shares” means the common shares of the Corporation.

 

(q)           “Convertible Securities” means:

 

(i)            any right (contractual or otherwise and regardless of whether
such right constitutes a security) to acquire Common Shares from the
Corporation; or

 

(ii)           any security issued by the Corporation from time to time (other
than the rights issued pursuant to a shareholders’ rights protection plan, if
any) carrying any exercise, conversion or exchange right,

 

which is then exercisable or exercisable within a period of sixty (60) days from
that time pursuant to which the holder thereof may acquire Common Shares or
other securities which are convertible into or exercisable or exchangeable for
Common Shares (in each case, whether such right is then exercisable or
exercisable within a period of sixty (60) days from that time and whether or not
on condition or the happening of any contingency).

 

(r)            “Date of Termination” means the date upon which the Executive’s
employment is terminated pursuant to Section 4.1, 5.1 or 6.1 of this Agreement. 
For greater clarity, the Date of Termination means the date upon which the
Corporation provides the Executive with written, verbal or other notice that the
Executive’s employment has been or will be terminated pursuant to Section 4.1 or
5.1 of this Agreement or the date upon which the Executive provides the
Corporation with written notice terminating the Executive’s employment pursuant
to Section 4.1 or for Good Reason pursuant to Section 6.1.

 

(s)           “Disability” means, where due to a physical or mental condition,
the Executive is rendered totally and permanently unable to perform the
Executive’s duties for a consecutive period of two (2) years or more during
which the Executive has been in receipt of long term disability insurance
benefits from the insurance carrier normally utilized by the Corporation.

 

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(t)            “Dispute” has the meaning referred to in Section 11.1 of this
Agreement.

 

(u)           “Effective Date” means the date upon which a Change of Control
occurs.

 

(v)           “Employment Benefits” means the employment benefits to which the
Executive is entitled by virtue of any written, oral or implied agreement with
the Corporation.  For the purposes of this Agreement, “Employment Benefits”
shall include, but is not limited to, the following:

 

(i)            the Executive’s entitlement to any dental or general medical
care;

 

(ii)           the Executive’s entitlement to receive long term disability
benefits from the insurance carrier normally utilized by the Corporation;

 

(iii)          the Executive’s entitlement to pension benefits under the terms
of any pension plan with the Corporation;

 

(iv)          the Executive’s entitlement to a monthly car allowance from the
Corporation;

 

(v)           the Executive’s entitlement to contributions by the Corporation to
the Corporation’s savings plan;

 

(vi)          the Executive’s entitlement to receive from the Corporation
financial counseling services, at a cost of $3,500.00 per year (or as the same
may be increased from time to time by the Corporation); and

 

(vii)         the Executive’s entitlement to receive from the Corporation
security monitoring services at the Executive’s personal residence.

 

(w)          “Executive Benefit Plan” has the meaning referred to in
Section 7.1(b) of this Agreement.

 

(x)            “Executive Benefit Plan Obligations” means the Corporation’s
outstanding obligations under the Executive Benefit Plan to the Executive.

 

(y)           An “Executive Benefit Plan Obligations - Designated Event” shall
be deemed to have occurred if:

 

(i)            a Change of Control occurs;

 

(ii)           the Corporation makes an assignment for the benefit of creditors
or files a petition in bankruptcy or becomes insolvent or bankrupt;

 

(iii)          a receiver, trustee or liquidator of or for the Corporation is
appointed and is not discharged within a period of sixty days;

 

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(iv)          the net worth of the Corporation, described as shareholder equity
in the consolidated financial statements of the Corporation as disclosed in the
annual and quarterly consolidated financial statements of the Corporation, is
less than $400 million;

 

(v)           the Corporation fails to arrange for the extension or replacement
of a Letter of Credit in accordance with the terms of this Agreement;

 

(vi)          the Executive has provided written notification to the Trustee and
to the Corporation of the failure by the Corporation to pay any amount owed to
or in respect of the Executive under the Executive Benefit Plan within thirty
days of the due date specified in the Executive Benefit Plan (together with a
statement of the amount due and owing) either to the person entitled thereto
pursuant to the Executive Benefit Plan or to the Trust in accordance with the
provisions of Section 10.6(h); or

 

(vii)         at any time the Board adopts a resolution to the effect that, for
purposes of this Agreement, an Executive Benefit Plan Obligations — Designated
Event has occurred or is imminent.

 

(z)            “Good Reason” means any of the following, unless the Executive
shall have given the Executive’s express written consent thereto:

 

(i)            Inconsistent Duties.  The assignment to the Executive of any
duties inconsistent with the Executive’s status as an executive officer of the
Corporation or a material alteration in the nature or status of the Executive’s
responsibilities or duties or reporting relationship from those in effect
immediately prior to a Change of Control;

 

(ii)           Reduced Salary.  A reduction by the Corporation in the
Executive’s Annual Base Salary in effect on the Effective Date or as the same
may be increased thereafter from time to time or the failure by the Corporation
to grant the Executive salary increases at a rate commensurate with the
increases accorded to other executives of the Corporation;

 

(iii)          Relocation.  The Corporation requiring the Executive to be based
anywhere other than where the Executive is based at the time a Change of Control
occurs, except for required travel on the Corporation’s business to an extent
substantially consistent with the Executive’s business travel obligations in the
ordinary course of business immediately prior to a Change of Control;

 

(iv)          Incentive Compensation Plans.  The failure by the Corporation to
continue in effect any incentive compensation plan in which the Executive
participates, including, but not limited to, the Incentive Compensation Plan or
the Stock Option Plan or any other similar plans adopted prior to a

 

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Change of Control, unless the Executive is eligible to participate in, and is
entitled to the opportunity to receive a comparable level of benefits under, an
ongoing, substitute or alternative plan (it being understood that the manner or
method of payment and the form of consideration need not be the same as existed
in the original plans); or the failure by the Corporation to continue the
Executive’s participation therein on at least as favourable a basis, both in
terms of the amount of benefits available to the Executive and the level of the
Executive’s participation relative to other participants, as existed at the time
a Change of Control occurs;

 

(v)           Employment Benefits and Perquisites.  The failure by the
Corporation to continue to provide the Executive with Employment Benefits at
least as favourable as those enjoyed by the Executive immediately prior to a
Change of Control, including any pension plan, benefit plan or any retirement
arrangement established for the Executive, or any of the Corporation’s life
insurance, medical, health and accident, disability or savings plans in which
the Executive was participating at the time a Change of Control occurs; the
taking of any action by the Corporation that would directly or indirectly
materially reduce any such benefits or deprive the Executive of any material
perquisite enjoyed by the Executive at the time a Change of Control occurs,
including, without limitation and to the extent applicable, the use of a car,
aircraft, secretarial services, office space, telephones, computer facilities,
expense reimbursement, financial counselling, and professional fees and club
dues reimbursement; or the failure by the Corporation to provide the Executive
with the number of paid vacation days to which the Executive is entitled in
accordance with the Corporation’s normal vacation practice in effect at the time
a Change of Control occurs;

 

(vi)          No Assumption by Successor.  The failure of the Corporation to
obtain a satisfactory agreement from a successor to assume and agree to perform
this Agreement.  Alternatively, if the business or undertaking in connection
with which the Executive’s services are principally performed is sold at any
time after a Change of Control occurs, and the Executive’s employment is
transferred as a result, the failure or refusal of the purchaser of such
business or undertaking to provide the Executive with the same or a comparable
position, duties, compensation and benefits, as described in paragraphs (iv) and
(v) above, as provided to the Executive by the Corporation immediately prior to
a Change of Control;

 

(vii)         Disposition of “All or Substantially All”.  The disposition by the
Corporation of all or substantially all of the assets of the Corporation, as
contemplated herein, notwithstanding that the Executive’s services were or were
not principally performed for such business.

 

(aa)         “Hearing” has the meaning referred to in Section 11.7 of this
Agreement.

 

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(bb)         “Hearing Date” has the meaning referred to in Section 11.7 of this
Agreement.

 

(cc)         “Incentive Compensation Plan” means any bonus or incentive
compensation plan of the Corporation in which the Executive is entitled to
receive benefits in the month immediately preceding a Change of Control.

 

(dd)         “Just Cause” means:

 

(i)            the failure by the Executive to substantially perform the
Executive’s duties according to the terms of the Executive’s employment in
existence immediately prior to a Change of Control after the Corporation has
given the Executive reasonable notice of such failure and a reasonable
opportunity to correct it; or

 

(ii)           where the Executive engages in any criminal act or dishonesty
resulting or intended to result, directly or indirectly, in the personal gain of
the Executive at the Corporation’s expense.

 

(ee)         “Letter of Credit” has the meaning referred to in Section 10.2 of
this Agreement.

 

(ff)           “Monthly Base Salary” means the monthly salary payable to the
Executive by the Corporation in effect at the end of the month immediately
preceding the Effective Date.

 

(gg)         “Notice of Dispute” has the meaning referred to in Section 11.1 of
this Agreement.

 

(hh)         “Obligations” means, collectively, the Change of Control
Obligations and the Executive Benefit Plan Obligations.

 

(ii)           “Parties” means the Corporation, and its successors and permitted
assigns, and the Executive and the Executive’s heirs, executors and
administrators and “Party” means either one of them.

 

(jj)           “Person” includes an individual, partnership, association, body
corporate, trustee, executor, administrator, legal representative and any
national, provincial, state or municipal government or any agency thereof.

 

(kk)         “Refundable Tax Account” means the refundable tax account
maintained in respect of the Trust by the Canada Revenue Agency.

 

(ll)           “Registered Pension Plan” has the meaning referred to in
Section 7.1(b) of this Agreement.

 

(mm)       “Securitization Procedure” has the meaning referred to in the
recitals of this Agreement.

 

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(nn)         “Severance Period” means the twenty-four (24) month period
immediately following the Date of Termination.

 

(oo)         “Stock Option Plan” means any stock option plan or plans of the
Corporation pursuant to which the Executive is granted options by the
Corporation to acquire Common Shares.

 

(pp)         “Subsidiary” has the meaning ascribed to it in the CBCA.

 

(qq)         “Tax Act” means the Income Tax Act (Canada) and the Regulations
thereunder, both as amended from time to time.

 

(rr)           “Term” has the meaning referred to in Section 3.1 of this 
Agreement.

 

(ss)         “Trust” has the meaning referred to in Section 10.1 of this
Agreement.

 

(tt)           “Trust Agreement” has the meaning referred to in Section 10.1 of
this Agreement.

 

(uu)         “Trustee” means CIBC Mellon Trust Company or such other trust
company duly incorporated under the laws of Canada or any province thereof whom
the Company may designate as the trustee in connection with the security and
funding of the Obligations.

 

(vv)         “Valuation Date” has the meaning referred to in Section 10.3 of
this Agreement.

 

ARTICLE 2

SCOPE OF AGREEMENT

 

2.1           The Parties intend that this Agreement sets out (a) their
respective rights and obligations upon the occurrence of a Change of Control and
in connection with the securitization and funding of the Change of Control
Obligations; and (b) their respective rights and obligations regarding the
securitization and funding of the Executive Benefit Plan Obligations.  This
Agreement does not provide for any other terms of the Executive’s employment
with the Corporation, except as expressly provided for herein.

 

2.2           The Parties hereby confirm that except as otherwise expressly
stated in this Agreement, insofar as the securitization and funding of the
Executive Benefit Plan Obligations is concerned, the terms of this Agreement
shall govern and the terms of the Securitization Procedure shall not be
applicable.

 

2.3           This Agreement shall automatically terminate upon the death of the
Executive or where due to the Disability of the Executive, the Executive is
materially incapacitated from performing the Executive’s duties.  In the event
of the death or Disability of the Executive, the Executive (or the Executive’s
estate) shall be entitled to receive from the Corporation all unpaid Annual Base
Salary, Employment Benefits, unpaid business expenses and vacation entitlement
accrued to the date of the death or Disability of the

 

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Executive.  The Executive (or the Executive’s estate) shall also be entitled to
receive any and all death or Disability benefits in a manner consistent with,
and at least equal in amount to, those provided by the Corporation to senior
executives (or their estate) under such plans, programs and policies in effect
at the date of Disability or death of the Executive, and the Corporation shall
have no further obligations to the Executive or the Executive’s estate under
this Agreement.  Any entitlements of the Executive (or the Executive’s estate)
under the Executive Benefit Plan which remain following the termination of this
Agreement pursuant to this Section 2.3 shall then commence to be covered under
the Securitization Procedure.

 

2.4           If the Executive’s employment is terminated by either Party, for
any reason, prior to a Change of Control in any manner, other than expressly
provided for in this Agreement, this Agreement shall automatically terminate and
the Corporation shall have no further obligations to the Executive hereunder. 
Any remaining entitlements of the Executive under the Executive Benefit Plan
which remain following the termination of this Agreement pursuant to this
Section 2.4 shall then commence to be covered under the Securitization
Procedure.

 

ARTICLE 3

TERM OF AGREEMENT

 

3.1           Subject to termination of this Agreement prior to a Change of
Control, this Agreement shall remain in effect for a period concluding twelve
(12) months following the Effective Date (the “Term”), at which time this
Agreement shall terminate; provided however that the payment of compensation and
benefits to the Executive under this Agreement shall continue beyond the end of
the Term in accordance with the applicable provisions of this Agreement.  Any
remaining entitlements of the Executive under the Executive Benefit Plan which
remain following the termination of this Agreement pursuant to this Section 3.1
shall then commence to be covered under the Securitization Procedure.

 

ARTICLE 4

TERMINATION FOR JUST CAUSE OR FOR OTHER THAN GOOD REASON

 

4.1           If the Executive’s employment is terminated for Just Cause, or is
terminated by the Executive, other than for Good Reason, following a Change of
Control, the Corporation shall pay to the Executive, if not already paid, the
fraction of the unpaid Annual Base Salary accrued during the then current fiscal
year of the Corporation, all accrued Employment Benefits, all unpaid reasonable
business expenses and all unpaid vacation pay accrued up to and including the
Date of Termination, and thereafter, the Corporation shall have no further
obligations to the Executive under this Agreement.

 

4.2           Nothing in this Agreement shall serve to derogate from the vested
rights of the Executive to pension benefits, Stock Option Plans or any other
Employment Benefits to which the Executive is entitled up to the Date of
Termination.

 

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ARTICLE 5

TERMINATION BY CORPORATION

 

5.1           If the Executive’s employment is terminated by the Corporation
within the twelve (12) month period following the Effective Date, for reason
other than Just Cause, death or Disability, the Corporation shall pay to the
Executive the remuneration referred to in Article 7 of this Agreement.

 

ARTICLE 6

TERMINATION FOR GOOD REASON

 

6.1           In the event of a Change of Control, the Executive may, within the
twelve (12) month period following the Effective Date and upon providing the
Corporation with ten (10) days written notice, terminate the Executive’s
employment with the Corporation for Good Reason.  Upon being provided with such
notice, the Corporation shall pay to the Executive the remuneration referred to
in Article 7 of this Agreement.

 

ARTICLE 7

COMPENSATION UPON TERMINATION

 

7.1           If the Executive’s employment is terminated in accordance with
Section 5.1 or 6.1 of this Agreement:

 

(a)           the Corporation shall forthwith, but in any event within ten
(10) days from receipt by the Corporation of a Release executed by the Executive
substantially in the form of Schedule “A”, pay to the Executive:

 

(i)            if not previously paid, that portion of the Executive’s accrued
but unpaid Monthly Base Salary, any accrued but unpaid bonus to which the
Executive is entitled for the preceding calendar year under any Incentive
Compensation Plan, all unpaid reasonable business expenses and all accrued but
unused vacation pay earned or payable to the Executive by the Corporation for
the period from the beginning of the Corporation’s then current fiscal year, up
to and including the Date of Termination;

 

(ii)           a lump sum cash payment equal to the Executive’s Monthly Base
Salary and one-twelfth (1/12) of the Executive’s Annual Target Bonus for each
month of the Severance Period;

 

(iii)          a lump sum payment equal to thirteen percent (13%) of the
Executive’s Annual Base Salary for the Severance Period representing the value
of the group health and welfare benefits for the Severance Period;

 

(iv)          a lump sum payment representing the value of the Executive’s
monthly car allowance for the Severance Period;

 

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(v)           a lump sum payment representing the value of the Corporation’s
contributions to the Corporation’s savings plan (at a rate of six percent (6%)
of the Executive’s Annual Base Salary) for the Severance Period;

 

(vi)          a lump sum payment representing the value of the Executive’s
entitlement to receive from the Corporation financial counseling services for
the Severance Period; and

 

(vii)         a lump sum payment representing the value of the Executive’s
entitlement to receive from the Corporation security monitoring services at the
Executive’s personal residence for the Severance Period;

 

(b)           with respect to the Executive’s entitlement to pension benefits
under the Pension Plan for Employees of Nexen Inc. (Defined Benefit Option) (the
“Registered Pension Plan”), if any, and the Executive’s related entitlement
under the Executive Benefit Plan for Employees of Nexen Inc. (the “Executive
Benefit Plan”), if any:

 

(i)            the Corporation shall recognize the Severance Period for purposes
of determining the Executive’s entitlement;

 

(ii)           for calculation purposes, the Executive’s entitlement is the
benefit which would have been determined assuming that the Executive had been
employed throughout the Severance Period, including recognition of:

 

(A)          additional service that would have been credited for the Severance
Period;

 

(B)           monthly salary equal to the Executive’s Monthly Base Salary
throughout the Severance Period;

 

(C)           pensionable bonus for the year of the Date of Termination, and for
each subsequent year or portion thereof during the Severance Period, determined
at the Annual Target Bonus level.  Average bonus will be determined over the
three years to the end of the Severance Period, including any partial calendar
years; and

 

(D)          if the Executive would have been eligible for early retirement at
the end of the Severance Period, the Executive shall be deemed to retire, and
the pension to commence, upon completion of the Severance Period.  In such case,
the Executive’s attained age at the end of the Severance Period will be
recognized for purposes of calculating the early retirement reduction factor, if
applicable; and

 

(iii)          the pension entitlements described in this Section 7.1(b) shall,
to the extent legally permissible, be provided through the Registered Pension

 

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Plan.  To the extent that it is not legally permissible to provide such pension
entitlements through the Registered Pension Plan, the Corporation shall pay to
the Executive a lump sum payment representing the settlement value of the
additional Executive Benefit Plan benefit determined in accordance with the
assumptions set forth in Schedule “B-1”;

 

(iv)          any entitlements of the Executive under the Executive Benefit Plan
which have previously been funded in accordance with Article 10 but not
previously settled in accordance with Article 10 shall be settled by the
Corporation in accordance with the assumptions set forth in Schedule “B-1”;

 

(c)           with respect to the Executive’s entitlement to pension benefits
under the Pension Plan for Employees of Nexen Inc. (Defined Contribution Option)
(the “Defined Contribution Pension Plan”), if any, and the Executive’s related
entitlement under the Executive Benefit Plan, if any:

 

(i)            the Corporation shall make a contribution to the Defined
Contribution Pension Plan in an amount which is equal to the additional
contributions which would have been made by both the Executive and the
Corporation to the Defined Contribution Pension Plan on the Executive’s behalf
during the Severance Period had the Executive remained in the employ of the
Corporation during such period.  Such contribution shall be calculated at the
rate in effect in respect of the Executive immediately prior to the Date of
Termination.  To the extent that it is not legally permissible to make such
contribution to the Defined Contribution Pension Plan, the Corporation shall
make a notional allocation to the defined contribution provision of the
Executive Benefit Plan equal to such contribution;

 

(ii)           the Corporation shall recognize the Severance Period for purposes
of determining the Executive’s entitlement under the Executive Benefit Plan;

 

(iii)          the Corporation shall make a notional allocation to the defined
contribution provision of the Executive Benefit Plan in an amount which is equal
to the additional notional allocations which would have been made by the
Corporation to the defined contribution provision of the Executive Benefit Plan
on the Executive’s behalf during the Severance Period had the Executive remained
in the employ of the Corporation during such period.  Such contribution shall be
calculated at the rate in effect in respect of the Executive immediately prior
to the Date of Termination.  The Corporation shall make a lump sum payment to
the Executive in an amount equal to the balance, after reflection of the
aforementioned notional allocation, in the Executive’s DC Supplemental Company
Account as defined in the Executive Benefit Plan;

 

14

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(d)           the Corporation shall provide the Executive with executive
outplacement counselling to be provided by a firm to be selected by the
Executive, at a cost to the Corporation not to exceed $25,000.00;

 

(e)           all of the Executive’s outstanding unexercisable stock options
under any Stock Option Plan shall become exercisable; and

 

(f)            where the Executive has been relocated, at the request of the
Corporation, within the two (2) year period immediately prior to the Effective
Date, if so requested by the Executive, the Corporation shall relocate the
Executive back to the Executive’s prior location.

 

7.2           The estimated value as of July 16, 2009 of Sections 7.l(a)(ii) to
7.1(d) are set out in Schedule “C”.  Schedule “C” provides estimated values only
and actual values shall be calculated in accordance with this Agreement at the
time of entitlement or payment under this Agreement.

 

7.3           If the Executive’s employment is terminated in the circumstances
described in Section 5.1 or 6.1 of this Agreement, the remuneration and benefits
payable under this Article 7 shall not be reduced if the Executive obtains
alternative employment.

 

7.4           Unless expressly provided otherwise in this Agreement, all
payments to be made to the Executive under this Article 7 shall be subject to
required statutory deductions at source by the Corporation.

 

ARTICLE 8

CONFIDENTIAL INFORMATION

 

8.1           If the Executive’s employment is terminated in any manner
whatsoever due to or following a Change of Control, the Executive agrees to keep
confidential all information of a confidential or proprietary nature concerning
the Corporation, its Affiliates, Associates and Subsidiaries and their
respective operations, opportunities, areas of present, past or future
interests, assets, finances, technology, intellectual property, business and
affairs, and further agrees not to use such information, data or technology for
personal advantage, provided that nothing herein shall prevent the disclosure of
information which is publicly available or which is required to be disclosed by
the Executive under appropriate statute, rules of law or legal process.

 

ARTICLE 9

RIGHTS AND OBLIGATIONS OF EXECUTIVE UPON TERMINATION

 

9.1           Subject to Section 8.1 of this Agreement, the Executive shall not
be prohibited in any manner whatsoever from obtaining alternative employment
with or otherwise forming or participating in a business competitive to the
business of the Corporation after the termination of the Executive’s employment
with the Corporation.

 

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9.2           Upon the termination of the Executive’s employment for any reason,
the Executive shall tender the Executive’s resignation from any position the
Executive may hold as an officer or director of the Corporation or any of its
Affiliates, Associates or Subsidiaries.

 

9.3           If the Executive’s employment is terminated in the circumstances
described in Section 5.1 or 6.1 of this Agreement, the Corporation shall
continue to purchase and maintain, to the extent available in the marketplace at
reasonable cost to the Corporation, on behalf of the Executive, director and
officer liability insurance for the applicable limitation period following the
date upon which the Executive ceases to serve as a director or officer of the
Corporation, and the Executive’s existing agreement to receive indemnity from
the Corporation for acts taken by the Executive in the Executive’s capacity as
an officer of the Corporation shall remain in effect.

 

9.4           Upon termination of the Executive’s employment pursuant to
Section 5.1 or 6.1 of this Agreement, the Corporation shall reimburse the
Executive for ongoing legal fees and disbursements which the Executive may
reasonably incur in connection with this Agreement (but this Agreement only),
including any litigation concerning the validity or enforceability of, or
liability under, any provision of this Agreement or any action by the
Executive.  The Corporation shall pay such fees and reimbursements to the
Executive promptly as such fees and disbursements become due.

 

ARTICLE 10

SECURITIZATION AND FUNDING PROCEDURE

 

10.1         The Corporation has established and maintains a trust for the
benefit of the Executive and persons claiming through him (the “Trust”) pursuant
to the terms and conditions of a trust agreement (the “Trust Agreement”) between
the Corporation and the Trustee.  The Trust shall be funded in accordance with
the provisions of this Agreement and the Trust Agreement.

 

10.2         To provide security against a failure by the Corporation to either
fund or settle the Obligations in accordance with the terms of this Article 10,
the Trust Agreement provides for the funding of the Trust with the proceeds of
an irrevocable letter of credit which satisfies the requirements of this
Agreement (a “Letter of Credit”) in the event that the Corporation does not
provide funding or effect settlement when required to do so hereunder and in
accordance with the terms hereof.  The Corporation confirms that the Letter of
Credit currently held by the Trustee has been issued by a major Canadian
chartered bank (the “Bank”) in an amount calculated by the Corporation’s
consulting actuary (who at all times shall be a Fellow of the Canadian Institute
of Actuaries) (the “Actuary”) in accordance with the provisions of Section 10.5
of this Agreement.

 

10.3         On each February 1st (the “Anniversary Date”), the Corporation
shall request a report from the Actuary as to the amount calculated, as at the
next succeeding April 1st (the “Valuation Date”), in accordance with the
provisions of Section 10.5 of this Agreement.  The Corporation shall provide the
Actuary with the data it requires to

 

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prepare such report.  Upon completion of each such report, the Corporation shall
arrange for the Actuary to provide a summary of same to the Trustee.

 

Prior to the funding and/or settlement of all of the Obligations in accordance
with the terms of this Agreement, the Corporation shall, within forty-five days
after the applicable Anniversary Date and in accordance with the terms of the
report received from the Actuary:

 

(a)           either:

 

(i)            arrange for a Letter of Credit to be provided by the Bank to the
Trustee to replace the Letter of Credit then held by the Trustee.  The
replacement Letter of Credit shall be:

 

(A)          substantially in the form of the Letter of Credit then held by the
Trustee;

 

(B)           in an amount calculated by the Actuary as at the applicable
Valuation Date in accordance with the provisions of Section 10.5 of this
Agreement; and

 

(C)           for a term which commences on the date of its issuance and expires
one year following the applicable Valuation Date; or

 

(ii)           confirm to the Trustee in writing that the Letter of Credit then
held by the Trustee will be extended automatically for a further one-year term. 
The confirmation to the Trustee shall include evidence from the Bank as to any
amendment to the applicable Letter of Credit, any such amendment to be
consistent with the report prepared by the Actuary as at the applicable
Valuation Date; and

 

(b)           contribute to the Trust an amount equal to twice the fee charged
by the Bank in connection with the Letter of Credit extension or replacement, as
applicable.  The Corporation shall withhold one-half of such amount and shall
remit the said one-half of such amount to the Canada Revenue Agency on account
of the tax which is exigible pursuant to the Tax Act in connection with such
contribution to the Trust.  The Trustee shall remit the remaining one-half of
such amount to the Bank in consideration for the Letter of Credit extension or
replacement, as applicable.

 

When a replacement Letter of Credit has been provided in accordance with the
terms of this Section 10.3, an existing Letter of Credit shall be surrendered
and cancelled.

 

10.4         If, during the term of a Letter of Credit issued pursuant to this
Agreement, the Corporation, acting reasonably, concludes that there has been a
significant change in the Obligations since the date of the last report prepared
by the Actuary pursuant to Section 10.3 of this Agreement, the Corporation shall
request a report from the Actuary as to the

 

17

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then current value of the Obligations, calculated in accordance with the
provisions of Section 10.5 of this Agreement.  Upon receipt of the report, the
Corporation shall provide a summary of same to the Trustee and arrange, together
with the Trustee, for any required increase or decrease in the amount of the
Letter of Credit for the balance of the term of such Letter of Credit.  In the
event that a replacement Letter of Credit is to be issued in the circumstances
described in this Section 10.4, the Corporation and the Trustee shall arrange
for such replacement Letter of Credit to be provided by the Bank to the Trustee
to replace the Letter of Credit then held by the Trustee.  Upon receipt of a
replacement Letter of Credit pursuant to this Section 10.4, the Trustee shall
surrender for cancellation the Letter of Credit then held by it pursuant to this
Agreement and the Trust Agreement.

 

In the event that all or any portion of the fee referred to in Section 10.3 of
this Agreement, is refunded by the Bank as a result of a decrease in the amount
of a Letter of Credit pursuant to this Section 10.4, such amount (together with
any resulting refundable Tax) shall be received by the Trustee for deposit to
the Trust.  Upon receipt of an Authorized Instruction (as defined in the Trust
Agreement), the Trustee shall pay and transfer such amounts (less any applicable
tax which it will remit as required by the Tax Act on behalf of the Corporation)
to the Corporation for its sole and exclusive use and benefit.

 

In the event that an additional fee is required to be paid to the Bank as a
result of an increase in the amount of a Letter of Credit pursuant to this
Section 10.4, the Corporation shall contribute to the Trust an amount equal to
twice the additional fee.  The Corporation shall withhold one-half of such
amount and shall remit the said one-half of such amount to the Canada Revenue
Agency on account of the tax which is exigible pursuant to the Tax Act in
connection with such contribution to the Trust.  The Trustee shall remit the
remaining one-half of such amount to the Bank in payment of its additional fee.

 

10.5         A Letter of Credit issued pursuant to this Agreement shall:

 

(i)            be an irrevocable standby letter of credit;

 

(ii)           obligate the Bank to satisfy demand for payment made by the
Trustee in accordance with the terms of this Agreement and the Trust Agreement;

 

(iii)          permit partial drawings; and

 

(iv)          provide that the Bank must notify the Trustee on or before thirty
days prior to the expiry of a Letter of Credit of any notice of non-extension
provided by the Bank to the Corporation.

 

The amount of a Letter of Credit pursuant to this Agreement shall be calculated
by the Actuary in accordance with the following subparagraphs of this
Section 10.5.

 

(a)           Assuming the lump sum payments referred to in Section 7.1(a) of
this Agreement are equal to the amount thereof provided by the Corporation.

 

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(b)           Assuming the service of the Executive will terminate, in
accordance with Section 5.1 or 6.1 of this Agreement, on the next succeeding
March 31st after the Valuation Date (the “Calculation Date”).

 

(c)           Using the Executive’s demographic data, including base salary,
target bonus and current marital status as of the Valuation Date, provided by
the Corporation.

 

(d)           Using the Yearly Maximum Pensionable Earnings (Y.M.P.E.) used to
determine the amount of the Canada Pension Plan Benefit and Tax Act maximum
defined benefit pension dollar limit as at the Valuation Date.

 

(e)           Assuming all Obligations are included.

 

(f)            Using the actuarial methods, assumptions and calculation
methodology described in Schedule “B-2.

 

(g)           Applying a load of 15% to the amount determined in accordance with
subparagraphs (b) through (f) of this Section 10.5 to provide for fluctuations
in the Interest Discount Rate, Consumer Price Index and other plan experience
during the term of the Letter of Credit, as described in Schedule “B-2”.

 

(h)           Applying a load to one-half of the amount determined in accordance
with subparagraphs (a) through (g) of this Section 10.5 to provide for the cost
associated with the borrowings described in subparagraph (k) of this
Section 10.5, as described in Schedule “B-2”.

 

(i)            Including a settlement expense to the amount determined in
subparagraph (h), with the aggregate settlement expense allowance for all
obligations secured equal to $250,000, or where the Valuation Date is after
December 31, 2008, the aggregate settlement expense allowance will be increased
at the rate equal to the increase in the Consumer Price Index, as described in
Schedule “B-2”, plus 1% for each year after 2008.

 

(j)            Assuming the Obligations will be promptly settled with the
Executive upon occurrence of a Designated Event described in Section 1.1(o)(ii).

 

(k)           Assuming a loan will be secured to permit settlement of the
Obligations prior to receipt of the Refundable Tax Account from the Canada
Revenue Agency.  The assumed interest rate payable on the loan shall be as
described in Schedule “B-2”.  The cost associated with the borrowings shall be
assumed to be paid from the Trust.

 

(l)            The liabilities calculated in accordance with subparagraphs
(a) through (k) above shall be offset by:

 

(i)            the Refundable Tax Account, if any; and

 

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(ii)           the assets contained in the Trust, if any.

 

10.6         (a)           If an Executive Benefit Plan Obligations - Designated
Event shall occur, the Corporation shall be required to immediately fund the
Executive Benefit Plan Obligations in accordance with the most recent report
prepared by the Actuary pursuant to Section 10.3 of this Agreement. 
Notwithstanding the foregoing, if an Executive Benefit Plan Obligations -
Designated Event described in Section 1.1(y)(i) and a Change of Control
Obligations - Designated Event described in Section 1.1(o)(ii) shall occur
simultaneously, the Corporation shall be required to settle the Executive
Benefit Plan Obligations forthwith in accordance with the provisions of
Schedule “B-1”.

 

(b)           If:

 

(i)            the employment of the Executive is terminated by the Corporation
for any reason other than as a result of the death, disability or retirement of
such Executive; and

 

(ii)           such Executive files with the Corporation a written request that
it fund the Executive Benefit Plan Obligations,

 

the Corporation shall be required to immediately fund the Executive Benefit Plan
Obligations in accordance with the most recent report prepared by the Actuary
pursuant to Section 10.3 of this Agreement.

 

(c)           Upon the earlier of:

 

(i)            learning of the occurrence of an Executive Benefit Plan
Obligations — Designated Event described in Section 1.1(y)(v) or (vi) of this
Agreement; or

 

(ii)           receipt of a written notice of the occurrence of an Executive
Benefit Plan Obligations - Designated Event described in any of the other
subparagraphs of Section 1.1(y) of this Agreement, which notice has been signed
by two executives of the Corporation, one of whom must be either the Chief
Financial Officer or the General Counsel of the Corporation and which notice
must, in the case of an Executive Benefit Plan Obligations — Designated Event
described in Section 1.1(y)(i) of this Agreement, indicate which subparagraph of
the definition of “Change of Control” is applicable,

 

the Trustee shall promptly give notice to the Corporation in writing that it
intends to draw on that portion of the Letter of Credit which is referable to
the Executive Benefit Plan Obligations and contribute the proceeds thereof (less
any applicable withholding tax which it will remit as required by the Tax Act on
behalf of the Corporation) to the Trust on behalf of the Corporation in order to
fund the

 

20

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Executive Benefit Plan Obligations, unless it receives satisfactory proof within
nine days of such notice that the Corporation has funded or settled, as
applicable, the Executive Benefit Plan Obligations itself in accordance with the
terms of this Agreement.

 

Unless the Corporation advises the Trustee in writing that it has funded or
settled, as applicable, the Executive Benefit Plan Obligations in accordance
with the terms of this Agreement and has provided the Trustee with satisfactory
proof thereof within nine days of the date of the aforementioned notice, the
Trustee shall draw on that portion of the Letter of Credit which is referable to
the Executive Benefit Plan Obligations on the tenth day following the date of
such notice (or the next following business day if such tenth day is not a
business day) and contribute the proceeds thereof (less any applicable
withholding tax which it will remit as required by the Tax Act on behalf of the
Corporation) to the Trust on behalf of the Corporation.

 

Notwithstanding the foregoing, in the event an Executive Benefit Plan
Obligations - Designated Event described in Section 1.1(y)(v) or (vi) of this
Agreement has triggered the operation of this Section 10.6 and the failure which
gave rise to the occurrence of such Executive Benefit Plan Obligations -
Designated Event has been remedied prior to the expiration of the notice period
provided for in this Section 10.6(c), the Trustee shall not take the action
described in the immediately preceding paragraph hereof and all of the
provisions of this Agreement shall continue to apply to the same extent and as
fully as they would have in the event that such Executive Benefit Plan
Obligations - Designated Event had not occurred.

 

(d)           Upon receipt of a written notice of the occurrence of the events
described in both subparagraphs (i) and (ii) of Section 10.6(b) of this
Agreement (which notice has been signed by the Executive and sworn before a
notary public), the Trustee shall promptly give notice to the Corporation in
writing that it intends to draw on that portion of the Letter of Credit which is
referable to the Executive Benefit Plan Obligations and contribute the proceeds
(less any applicable withholding tax which it will remit as required by the Tax
Act on behalf of the Corporation) to the Trust on behalf of the Corporation in
order to fund the Executive Benefit Plan Obligations unless it receives
satisfactory proof within nine days of the date of such notice that the
Corporation has funded the Executive Benefit Plan Obligations itself in
accordance with the terms of this Agreement.

 

Unless the Corporation advises the Trustee in writing that it has funded the
Executive Benefit Plan Obligations in accordance with the terms hereof and has
provided the Trustee with satisfactory proof thereof within nine days of the
date of the aforementioned notice, the Trustee shall draw upon that portion of
the Letter of Credit which is referable to the Executive Benefit Plan
Obligations on the tenth day following the date of such notice (or the next
following business day if such tenth day is not a business day) and contribute
the proceeds (less any

 

21

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applicable withholding tax which it will remit as required by the Tax Act on
behalf of the Corporation) to the Trust on behalf of the Corporation.

 

(e)           For purposes of determining the required amount of funding or the
portion of the Letter of Credit to be drawn on for purposes of this
Section 10.6, the Trustee shall refer to the most recent report prepared by the
Actuary for purposes of this Agreement and, in particular, to the portion of the
report dealing with the Executive Benefit Plan Obligations.  In preparing the
portion of its report respecting Executive Benefit Plan Obligations, the Actuary
shall adhere to the following:

 

(i)            Assuming that the Executive, if then in active employment, will
remain in active employment with the Corporation as an officer until the
Calculation Date and that the Executive’s employment with the Corporation will
terminate on the Calculation Date.

 

(ii)           Using the Executive’s demographic data, including base salary,
actual bonus history, target bonus and current marital status as of the
Valuation Date, provided by the Corporation.

 

(iii)          Using the Canada Pension Plan Benefit and Tax Act maximum defined
benefit pension dollar limit as at the Valuation Date.

 

(iv)          Assuming the Executive’s target bonus percentage remains at the
level specified by the Corporation pursuant to subparagraph (ii) above.

 

(v)           Assuming only Executive Benefit Plan Obligations are included.

 

(vi)          Assuming the payments under the Executive Benefit Plan would be
made from the Trust.

 

(vii)         Using the actuarial methods, assumptions and calculation
methodology described in Schedule “B-2.

 

(viii)        Applying loads as described in Schedule “B-2” to the amount
determined in accordance with the preceding subparagraphs of this
Section 10.6(e) to provide for future contingencies and expenses of the Trust.

 

(ix)           Calculating the estimated amount required to settle the Executive
Benefit Plan Obligations based on the actuarial methods, assumptions and
calculation methodology described in Schedule “B-2”, increased by the loads
described in the following subparagraph.

 

(x)            Applying loads as described in Schedule “B-2” to the amount
determined in accordance with subparagraph (ix) to provide for:

 

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(A)          fluctuations in the Interest Discount Rate and Consumer Price Index
during the term of the Letter of Credit; and

 

(B)           the cost associated with the loan to be secured as allowed under
the Trust Agreement to permit settlement of the Executive Benefit Plan
Obligations prior to receipt of the Refundable Tax Account from the Canada
Revenue Agency.  The assumed interest rate payable on the loan shall be as
described in Schedule “B-2” and shall be applied to one-half of the amount in
subparagraph (ix).  The cost associated with the borrowings shall be assumed to
be paid from the Trust.

 

(xi)           Taking the larger amount for the Executive of:

 

(A)          the amount determined in accordance with subparagraphs (i) through
(viii), and

 

(B)           the amount determined in accordance with subparagraphs (ix) and
(x).

 

(xii)          The amount determined in accordance with subparagraph (xi) above
shall be offset by:

 

(A)          the Refundable Tax Account, if any;

 

(B)           the assets contained in the Trust, if any.

 

(f)            In the event that the Executive Benefit Plan Obligations have
been funded in accordance with the terms hereof as a result of:

 

(i)            the Corporation making an assignment for the benefit of creditors
or filing a petition in bankruptcy or becoming insolvent or bankrupt;

 

(ii)           a receiver, trustee or liquidator of or for the Corporation being
appointed and not being discharged within a period of sixty days;

 

(iii)          a voluntary dissolution or wind-up of the Corporation; or

 

(iv)          a sale or disposition of all or substantially all of the assets of
the Corporation,

 

and the Executive Benefit Plan has been terminated in connection therewith, the
Executive Benefit Plan Obligations shall be promptly settled by the Trustee with
the Executive by way of a lump sum payment from the Trust.  For this purpose,
the benefit entitlements of each Executive shall be determined by the Actuary in
accordance with the terms of the Executive Benefit Plan and the amount of the
lump sum payment shall be determined by the Actuary using the assumptions set

 

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forth in Schedule “B-1”.  Notice of termination of the Executive Benefit Plan
shall be provided to the Trustee by the Corporation, failing which by two
executives of the Corporation, one of whom must be either the Chief Financial
Officer or the General Counsel of the Corporation.

 

Any assets of the Trust remaining after full satisfaction of (i) the Executive
Benefit Plan Obligations pursuant to the preceding paragraph and (ii) any
further obligations pursuant to the terms of the Trust Agreement, shall be
returned to the Corporation.

 

(g)           In the event the Executive Benefit Plan shall be terminated at any
time either in whole or in part in relation to the Executive subsequent to the
funding of the Executive Benefit Plan Obligations in accordance with the terms
hereof, then, provided Section 10.6(f) of this Agreement is not otherwise
applicable, the Executive Benefit Plan Obligations shall be promptly settled by
the Trustee with the Executive by way of a lump sum payment from the Trust.

 

For this purpose, the benefit entitlements of the Executive shall be determined
by the Actuary in accordance with the terms of the Executive Benefit Plan and
the amount of the lump sum payment shall be determined by the Actuary using the
assumptions set forth in Schedule “B-1”.  Notice of the termination of the
Executive Benefit Plan shall be provided to the Trustee by the Corporation,
failing which by two executives of the Corporation, one of whom must be either
the Chief Financial Officer or the General Counsel of the Corporation.

 

Any assets of the Trust remaining after full satisfaction of (i) the Executive
Benefit Plan Obligations and (ii) any further obligations pursuant to the terms
of the Trust Agreement, shall be returned to the Corporation.

 

(h)           In the event:

 

(i)            of a dispute as to whether a payment to or in respect of the
Executive is properly due and payable pursuant to the Executive Benefit Plan;
and

 

(ii)           such dispute cannot be resolved by the parties thereto within the
time frame specified in Section 1.1(y)(vi) of this Agreement,

 

the amount in dispute shall be remitted to the Trustee for deposit to the
Trust.  Upon final settlement of the dispute, the amount so deposited (together
with any earnings, profits and increments thereon and after deduction of any
authorized payments allocable thereto, both as determined in accordance with the
terms of the Trust Agreement), less any applicable withholding tax which will be
remitted as required by the Tax Act, shall be paid to that party to the dispute
which is found to be entitled thereto.  Prior to such amount being paid out of
the Trust in accordance with the terms hereof, the Corporation shall instruct
the Actuary to

 

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take such amount into account when preparing its report for purposes of this
Agreement.

 

(i)            In the event that a Change of Control Obligations - Designated
Event described in Section 1.1(o)(ii) of this Agreement shall occur subsequent
to the funding of the Executive Benefit Plan Obligations in accordance with the
terms of this Agreement, the Corporation shall be required to settle the
Executive Benefit Plan Obligations forthwith in an amount determined by the
Actuary in accordance with the provisions of Schedule “B-1”.

 

(j)            Subject to Section 10.6(f), 10.6(g) and 10.6(i) of this
Agreement, in the event that the Executive Benefit Plan Obligations have been
funded in accordance with the terms hereof, all or a portion of such Executive
Benefit Plan Obligations may, at the discretion of the Corporation, be promptly
settled with the Executive.

 

For this purpose, the benefit entitlements of the Executive shall be determined
by the Actuary in accordance with the terms of the Executive Benefit Plan.  In
such circumstances, the Corporation reserves the right to settle the Executive
Benefit Plan Obligations by way of a lump sum payment to the Executive provided
that the amount of each such payment is determined by the Actuary in accordance
with the assumptions set forth in Schedule “B-1”.

 

10.7         (a)           If a Change of Control Obligations - Designated Event
described in Section 1.1(o)(i) of this Agreement shall occur, the Corporation
shall be required to immediately fund the Change of Control Obligations in
accordance with the most recent report prepared by the Actuary pursuant to
Section 10.3 of this Agreement.

 

(b)           If a Change of Control Obligations - Designated Event described in
Section 1.1(o)(ii) of this Agreement shall occur, the Corporation shall be
required to settle the Change of Control Obligations forthwith in accordance
with the provisions of Schedule “B-1”, upon receipt by the Corporation of a
Release executed by the Executive in the form attached to this Agreement as
Schedule “A”.

 

(c)           Upon the earlier of:

 

(i)            learning of the occurrence of a Change of Control Obligations -
Designated Event described in Section 1.1(o)(i) of this Agreement; or

 

(ii)           receipt of a written notice of the occurrence of a Change of
Control Obligations - Designated Event described in Section 1.1(o)(ii) of this
Agreement, which notice has been signed by the Executive and sworn before a
notary public and has annexed thereto a Release executed by the Executive in the
form attached to this Agreement as Schedule “A”,

 

the Trustee shall promptly give notice to the Corporation in writing that it
intends to draw on that portion of the Letter of Credit which is referable to
the Change of

 

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Control Obligations and contribute the proceeds thereof (less any applicable
withholding tax which it will remit as required by the Tax Act on behalf of the
Corporation) to the Trust on behalf of the Corporation in order to fund the
Change of Control Obligations, unless it receives satisfactory proof within nine
days of such notice that the Corporation has funded or settled, as applicable,
the Change of Control Obligations itself in accordance with the terms of this
Agreement.

 

Unless the Corporation advises the Trustee in writing that it has funded or
settled, as applicable, the Change of Control Obligations in accordance with the
terms of this Agreement and has provided the Trustee with satisfactory proof
thereof within nine days of the date of the aforementioned notice, the Trustee
shall draw on that portion of the Letter of Credit which is referable to the
Change of Control Obligations on the tenth day following the date of such notice
(or the next following business day if such tenth day is not a business day) and
contribute the proceeds (less any applicable withholding tax which it will remit
as required by the Tax Act on behalf of the Corporation) to the Trust on behalf
of the Corporation.

 

Notwithstanding the foregoing, in the event a Change of Control Obligations -
Designated Event described in Section 1.1(o)(i) of this Agreement has triggered
the operation of this Section 10.7 and the failure which gave rise to the
occurrence of such Change of Control Obligations - Designated Event has been
remedied prior to the expiration of the notice period provided for in this
Section 10.7(c), the Trustee shall not take the action described in the
immediately preceding paragraph hereof and all of the provisions of this
Agreement shall continue to apply to the same extent and as fully as they would
have in the event that such Change of Control Obligations - Designated Event had
not occurred.

 

(d)           The required amount of funding or the portion of the Letter of
Credit to be drawn on for purposes of this Section 10.7 shall be determined by
the Actuary and shall be the amount determined in accordance with Sections
10.5(a) through (l) of this Agreement offset by the amount determined in
accordance with subparagraphs 10.6(e)(i) through (xii) of this Agreement.  The
settlement amount for purposes of this Section 10.7 shall be determined in
accordance with the provisions of Schedule “B-1”.

 

(e)           In the event that the Change of Control Obligations have been
funded in accordance with the terms hereof as a result of the occurrence of a
Change of Control Obligations - Designated Event described in
Section 1.1(o)(ii), the Change of Control Obligations shall be promptly settled
with the Executive in accordance with the provisions of Schedule “B-1”.

 

10.8         The actuarial methods and assumptions described in Schedule “B-1”
and Schedule “B-2” shall be reviewed from time to time.  Any amendments to
Schedule “B-1” and/or Schedule “B-2” as a result of such review shall be dealt
with in accordance with Section 12.6.

 

26

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10.9         The Trustee shall surrender the Letter of Credit to the Corporation
for cancellation upon the earliest of:

 

(a)           receipt by the Trustee of a written direction signed by the
Corporation and the Executive directing surrender of the Letter of Credit;

 

(b)           receipt by the Trustee of a written direction signed by the
Corporation confirming that it has funded and/or settled the Obligations in
accordance with the terms hereof,  together with evidence which is satisfactory
to the Trustee that  such funding and/or settlement has occurred; and

 

(c)           receipt by the Trustee of a written direction signed by the
Corporation confirming that the Corporation has no remaining Obligations to the
Executive, together with evidence which is satisfactory to the Trustee that the
Corporation has no remaining Obligations to the Executive and that a copy of
such written direction has been provided to the Executive.

 

10.10       The Trust shall be terminated by the Trustee upon the earliest of:

 

(a)           receipt by the Trustee of a written direction signed by the
Corporation and the Executive confirming the termination of the Trust;

 

(b)           the entire depletion of the Trust Fund through payments pursuant
to the terms of the Trust Agreement, in the event that such depletion occurs
subsequent to the funding of the Obligations in accordance with the terms of
this Agreement; and

 

(c)           receipt by the Trustee of a written direction signed by the
Corporation confirming that the Corporation has no remaining Obligations to the
Executive, together with evidence which is satisfactory to the Trustee that a
copy of such written direction has been provided to the Executive.

 

Upon the termination of the Trust, any assets of the Trust which remain after
the satisfaction of any remaining Obligations of the Corporation to the
Executive shall be returned to the Corporation.

 

10.11       The Corporation and the Executive hereby acknowledge that the
Corporation is entering into agreements similar to this Agreement with certain
of its other executives and that the Corporation may, at its sole discretion,
arrange for one or more Letters of Credit to satisfy its responsibilities under
this Agreement and such other agreements.  In the event that one Letter of
Credit is obtained to satisfy the Corporation’s responsibilities under this
Agreement and some or all of such other agreements, references to a “Letter of
Credit” in this Agreement shall be read as references to that portion of such
Letter of Credit which is referable to the responsibilities of the Corporation
to the Executive.

 

The Corporation and the Executive also acknowledge that the Corporation may, at
its sole discretion, enter into one or more Trust Agreements to satisfy its
responsibilities under

 

27

--------------------------------------------------------------------------------

 

this Agreement and such other agreements.  In the event that one Trust Agreement
is entered into to satisfy the Corporation’s responsibilities under this
Agreement and some or all of such other agreements, references to “Trust”,
“Trust Agreement”, “Trustee” and “Refundable Tax Account” in this Agreement
shall be read with such modifications as may be necessary in the context.

 

10.12       At the discretion of the Corporation and subject to the provisions
of applicable law, in the event that all or a portion of the Obligations are
funded in accordance with Article 10 hereof and an actuarial surplus (determined
by actuarial valuation in accordance with the terms of the report prepared as at
the immediately preceding Valuation Date in accordance with Section 10.3 of this
Agreement) arises as a result thereof:

 

(a)           all or a portion of such actuarial surplus may be used in the
determination of or to reduce the funding otherwise required to be provided by
the Corporation hereunder; or

 

(b)           any surplus assets may, to the extent that they exceed 110% of the
amount required to fund that portion of the Obligations which has been funded
(as determined by the report prepared as at the immediately preceding Valuation
Date in accordance with Section 10.3 of this Agreement) be returned to the
Corporation.

 

ARTICLE 11

EXPEDITED ARBITRATION

 

11.1         If, pursuant to Section 6.1 of this Agreement, the Executive
provides written notice of the Executive’s intention to terminate the
Executive’s employment for Good Reason, and the Corporation believes that there
is no Good Reason, or, alternatively, if, pursuant to Section 4.1 of this
Agreement, the Corporation provides written notice of its intention to terminate
the Executive’s employment for Just Cause and the Executive believes there is no
Just Cause, the Corporation or the Executive, as applicable, shall, within ten
(10) days of having been provided such notice, provide written notice (“Notice
of Dispute”) to the other Party of the dispute (the “Dispute”).

 

11.2         The Parties agree that any and all Disputes under Section 11.1 of
this Agreement will be resolved by way of a single Arbitrator.

 

11.3         (a)           Within fifteen (15) days of provision of the Notice
of Dispute, the Parties shall agree upon and appoint a neutral Arbitrator from
the then current roster maintained by the Alberta Mediation and Arbitration
Society to act as Arbitrator of the Dispute; or

 

(b)           If no person acceptable to both Parties has been agreed upon and
appointed within fifteen (15) days, then either Party may make immediate
application to the Court

 

28

--------------------------------------------------------------------------------

 

of Queen’s Bench of Alberta, Judicial District of Calgary, to have an Arbitrator
appointed.

 

11.4         The Parties acknowledge and agree that the purpose of this
Article 11 is to avoid delays and facilitate resolution of the Dispute in a
just, speedy and cost-effective manner.

 

11.5         Consistent with the expedited nature of arbitration, the Arbitrator
will direct and control the scope and timing of the exchange of information
between the Parties and will take such steps as the Arbitrator deems necessary
to achieve a just, speedy and cost-effective resolution of the Dispute.  The
Arbitrator has the exclusive right and power to resolve all issues related to
the exchange of information in the arbitration process.

 

11.6         The Parties agree that the Arbitrator is only authorized to
determine whether the Executive had Good Reason for terminating the Executive’s
employment, or alternatively, whether the Corporation had Just Cause to
terminate the Executive’s employment.

 

11.7         A hearing will occur within forty-five (45) days of the appointment
of the Arbitrator (the “Hearing”).  The time of the Hearing (the “Hearing Date”)
will be scheduled by the Arbitrator after consultation with the Parties.  The
Hearing will be governed by the rules set out in the Arbitration Act S.A. 1991,
c.A-43, as modified by the Arbitrator in the interests of achieving a just,
speedy and cost-effective resolution of the Dispute.  The Arbitrator may require
written submissions of fact in the Dispute to be provided seven (7) days before
the Hearing Date.

 

11.8         The Arbitrator will use best efforts to provide a written decision
within seven (7) days of the conclusion of the Hearing.

 

11.9         The Parties agree that the decision of the Arbitrator will be final
and binding upon the Parties.

 

ARTICLE 12

GENERAL

 

12.1         The headings of the Articles and paragraphs in this Agreement are
inserted for convenience only and shall not affect the meaning or construction
of this Agreement.

 

12.2         This Agreement shall be construed and interpreted in accordance
with the laws of the Province of Alberta and the federal laws of Canada as
applicable therein.

 

12.3         If any provision of this Agreement is determined to be void or
unenforceable in whole or in part, it shall be and be deemed to be severed from
this Agreement without affecting or impairing the validity of any other
provision herein.

 

12.4         Any notice required or permitted to be given under this Agreement
shall be in writing and shall be properly given if delivered by hand delivery or
mail or other form of electronic communication capable of transmission
confirmation to the following address:

 

29

--------------------------------------------------------------------------------

 

a.             in the case of the Corporation to:

 

Nexen Inc.

801 - 7th Avenue S.W.

Calgary, AB  T2P 3P7

Attention:        General Manager, Compensation and Benefits

 

b.             in the case of the Executive to:

 

the last address of the Executive in the records of the Corporation or to such
other address as the Parties may from time to time specify by notice given in
accordance herewith.

 

12.5         This Agreement shall enure to the benefit of and be binding upon
the Executive and the Executive’s heirs, executors and administrators and upon
the Corporation and its successors and assigns.

 

12.6         This Agreement constitutes the entire agreement relating to the
respective rights and obligations of the Parties upon the occurrence of a Change
of Control.  No amendment or waiver of this Agreement shall be binding unless
executed in writing by the Parties.

 

Notwithstanding the foregoing,

 

(a)           any amendment to Article 10 of this Agreement, Schedule “B-1” or
Schedule “B-2” which is required to ensure that the balance remaining in the
Trust after the required tax has been withheld and remitted to the Canada
Revenue Agency is sufficient to satisfy the fee levied by the Bank in connection
with the issuance of a Letter of Credit may be made by the Corporation without
the prior written approval of the Executive; and

 

(b)           the Corporation may amend, modify or waive Article 10 of this
Agreement,  Schedule “B-1” and Schedule “B-2” in whole or in part, at such time
and from time to time, and in such manner and to such extent as it may deem
advisable without obtaining the approval of the Executive, provided that such
amendment, modification or waiver, as the case may be, does not adversely affect
the securitization in accordance with the terms hereof of those Obligations
which have accrued up to the date of such amendment, modification or waiver, as
the case may be.

 

12.7         The Parties agree that the rights, entitlements and benefits set
out in this Agreement to be paid to the Executive upon a Change of Control shall
be in full satisfaction of all rights of the Executive under applicable law in
effect from time to time as a result thereof.

 

12.8         Neither Party can waive or shall be deemed to have waived any right
it has under this Agreement except to the extent that such waiver is in writing.

 

30

--------------------------------------------------------------------------------

 

12.9         Nothing contained in this Agreement shall be construed as limiting
the ability of the Corporation to amend, modify or terminate the Executive
Benefit Plan in whole or in part, at such time and from time to time, and in
such manner and to such extent as it may deem advisable.

 

The Parties have executed this Agreement effective the date first written above.

 

 

 

 

NEXEN INC.

 

 

 

 

 

 

 

 

Per:

(signed)

 

 

 

 

 

 

 

 

 

 

Per:

(signed)

 

 

 

 

 

 

SIGNED, SEALED & DELIVERED
in the presence of

 

 

 

 

 

(signed)

 

(signed)

WITNESS

 

JAMES ARNOLD

 

31

--------------------------------------------------------------------------------

 

SCHEDULE “A”

 

AGREEMENT RESPECTING CHANGE OF CONTROL AND

EXECUTIVE BENEFIT PLAN ENTITLEMENTS

 

In order to receive the entitlements referred to in the Article 7 of this
Agreement, the Executive shall execute the attached Release, fully releasing the
Corporation from all further claims in relation to the Executive’s employment or
Employment Benefits and the termination thereof upon payment of the remuneration
and benefits referred to in Article 7 of this Agreement.  The attached Release
shall not, however, require that the Executive relinquish or release any rights
to indemnity which the Executive may, as an officer or director of the
Corporation or any of its Affiliates, Associates and Subsidiaries, have as
against the Corporation or any of its Affiliates, Associates and Subsidiaries,
for costs, charges and expenses reasonably incurred by the Executive in respect
of any civil, criminal or administrative action or proceeding to which the
Executive is made a party by reason of being or having been a director or
officer of the Corporation or any of its Affiliates, Associates and
Subsidiaries, where:

 

(a)           the Executive has acted honestly and in good faith with a view to
the best interests of the Corporation or any of its Affiliates, Associates and
Subsidiaries; and

 

(b)           in the case of a criminal or administrative action or proceeding
enforced by a monetary penalty, the Executive had reasonable grounds for
believing the Executive’s conduct was lawful.

 

--------------------------------------------------------------------------------

 

FINAL RELEASE

 

KNOW ALL MEN BY THESE PRESENTS that I, JAMES ARNOLD, of the City of Calgary, in
the Province of Alberta, in consideration of the amounts provided in that
certain Agreement Respecting Change of Control and Executive Benefit Plan
Entitlements (the “Agreement”) dated as of the              day of
                        , 2009 between myself and NEXEN INC. and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, do for myself, my executors and assigns hereby remise, release and
forever discharge the Corporation, and any associated, affiliated, predecessor
or parent corporation of the Corporation and their present and former directors,
officers, agents and employees (the “Releasees”), including each of their
respective successors, heirs, administrators and assigns, from all manner of
actions, causes of action, debts, obligations, covenants, claims or demands,
whatsoever which I may ever have had, now have, or can, shall or may hereafter
have against the Releasees or any of them, by reason of or arising out of any
cause, matter or thing whatsoever done, occurring or existing up to and
including the present date and, in particular, without in any way restricting
the generality of the foregoing, in respect of all claims of any nature
whatsoever, past, present or future, directly or indirectly related to or
arising out of or in connection with my relationship with the Releasees, as an
employee, officer or director, and the termination of my employment from the
Corporation including, but not limited to, any claims related to any entitlement
I may have or may have had to any payment or claim either at common law or under
the Employment Standards Code, Human Rights, Citizenship and Multiculturalism
Act or any other applicable legislation governing or related to my employment
with the Releasees.

 

AND FOR THE SAID CONSIDERATION, I, JAMES ARNOLD, represent and warrant that I
have not assigned to any person, firm or corporation any of the actions, causes
of action, claims, suits, executions or demands which I release by this Release,
or with respect to which I agree not to make any claim or take any proceeding
herein.

 

IT IS FURTHER ACKNOWLEDGED that the payment to me includes full compensation and
consideration for the loss of my employment benefits, as provided by the
Releasees, and that all of my employment benefits and privileges shall cease on
the date of termination of my employment, except as otherwise expressly provided
in the Agreement.  I further acknowledge that I have received all benefits due
to me and have no further claim against the Releasees for such benefits.  I
further accept sole responsibility to replace such benefits which I wish to
continue or to exercise conversion

 

--------------------------------------------------------------------------------

 

privileges where applicable with respect to such benefits and, in particular any
life insurance and long-term disability benefits.  In the event that I become
disabled following termination of my employment, I covenant not to sue the
Releasees for insurance or other benefits or loss of same and hereby release the
Releasees from any and all further obligations or liabilities arising therefrom.

 

Notwithstanding anything contained herein, this Release shall not extend to or
affect, or constitute a release of, my right to sue, claim against or recover
from the Releasees and shall not constitute an agreement to refrain from
bringing, taking or maintaining any action against the Releasees in respect of:

 

(a)           any corporate indemnity existing by statute, contract or pursuant
to any of the constating documents of the Corporation provided in my favour in
respect of my having acted at any time as a director, officer or both of the
Corporation;

 

(b)           my entitlement to any insurance maintained for the benefit or
protection of the directors and/or officers of the Corporation, including
without limitation, directors’ and officers’ liability insurance; or

 

(c)           my entitlement to any amounts or compensation due to me under the
terms of my employment pursuant to the Agreement.

 

IT IS HEREBY AGREED that the terms of the Agreement and of this Release will be
kept confidential.  No party hereto shall communicate any such terms to any
third party under any circumstances whatsoever, excepting any necessary
communication with my legal and financial advisors, as required, on the express
condition that they maintain the confidentiality thereof, and any disclosure
which is required by law, although either party shall be at liberty to disclose
to third parties that a mutually acceptable Release was agreed upon.  The
invalidity and unenforceability of any provision of this Release shall not
affect the validity or enforceability of any other provision of this Release,
which shall remain in full force and effect.

 

I HEREBY DECLARE that I have read all of this Release, fully understand the
terms of this Release and voluntarily accept the consideration stated herein as
the sole consideration for this

 

2

--------------------------------------------------------------------------------

 

Release for the purpose of making a full and final settlement with the
Releasees.  I further acknowledge and confirm that I have been given an adequate
period of time to obtain independent legal counsel regarding the meaning and the
significance of the terms herein and the covenants mutually exchanged.

 

IT IS HEREBY AGREED THAT as a term of the termination of my employment from the
Corporation, and in consideration of the amount noted above, I hereby resign as
officer and director of the Corporation and its affiliates.

 

IN WITNESS WHEREOF, I have hereunto set my hand and seal this            day of
                             in the year                   .

 

 

 

 

JAMES ARNOLD

 

 

 

 

 

 

 

WITNESS (signature)

 

 

 

 

 

 

 

WITNESS (print name)

 

 

3

--------------------------------------------------------------------------------

 

SCHEDULE “B-1”

 

AGREEMENT RESPECTING CHANGE OF CONTROL

AND EXECUTIVE BENEFIT PLAN ENTITLEMENTS

Methodology and Assumptions for Determining Settlement Value

 

Purpose

 

In accordance with the terms of the Agreement, the purpose of this Schedule
“B-1” is to outline the calculation approach such that,  after tax has been paid
on a lump sum settlement value, the remaining balance is intended to be
sufficient to provide after-tax monthly payments equivalent to the after-tax
monthly payments the Executive would have received under the terms of the
Executive Benefit Plan as provided for under this Agreement.

 

Overview for Defined Benefit Pension

 

The following outlines the actuarial methods, assumptions and calculation
process to be used in determining the lump sum settlement value of the defined
benefit pension entitlements under the Executive Benefit Plan when settlement
occurs in accordance with Section 10 of the Agreement.  Section 300 of the
Income Tax Regulations establishes the procedure applicable in using an
after-tax lump sum to purchase a prescribed annuity:

 

1.             A prescribed annuity payment consists of two components:  (a) the
deemed capital element of the annuity payment on which no tax is payable, and
(b) the deemed non-capital portion of the annuity payment which is taxed at the
marginal rate.

 

2.             The capital portion of each future annuity payment is considered
to be a return of the original after-tax lump sum amount.

 

3.             The non-capital portion of each annuity payment is assumed to be
provided by the investment return on the original after-tax lump sum amount and
has therefore not yet been taxed.

 

4.             A constant percentage of each future payment is deemed to be a
return of the original lump sum capital.

 

Calculation Methodology

 

1.             Equivalent after-tax payments:

 

a.             Determine initial gross annual pension entitlement under the
Executive Benefit Plan.

 

b.             Determine after-tax annual pension entitlement under the
Executive Benefit Plan based on Individual Tax Rate as defined in Schedule
“B-1”.

 

--------------------------------------------------------------------------------

 

c.             Determine the capital element based on the non-indexed present
value of the pension payments divided by life expectancy.

 

d.             Determine the monthly payment which provides an after-tax pension
equal to the after-tax pension determined in 1.b. above in accordance with the
prescribed annuity methodology.

 

2.             Present value of periodic payments from 1. above:

 

a.             Determine the present value of the pension determined in 1.d.
above using the assumptions described below in this Schedule “B-1”.  For greater
certainty, the value of the post-retirement indexation is to be reflected in
determining the present value of the accrued pension entitlement in respect of
post-1992 service, and any accrued pension in respect of service granted during
the Severance Period.

 

3.             Tax adjustment:

 

a.             Gross-up the present value determined in 2.a. above to reflect
the tax assumed to be required to be paid on the lump sum.

 

b.             Gross-up the amount determined in 3.a. above to reflect the tax
assumed to be required to be paid on investment earnings in respect of the lump
sum payment during the deferral period prior to assumed pension commencement, if
any.

 

4.             Equivalent present value after tax as the after-tax monthly
payments:

 

a.             The amount determined in 3.b. above shall be the lump sum
settlement value of the Executive’s pension entitlement.

 

Assumptions

 

Interest Discount Rate:

 

· during deferral period

 

Yield on long-term Government of Canada bonds as published in the Bank of Canada
Review, described in CANSIM series V122544 (or a successor series) for the last
trading Wednesday at the end of the month immediately preceding the date of
calculation, rounded down to next lower 0.5.

 

 

 

· after assumed pension commencement

 

Yield on long-term Government of Canada bonds as published in the Bank of Canada
Review, described in CANSIM series V122544 (or a successor series) for the last
trading Wednesday at the end of the month immediately preceding the date of
calculation, rounded down to next lower 0.5,

 

 

 

 

 

less

 

2

--------------------------------------------------------------------------------

 

 

 

assumed escalation of pensions after retirement.

 

 

 

Increase in Consumer Price Index:

 

Yield on long-term Government of Canada bonds as published in the Bank of Canada
Review, described in CANSIM series V122544 (or a successor series) for the last
trading Wednesday at the end of the month immediately preceding the date of
calculation,

 

 

 

 

 

less

 

 

 

 

 

Yield on long-term Government of Canada Real Return bonds as published in the
Bank of Canada Review, described in CANSIM series V122553 (or a successor
series) for the last trading Wednesday at the end of the month immediately
preceding the date of calculation.

 

 

 

 

 

The result of the difference is then rounded up to the next highest 0.5%.

 

 

 

Escalation of Pensions After Retirement:

 

75% of CPI, less 1% (minimum increase 25% of CPI).  Applies only to benefits
accrued for service after December 31, 1992.

 

 

 

Mortality:

 

 

 

 

 

· for life expectancy

 

1994 Uninsured Pensioner Mortality Table with mortality improvements projected
to 15 years beyond the date of termination.

 

 

 

· for present values

 

 

 

 

 

·  prior to assumed pension commencement

 

Nil.

 

 

 

·  after assumed pension commencement

 

1994 Uninsured Pensioner Mortality Table with mortality improvements projected
15 years beyond the date of termination.

 

 

 

Marital Status:

 

Actual status at date of termination.

 

 

 

Age of Spouse:

 

Based on actual date of birth.

 

3

--------------------------------------------------------------------------------

 

Individual Tax Rate:

 

Maximum individual marginal tax rate for employee’s province of employment at
the date of termination.

 

4

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SCHEDULE “B-2”

 

AGREEMENT RESPECTING CHANGE OF CONTROL AND

EXECUTIVE BENEFIT PLAN ENTITLEMENTS

 

Methodology and Assumptions for Determining the Amount to be Secured or Funded
in Accordance with Section 10 based on the Methodology described in Schedule 
“B-1”

 

Purpose

 

The purpose of this Schedule “B-2” is to provide the actuarial methodology and
assumptions for determining the amount to be secured or funded in accordance
with Section 10 of the Agreement.

 

Methodology

 

The settlement methodology is described in Schedule B-1.

 

The funding methodology applicable to the Executive Benefit Plan Obligations is
based on the following:

 

1.             Estimate the accrued pension and/or Supplemental Company Accounts
payable from the Executive Benefit Plan as at the Valuation Date.

 

2.             Assume that the assets of the plan are to be invested in long
term Government of Canada bonds and subject to the 50% refundable tax applicable
to retirement compensation arrangements.

 

3.             Determine the present value of the amounts in 1 through 2 above.

 

4.             Estimate the settlement value that could be paid in accordance
with the methodology and assumptions described in Schedule B-1.

 

5.             The funding amount in respect of the Executive Benefit Plan
Obligations shall be the greater of the amount determined in accordance with 1
through 3 above and the amount in 4 above.

 

Assumptions

 

Interest Discount Rate:

 

 

 

 

 

· during deferral period

 

Yield on long-term Government of Canada bonds as published in the Bank of Canada
Review, described in CANSIM series V122544 (or a successor series) for the last
trading Wednesday at the end of the month immediately preceding the Anniversary
Date, rounded down to next lower 0.5.

 

--------------------------------------------------------------------------------

 

· after assumed pension commencement

 

Yield on long-term Government of Canada bonds as published in the Bank of Canada
Review, described in CANSIM series V122544 (or a successor series) for the last
trading Wednesday at the end of the month immediately preceding the Anniversary
Date, rounded down to next lower 0.5 , less assumed escalation of pensions after
retirement.

 

 

 

Increase in Consumer Price Index:

 

Yield on long-term Government of Canada bonds as published in the Bank of Canada
Review, described in CANSIM series V122544 (or a successor series) for the last
trading Wednesday at the end of the month immediately preceding the Anniversary
Date,

 

 

 

 

 

less

 

 

 

 

 

Yield on long-term Government of Canada Real Return bonds as published in the
Bank of Canada Review, described in CANSIM series V122553 (or a successor
series) for the last trading Wednesday at the end of the month immediately
preceding the Anniversary Date.

 

 

 

 

 

The result of the difference is then rounded up to the next highest 0.5%.

 

 

 

Escalation of Pensions After Retirement:

 

75% of CPI, less 1% (minimum increase 25% of CPI). Applies only to benefits
accrued for service after December 31, 1992.

 

 

 

Mortality:

 

 

 

 

 

· for life expectancy

 

1994 Uninsured Pensioner Mortality Table with mortality improvements projected
to 15 years beyond the Calculation Date.

 

 

 

· for present values

 

 

 

 

 

·  prior to assumed pension commencement

 

Nil.

 

 

 

·  after assumed pension commencement

 

1994 Uninsured Pensioner Mortality Table with mortality improvements projected
15 years beyond the Calculation Date.

 

2

--------------------------------------------------------------------------------

 

Marital Status:

 

Actual status at the Anniversary.

 

 

 

Age of Spouse:

 

Based on actual date of birth.

 

 

 

Individual Tax Rate:

 

Maximum individual marginal tax rate for employee’s province of employment at
the Anniversary Date

 

 

 

Bonus:

 

Target bonus % applied to the salary rate at the Valuation Date

 

 

 

Investment return:

 

Yield on long-term Government of Canada bonds as published in the Bank of Canada
Review, described in CANSIM series V122544 (or a successor series) for the last
trading Wednesday at the end of the month immediately preceding the Anniversary
Date rounded down to next lower 0.5%, and then divided by 2

 

 

 

Decrements:

 

None assumed prior to Calculation Date

 

 

 

Eligibility for Pensions:

 

100% vested

 

 

 

Pension Commencement Age:

 

 

 

 

 

·      eligible for subsidized early retirement on the Calculation Date (i.e.,
age 55 and 10 years of continuous service)

 

Payable at the completion of the Severance Period. Payable at the Calculation 
Date for purposes of determining the amount required under Section 10.6(e).

 

 

 

·      not eligible for early retirement on the Calculation Date

 

Deferred to age 60 or the end of the Severance Period if later. Payable at age
60 for purposes of determining the amount required under Section 10.6(e).

 

 

 

Fluctuation reserve 1

 

15% of the pension obligations

Cost of borrowing to settle the obligations:

 

Yield on one month Government of Canada Treasury Bills as published in the Bank
of Canada Review, described in CANSIM series V122529 (or a successor series) for
the last trading Wednesday at the end of the month immediately preceding the
Anniversary Date, rounded up to the next higher 0.25%, plus 1.50%

 

3

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Notes:

 

1                   Referred to by Section 10.5(g), Section 10.6(e)(viii) and
10.6(e)(x).    The 15% load is intended to provide a reserve for a potential
decrease in the Interest Discount Rate in combination with potential increases
in the Consumer Price Index for an aggregate change of 1.0%.

 

4

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SCHEDULE “C”

 

AGREEMENT RESPECTING CHANGE OF CONTROL AND EXECUTIVE BENEFIT PLAN ENTITLEMENTS

Estimated1 Entitlement to Compensation

Pursuant to Article 7 of the Agreement

 

Employee — James Arnold

 

Base Salary

 

$840,000

 

Bonus Target Value

 

$378,000

 

Benefits Uplift

 

$109,200

 

Car Allowance

 

$38,400

 

Savings Plan

 

$50,400

 

Financial Counselling Services

 

$10,500

 

Security Monitoring Services

 

$2,400

 

 

 

 

 

TOTAL VALUE

 

$1,428,900

 

 

 

 

 

Additional Lump Sum Settlement Value of Pension2

 

$488,000

 

 

 

 

 

TOTAL ESTIMATED ENTITLEMENT

 

$1,916,900

 

 

In addition to the above, Section 7.1(d) of the Agreement provides for Executive
Outplacement counselling to be provided by a firm selected by the Executive, at
a cost to the Corporation not to exceed $25,000.

 

IN ADDITION to the above pension entitlement under the Agreement, the Executive
has the following pension entitlements under the Defined Benefit Registered
Pension Plan and Executive Benefit Plan.  As is the case with the figures shown
above, these values are estimated values (as of July 16, 2009) and are for
illustrative purposes only.  Actual values will be calculated as of the date of
the entitlement or payment in accordance with the Defined Benefit Registered
Pension Plan and the Executive Benefit Plan, respectively, and therefore may be
subject to change.

 

·

 

Accrued Annual Defined Benefit Pension Entitlement (Registered Pension Plan)3

 

$1,019

 

 

 

 

 

 

 

·

 

Estimated Lump Sum Transfer Value of Registered Pension Plan4

 

$10,000

 

 

 

 

 

 

 

·

 

Estimated Lump Sum Value of Executive Benefit Plan4

 

$22,000

 

 

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1                                           As stated in Section 7.1 of the
Agreement, the above calculations represent only the current estimated value (as
of July 16, 2009) of the Executive’s entitlement to compensation upon a Change
of Control.  Accordingly, the above calculations are for illustrative purposes
only.

2                                           Calculated in accordance with
Section 7.1(b) of the Agreement.

·                  Adjustment to EBP lump sum value to reflect settlement
$20,000.

·                  Additional settlement value of pension accrued during the
severance period upon a change of control  $468,000.

3                                           Deferred benefit payable from age
60.

4                                           Based on the Standards of Practice
for Determining Pension Commuted Values approved by the Canadian Institute of
Actuaries using rates applicable for July 2009 terminations.

 

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