**Exhibit 10.60**

 

**AGREEMENTRESPECTING CHANGE OF CONTROL**

**ANDEXECUTIVE BENEFIT PLAN ENTITLEMENTS**

 

Thisagreement respecting change of control and executive benefit plan entitlementsmade as of the 12th day of November, 2009.

 

**BETWEEN:**

 

**NEXEN INC.**, a corporation incorporated under the lawsof Canada

 

(hereinafterreferred to as the “Corporation”)

 

- and -

 

**JAMES ARNOLD**

 

(hereinafterreferred 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 essentialofficer and employee of the Corporation, who is both integral to the operationand development of the Corporation, and has acquired outstanding skills, uniqueexperience and possesses an extensive background in, and knowledge of, theCorporation’s business, operations and the industry in which it is engaged.

 

**2.**             In the event of a Change of Control, thereis a possibility that the employment of the Executive would be terminatedwithout just cause or adversely modified and the Executive has expressedconcern in that regard to the Corporation.

 

**3.**             The Board recognizes that it is essentialand in the best interests of the Corporation and its shareholders that theCorporation retain the continued dedication of the Executive to the Executive’soffice 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 pastservice of the Executive and the Executive’s integral role in the developmentand operation of the Corporation requires that the Corporation ensure that inthe event of a Change of Control the Executive is treated in a manner that isfair, reasonable, consistent with industry standards and in the best interestsof the Corporation.

 

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

 

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

 

**NOW THEREFORE**, in consideration of themutual covenants and agreements set forth in this Agreement and for other goodand valuable consideration, the receipt and sufficiency of which are herebyacknowledged by the Parties, the Parties agree as follows:

 

**ARTICLE 1**

**DEFINITIONS**

** **

1.1           In this Agreement, the following termsshall mean as follows:

 

(a)           **“Acting Jointly or in Concert”** for the purposes of this Agreement, aPerson is acting jointly or in concert with another Person if such Person hasany agreement, arrangement or understanding (whether formal or informal andwhether 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 thancustomary agreements with and between underwriters and banking group or sellinggroup members with respect to a distribution of securities by way of prospectusor private placement or pursuant to a pledge of securities in the ordinarycourse 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”**meansthis agreement respecting change of control and executive benefit planentitlements as it may be amended, restated or supplemented from time to time,and the expressions “hereof”, “herein”, “hereto”, “hereunder” “hereby”, andsimilar 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 ofthis Agreement.

 

(f)            **“Annual Base Salary”** means the annual base salary of theExecutive payable by the Corporation at the end of the month immediatelypreceding the Date of Termination.

 

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

 

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

 

(i)            **“Beneficial Owner”** for the purposes of this Agreement, aPerson 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 orany of such Person’s Affiliates or Associates is the owner at law or in equity;

 

(ii)           any securities as to which such Person orany of such Person’s Affiliates or Associates has a right to acquire (i) uponthe exercise of any Convertible Securities or (ii) pursuant to anyagreement, arrangement or understanding, whether such right is exercisableimmediately within a period of sixty (60) days thereafter and whether or not oncondition or the happening of any contingency, (other than (a) customaryagreements with and between underwriters and banking group and selling groupmembers with respect to the distribution to the public or pursuant to a privateplacement of securities, or (b) pursuant to a pledge of securities in theordinary course of business); and

 

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

 

provided, however, that a Person shall not be deemedthe “Beneficial Owner” or to have “Beneficial Ownership” of or to “BeneficiallyOwn” any security where such Person is the registered holder of securities as aresult of carrying on the business of or acting as nominee for a securitiesdepository.

 

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

 

100 x A/B

 

Where:

 

**A** =         the number of votes for the election of alldirectors generally attaching to the Common Shares Beneficially Owned by suchPerson; and

 

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

 

For the purposes of the foregoing formula, where aPerson Beneficially Owns unissued Common Shares which may be acquired pursuantto Convertible Securities, such Common Shares shall be deemed to be outstandingfor the purpose of calculating the percentage of Common Shares BeneficiallyOwned 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 otheroutstanding Convertible Securities shall, for the purposes of that calculation,be deemed to be outstanding.

 

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

 

(k)           **“CBCA”** means the *CanadaBusiness Corporations Act*, as amended from time to time, and anysuccessor 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 CommonShares or Convertible Securities by a Beneficial Owner which results in theBeneficial Owner owning, or exercising control or direction over, Common Sharesor Convertible Securities such that, assuming only the conversion ofConvertible 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, CommonShares carrying the right to cast more than thirty-five percent (35%) of thevotes attaching to all Common Shares; or

 

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

 

(iii)          asituation in which individuals who were members of the Board immediately priorto:

 

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

 

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

 

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

 

(iv)          the completion of any transaction or thefirst of a series of transactions which would have the same or similar effectas 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, forthe purposes of this Agreement, a Change of Control has occurred or isimminent.

 

(n)           “**Change of ControlObligations**” means the Company’s obligations to make the lump sumpayments described in Section 7.1 of this Agreement to the Executive.

 

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

 

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

 

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

 

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

 

(q)           **“Convertible Securities”** means:

 

(i)            any right (contractual or otherwise andregardless of whether such right constitutes a security) to acquire CommonShares from the Corporation; or

 

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

 

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

 

(r)            **“Date of Termination”** means the date upon which the Executive’semployment is terminated pursuant to Section 4.1, 5.1 or 6.1 of thisAgreement.  For greater clarity, the Dateof Termination means the date upon which the Corporation provides the Executivewith written, verbal or other notice that the Executive’s employment has beenor will be terminated pursuant to Section 4.1 or 5.1 of this Agreement orthe date upon which the Executive provides the Corporation with written noticeterminating the Executive’s employment pursuant to Section 4.1 or for GoodReason pursuant to Section 6.1.

 

(s)           **“Disability”** means, where due to a physical or mentalcondition, the Executive is rendered totally and permanently unable to performthe Executive’s duties for a consecutive period of two (2) years or moreduring which the Executive has been in receipt of long term disabilityinsurance benefits from the insurance carrier normally utilized by theCorporation.

 

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

 

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

 

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

 

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

 

(ii)           the Executive’s entitlement to receivelong term disability benefits from the insurance carrier normally utilized bythe Corporation;

 

(iii)          theExecutive’s entitlement to pension benefits under the terms of any pension planwith the Corporation;

 

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

 

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

 

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

 

(vii)         theExecutive’s entitlement to receive from the Corporation security monitoringservices 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 PlanObligations**” means the Corporation’s outstanding obligations underthe Executive Benefit Plan to the Executive.

 

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

 

(i)            a Change of Control occurs;

 

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

 

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

 

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

 

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

 

(vi)          the Executive has provided written notification to theTrustee and to the Corporation of the failure by the Corporation to pay anyamount owed to or in respect of the Executive under the Executive Benefit Planwithin 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 personentitled thereto pursuant to the Executive Benefit Plan or to the Trust inaccordance with the provisions of Section 10.6(h); or

 

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

 

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

 

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

 

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

 

(iii)          Relocation. The Corporation requiring the Executive to be based anywhere other thanwhere the Executive is based at the time a Change of Control occurs, except forrequired travel on the Corporation’s business to an extent substantiallyconsistent with the Executive’s business travel obligations in the ordinarycourse of business immediately prior to a Change of Control;

 

(iv)          Incentive Compensation Plans. The failure by the Corporation to continue in effect any incentivecompensation plan in which the Executive participates, including, but notlimited to, the Incentive Compensation Plan or the Stock Option Plan or anyother 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 benefitsunder, an ongoing, substitute or alternative plan (it being understood that themanner or method of payment and the form of consideration need not be the sameas existed in the original plans); or the failure by the Corporation tocontinue the Executive’s participation therein on at least as favourable abasis, both in terms of the amount of benefits available to the Executive andthe level of the Executive’s participation relative to other participants, asexisted at the time a Change of Control occurs;

 

(v)           Employment Benefits and Perquisites. The failure by the Corporation to continue to provide the Executive withEmployment Benefits at least as favourable as those enjoyed by the Executiveimmediately prior to a Change of Control, including any pension plan, benefitplan or any retirement arrangement established for the Executive, or any of theCorporation’s life insurance, medical, health and accident, disability orsavings plans in which the Executive was participating at the time a Change ofControl occurs; the taking of any action by the Corporation that would directlyor indirectly materially reduce any such benefits or deprive the Executive ofany material perquisite enjoyed by the Executive at the time a Change ofControl occurs, including, without limitation and to the extent applicable, theuse of a car, aircraft, secretarial services, office space, telephones,computer facilities, expense reimbursement, financial counselling, andprofessional fees and club dues reimbursement; or the failure by theCorporation to provide the Executive with the number of paid vacation days towhich the Executive is entitled in accordance with the Corporation’s normalvacation 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 asuccessor to assume and agree to perform this Agreement.  Alternatively, if the business or undertakingin connection with which the Executive’s services are principally performed issold at any time after a Change of Control occurs, and the Executive’semployment is transferred as a result, the failure or refusal of the purchaserof such business or undertaking to provide the Executive with the same or acomparable position, duties, compensation and benefits, as described inparagraphs (iv) and (v) above, as provided to the Executive by theCorporation immediately prior to a Change of Control;

 

(vii)         Dispositionof “All or Substantially All”.  Thedisposition by the Corporation of all or substantially all of the assets of theCorporation, as contemplated herein, notwithstanding that the Executive’sservices were or were not principally performed for such business.

 

(aa)         “**Hearing**” hasthe 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 incentivecompensation plan of the Corporation in which the Executive is entitled toreceive benefits in the month immediately preceding a Change of Control.

 

(dd)         **“Just Cause”** means:

 

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

 

(ii)           where the Executive engages in anycriminal act or dishonesty resulting or intended to result, directly orindirectly, 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 theExecutive by the Corporation in effect at the end of the month immediatelypreceding 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 ExecutiveBenefit Plan Obligations.

 

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

 

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

 

(kk)         “**Refundable Tax Account**”means the refundable tax account maintained in respect of the Trust by theCanada 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 therecitals of this Agreement.

 

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

 

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

 

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

 

(qq)         “**Tax Act**” meansthe Income Tax Act (Canada) and the Regulations thereunder, both as amendedfrom time to time.

 

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

 

(ss)         “**Trust**” has themeaning 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**” meansCIBC Mellon Trust Company or such other trust company duly incorporated underthe laws of Canada or any province thereof whom the Company may designate asthe 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**

**SCOPEOF AGREEMENT**

** **

2.1           The Parties intend that this Agreementsets out (a) their respective rights and obligations upon the occurrenceof a Change of Control and in connection with the securitization and funding ofthe Change of Control Obligations; and (b) their respective rights andobligations regarding the securitization and funding of the Executive BenefitPlan Obligations.  This Agreement doesnot 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 asotherwise expressly stated in this Agreement, insofar as the securitization andfunding of the Executive Benefit Plan Obligations is concerned, the terms ofthis Agreement shall govern and the terms of the Securitization Procedure shallnot be applicable.

 

2.3           This Agreement shall automaticallyterminate upon the death of the Executive or where due to the Disability of theExecutive, the Executive is materially incapacitated from performing theExecutive’s duties.  In the event of thedeath or Disability of the Executive, the Executive (or the Executive’s estate)shall be entitled to receive from the Corporation all unpaid Annual BaseSalary, Employment Benefits, unpaid business expenses and vacation entitlementaccrued to the date of the death or Disability of the 

 

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

 

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

 

**ARTICLE 3**

**TERMOF AGREEMENT**

** **

3.1           Subject to termination of this Agreementprior to a Change of Control, this Agreement shall remain in effect for aperiod concluding twelve (12) months following the Effective Date (the “Term”),at which time this Agreement shall terminate; provided however that the paymentof compensation and benefits to the Executive under this Agreement shallcontinue beyond the end of the Term in accordance with the applicableprovisions of this Agreement.  Anyremaining entitlements of the Executive under the Executive Benefit Plan whichremain following the termination of this Agreement pursuant to this Section 3.1shall then commence to be covered under the Securitization Procedure.

 

**ARTICLE 4**

**TERMINATIONFOR JUST CAUSE OR FOR OTHER THAN GOOD REASON**

** **

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

 

4.2           Nothing in this Agreement shall serve toderogate from the vested rights of the Executive to pension benefits, StockOption Plans or any other Employment Benefits to which the Executive isentitled up to the Date of Termination.

 

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**ARTICLE 5**

**TERMINATIONBY CORPORATION**

** **

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

 

**ARTICLE 6**

**TERMINATIONFOR GOOD REASON**

** **

6.1           In the event of a Change of Control, theExecutive may, within the twelve (12) month period following the Effective Dateand 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, theCorporation shall pay to the Executive the remuneration referred to in Article 7of this Agreement.

 

**ARTICLE 7**

**COMPENSATIONUPON TERMINATION**

** **

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(b)           with respect to the Executive’s entitlement to pensionbenefits under the Pension Plan for Employees of Nexen Inc. (Defined BenefitOption) (the “Registered Pension Plan”), if any, and the Executive’s relatedentitlement under the Executive Benefit Plan for Employees of Nexen Inc. (the “ExecutiveBenefit Plan”), if any:

 

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

 

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

 

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

 

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

 

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

 

(D)          if the Executive would have been eligible for earlyretirement at the end of the Severance Period, the Executive shall be deemed toretire, and the pension to commence, upon completion of the SeverancePeriod.  In such case, the Executive’sattained age at the end of the Severance Period will be recognized for purposesof 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 theextent that it is not legally permissible to provide such pension entitlementsthrough the Registered Pension Plan, the Corporation shall pay to the Executivea lump sum payment representing the settlement value of the additionalExecutive Benefit Plan benefit determined in accordance with the assumptionsset forth in Schedule “B-1”;

 

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

 

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

 

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

 

(ii)           the Corporation shall recognize the Severance Periodfor purposes of determining the Executive’s entitlement under the ExecutiveBenefit Plan;

 

(iii)          the Corporation shall make a notional allocation tothe defined contribution provision of the Executive Benefit Plan in an amountwhich is equal to the additional notional allocations which would have beenmade by the Corporation to the defined contribution provision of the ExecutiveBenefit Plan on the Executive’s behalf during the Severance Period had theExecutive remained in the employ of the Corporation during such period.  Such contribution shall be calculated at therate in effect in respect of the Executive immediately prior to the Date ofTermination.  The Corporation shall makea lump sum payment to the Executive in an amount equal to the balance, afterreflection of the aforementioned notional allocation, in the Executive’s DCSupplemental Company Account as defined in the Executive Benefit Plan;

 

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

 

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

 

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

 

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

 

7.3           If the Executive’s employment is terminated in thecircumstances described in Section 5.1 or 6.1 of this Agreement, theremuneration and benefits payable under this Article 7 shall not bereduced 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 besubject to required statutory deductions at source by the Corporation.

 

**ARTICLE 8**

**CONFIDENTIALINFORMATION**

** **

8.1           If the Executive’s employment is terminated in anymanner whatsoever due to or following a Change of Control, the Executive agreesto keep confidential all information of a confidential or proprietary natureconcerning the Corporation, its Affiliates, Associates and Subsidiaries andtheir respective operations, opportunities, areas of present, past or futureinterests, assets, finances, technology, intellectual property, business andaffairs, and further agrees not to use such information, data or technology forpersonal advantage, provided that nothing herein shall prevent the disclosureof information which is publicly available or which is required to be disclosedby the Executive under appropriate statute, rules of law or legal process.

 

**ARTICLE 9**

**RIGHTSAND OBLIGATIONS OF EXECUTIVE UPON TERMINATION**

** **

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

 

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

 

9.3           If the Executive’s employment is terminated in thecircumstances described in Section 5.1 or 6.1 of this Agreement, theCorporation shall continue to purchase and maintain, to the extent available inthe marketplace at reasonable cost to the Corporation, on behalf of theExecutive, director and officer liability insurance for the applicablelimitation period following the date upon which the Executive ceases to serveas a director or officer of the Corporation, and the Executive’s existingagreement to receive indemnity from the Corporation for acts taken by theExecutive in the Executive’s capacity as an officer of the Corporation shallremain in effect.

 

9.4           Upon termination of the Executive’s employmentpursuant to Section 5.1 or 6.1 of this Agreement, the Corporation shallreimburse the Executive for ongoing legal fees and disbursements which theExecutive may reasonably incur in connection with this Agreement (but thisAgreement only), including any litigation concerning the validity orenforceability of, or liability under, any provision of this Agreement or anyaction by the Executive.  The Corporationshall pay such fees and reimbursements to the Executive promptly as such feesand disbursements become due.

 

**ARTICLE 10**

**SECURITIZATIONAND FUNDING PROCEDURE**

** **

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

 

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

 

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

 

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

 

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

 

(a)           either:

 

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

 

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

 

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

 

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

 

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

 

(b)           contribute to the Trust an amount equal to twice thefee charged by the Bank in connection with the Letter of Credit extension orreplacement, as applicable.  TheCorporation shall withhold one-half of such amount and shall remit the saidone-half of such amount to the Canada Revenue Agency on account of the taxwhich is exigible pursuant to the Tax Act in connection with such contributionto the Trust.  The Trustee shall remitthe remaining one-half of such amount to the Bank in consideration for theLetter of Credit extension or replacement, as applicable.

 

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

 

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

 

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

 

In the event that all or any portion of the feereferred to in Section 10.3 of this Agreement, is refunded by the Bank asa 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 bythe Trustee for deposit to the Trust. Upon receipt of an Authorized Instruction (as defined in the TrustAgreement), the Trustee shall pay and transfer such amounts (less anyapplicable tax which it will remit as required by the Tax Act on behalf of theCorporation) to the Corporation for its sole and exclusive use and benefit.

 

In the event that an additional fee is required to bepaid to the Bank as a result of an increase in the amount of a Letter of Creditpursuant to this Section 10.4, the Corporation shall contribute to theTrust an amount equal to twice the additional fee.  The Corporation shall withhold one-half ofsuch amount and shall remit the said one-half of such amount to the CanadaRevenue Agency on account of the tax which is exigible pursuant to the Tax Actin connection with such contribution to the Trust.  The Trustee shall remit the remainingone-half of such amount to the Bank in payment of its additional fee.

 

10.5         A Letter of Credit issued pursuant to this Agreementshall:

 

(i)            be an irrevocable standby letter of credit;

 

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

 

(iii)          permit partial drawings; and

 

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

 

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

 

(a)           Assuming the lump sum payments referred to in Section 7.1(a) ofthis 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 nextsucceeding March 31st after the Valuation Date (the “CalculationDate”).

 

(c)           Using the Executive’s demographic data, including basesalary, 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 andTax Act maximum defined benefit pension dollar limit as at the Valuation Date.

 

(e)           Assuming all Obligations are included.

 

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

 

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

 

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

 

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

 

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

 

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

 

(l)            The liabilities calculated in accordance withsubparagraphs (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 toimmediately fund the Executive Benefit Plan Obligations in accordance with themost recent report prepared by the Actuary pursuant to Section 10.3 ofthis Agreement.  Notwithstanding theforegoing, if an Executive Benefit Plan Obligations - Designated Eventdescribed in Section 1.1(y)(i) and a Change of Control Obligations -Designated Event described in Section 1.1(o)(ii) shall occursimultaneously, the Corporation shall be required to settle the ExecutiveBenefit Plan Obligations forthwith in accordance with the provisions ofSchedule “B-1”.

 

(b)           If:

 

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

 

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

 

the Corporation shall be required toimmediately fund the Executive Benefit Plan Obligations in accordance with themost recent report prepared by the Actuary pursuant to Section 10.3 ofthis Agreement.

 

(c)           Upon the earlier of:

 

(i)            learning of the occurrence of an Executive BenefitPlan 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 anExecutive Benefit Plan Obligations - Designated Event described in any of the othersubparagraphs of Section 1.1(y) of this Agreement, which notice hasbeen signed by two executives of the Corporation, one of whom must be eitherthe Chief Financial Officer or the General Counsel of the Corporation and whichnotice must, in the case of an Executive Benefit Plan Obligations — DesignatedEvent described in Section 1.1(y)(i) of this Agreement, indicatewhich subparagraph of the definition of “Change of Control” is applicable,

 

the Trustee shall promptly give notice to the Corporation in writingthat it intends to draw on that portion of the Letter of Credit which isreferable to the Executive Benefit Plan Obligations****andcontribute the proceeds thereof (less any applicable withholding tax which itwill remit as required by the Tax Act on behalf of the Corporation) to theTrust on behalf of the Corporation in order to fund the 

 

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Executive Benefit Plan Obligations, unless it receives satisfactoryproof within nine days of such notice that the Corporation has funded orsettled, as applicable, the Executive Benefit Plan Obligations itself inaccordance with the terms of this Agreement.

 

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

 

Notwithstanding the foregoing, in the eventan 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 10.6and the failure which gave rise to the occurrence of such Executive BenefitPlan Obligations - Designated Event has been remedied prior to the expirationof the notice period provided for in this Section 10.6(c), the Trusteeshall not take the action described in the immediately preceding paragraphhereof and all of the provisions of this Agreement shall continue to apply tothe same extent and as fully as they would have in the event that suchExecutive Benefit Plan Obligations - Designated Event had not occurred.

 

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

 

Unless the Corporation advises the Trusteein writing that it has funded the Executive Benefit Plan Obligations inaccordance with the terms hereof and has provided the Trustee with satisfactoryproof thereof within nine days of the date of the aforementioned notice, theTrustee shall draw upon that portion of the Letter of Credit which is referableto the Executive Benefit Plan Obligations on the tenth day following the dateof such notice (or the next following business day if such tenth day isnot a business day) and contribute the proceeds (less any

 

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

 

(e)           For purposes of determining the required amount of fundingor 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 forpurposes of this Agreement and, in particular, to the portion of the reportdealing with the Executive Benefit Plan Obligations.  In preparing the portion of its reportrespecting Executive Benefit Plan Obligations, the Actuary shall adhere to thefollowing:

 

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

 

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

 

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

 

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

 

(v)           Assuming only Executive Benefit Plan Obligations areincluded.

 

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

 

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

 

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

 

(ix)           Calculating the estimated amount required to settlethe 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 theamount determined in accordance with subparagraph (ix) to providefor:

 

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

 

(B)           the cost associated with the loan to be secured asallowed under the Trust Agreement to permit settlement of the Executive BenefitPlan Obligations prior to receipt of the Refundable Tax Account from the CanadaRevenue Agency.  The assumed interestrate payable on the loan shall be as described in Schedule “B-2” and shall beapplied to one-half of the amount in subparagraph (ix).  The cost associated with the borrowings shallbe 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 PlanObligations have been funded in accordance with the terms hereof as a resultof:

 

(i)            the Corporation making an assignment for the benefitof creditors or filing a petition in bankruptcy or becoming insolvent orbankrupt;

 

(ii)           a receiver, trustee or liquidator of or for theCorporation being appointed and not being discharged within a period of sixtydays;

 

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

 

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

 

and the Executive Benefit Plan has been terminated inconnection therewith, the Executive Benefit Plan Obligations shall be promptlysettled by the Trustee with the Executive by way of a lump sum payment from theTrust.  For this purpose, the benefitentitlements of each Executive shall be determined by the Actuary in accordancewith the terms of the Executive Benefit Plan and the amount of the lump sumpayment shall be determined by the Actuary using the assumptions set

 

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

 

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

 

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

 

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

 

Any assets of the Trust remaining after fullsatisfaction of (i) the Executive Benefit Plan Obligations and (ii) anyfurther obligations pursuant to the terms of the Trust Agreement, shall bereturned to the Corporation.

 

(h)           In the event:

 

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

 

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

 

the amount in dispute shall be remitted to the Trusteefor deposit to the Trust.  Upon finalsettlement of the dispute, the amount so deposited (together with any earnings,profits and increments thereon and after deduction of any authorized paymentsallocable thereto, both as determined in accordance with the terms of the TrustAgreement), less any applicable withholding tax which will be remitted asrequired by the Tax Act, shall be paid to that party to the dispute which isfound to be entitled thereto.  Prior tosuch 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 itsreport 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 Agreementshall occur subsequent to the funding of the Executive Benefit Plan Obligationsin accordance with the terms of this Agreement, the Corporation shall berequired to settle the Executive Benefit Plan Obligations forthwith in anamount 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) ofthis Agreement, in the event that the Executive Benefit Plan Obligations havebeen funded in accordance with the terms hereof, all or a portion of suchExecutive Benefit Plan Obligations may, at the discretion of the Corporation,be promptly settled with the Executive.

 

For this purpose, the benefit entitlements of theExecutive shall be determined by the Actuary in accordance with the terms ofthe Executive Benefit Plan.  In suchcircumstances, the Corporation reserves the right to settle the ExecutiveBenefit Plan Obligations by way of a lump sum payment to the Executive providedthat the amount of each such payment is determined by the Actuary in accordancewith 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 Agreementshall occur, the Corporation shall be required to immediately fund the Changeof Control Obligations in accordance with the most recent report prepared bythe Actuary pursuant to Section 10.3 of this Agreement.

 

(b)           If a Change of Control Obligations - Designated Eventdescribed in Section 1.1(o)(ii) of this Agreement shall occur, theCorporation shall be required to settle the Change of Control Obligationsforthwith in accordance with the provisions of Schedule “B-1”, uponreceipt by the Corporation of a Release executed by the Executive in the formattached to this Agreement as Schedule “A”.

 

(c)           Upon the earlier of:

 

(i)            learning of the occurrence of a Change of ControlObligations - Designated Event described in Section 1.1(o)(i) of thisAgreement; or

 

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

 

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

 

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Control Obligations and contribute the proceeds thereof (less anyapplicable withholding tax which it will remit as required by the Tax Act onbehalf of the Corporation) to the Trust on behalf of the Corporation in orderto fund the Change of Control Obligations, unless it receives satisfactoryproof within nine days of such notice that the Corporation has funded orsettled, as applicable, the Change of Control Obligations itself in accordancewith the terms of this Agreement.

 

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

 

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

 

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

 

(e)           In the event that the Change of Control Obligationshave been funded in accordance with the terms hereof as a result of theoccurrence 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 Executivein accordance with the provisions of Schedule “B-1”.

 

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

 

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

 

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

 

(b)           receipt by the Trustee of a written direction signedby the Corporation confirming that it has funded and/or settled the Obligationsin 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 signedby the Corporation confirming that the Corporation has no remaining Obligationsto the Executive, together with evidence which is satisfactory to the Trusteethat the Corporation has no remaining Obligations to the Executive and that acopy of such written direction has been provided to the Executive.

 

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

 

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

 

(b)           the entire depletion of the Trust Fund throughpayments pursuant to the terms of the Trust Agreement, in the event that suchdepletion occurs subsequent to the funding of the Obligations in accordancewith the terms of this Agreement; and

 

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

 

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

 

10.11       The Corporation and the Executive hereby acknowledgethat the Corporation is entering into agreements similar to this Agreement withcertain of its other executives and that the Corporation may, at its solediscretion, arrange for one or more Letters of Credit to satisfy itsresponsibilities under this Agreement and such other agreements.  In the event that one Letter of Credit isobtained to satisfy the Corporation’s responsibilities under this Agreement andsome or all of such other agreements, references to a “Letter of Credit” inthis Agreement shall be read as references to that portion of such Letter ofCredit which is referable to the responsibilities of the Corporation to theExecutive.

 

The Corporation and the Executive also acknowledgethat the Corporation may, at its sole discretion, enter into one or more TrustAgreements to satisfy its responsibilities under

 

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

 

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

 

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

 

(b)           any surplus assets may, to the extent that they exceed110% of the amount required to fund that portion of the Obligations which hasbeen funded (as determined by the report prepared as at the immediatelypreceding Valuation Date in accordance with Section 10.3 of thisAgreement) be returned to the Corporation.

 

**ARTICLE 11**

**EXPEDITEDARBITRATION**

** **

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

 

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

 

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

 

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

 

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

 

11.4         The Parties acknowledge and agree that the purpose ofthis Article 11 is to avoid delays and facilitate resolution of theDispute 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 ofinformation between the Parties and will take such steps as the Arbitratordeems necessary to achieve a just, speedy and cost-effective resolution of theDispute.  The Arbitrator has theexclusive right and power to resolve all issues related to the exchange ofinformation in the arbitration process.

 

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

 

11.7         A hearing will occur within forty-five (45) days ofthe 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 setout in the *Arbitration Act* S.A. 1991, c.A-43, asmodified by the Arbitrator in the interests of achieving a just, speedy andcost-effective resolution of the Dispute. The Arbitrator may require written submissions of fact in the Dispute tobe provided seven (7) days before the Hearing Date.

 

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

 

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

 

**ARTICLE 12**

**GENERAL**

** **

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

 

12.2         This Agreement shall be construed and interpreted inaccordance with the laws of the Province of Alberta and the federal laws ofCanada as applicable therein.

 

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

 

12.4         Any notice required or permitted to be given underthis Agreement shall be in writing and shall be properly given if delivered byhand delivery or mail or other form of electronic communication capable oftransmission confirmation to the following address:

 

29

----

 

**a.**             in the case of the Corporation to:

 

Nexen Inc.

801 - 7th Avenue S.W.

Calgary, AB  T2P3P7

Attention:        GeneralManager, Compensation and Benefits

 

**b.**             in the case of the Executive to:

 

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

 

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

 

12.6         This Agreement constitutes the entire agreementrelating to the respective rights and obligations of the Parties upon theoccurrence of a Change of Control.  Noamendment or waiver of this Agreement shall be binding unless executed inwriting by the Parties.

 

Notwithstandingthe foregoing,

 

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

 

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

 

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

 

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

 

30

----

 

12.9         Nothing contained in this Agreement shall be construedas limiting the ability of the Corporation to amend, modify or terminate theExecutive 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 Agreementeffective the date first written above.

 

 
| ** **                                                  | ** ** | **NEXEN  INC.**  |
|-------------------------------------------------------------|------------|------------------|
| ** **                                                  | ** ** | ** **       |
| ** **                                                  | ** ** | ** **       |
| ** **                                                  | ** ** | Per:             | (signed) |
| ** **                                                  | ** ** | ** **       | ** ** |
| ** **                                                  | ** ** | ** **       | ** ** |
| ** **                                                  | ** ** | Per:             | (signed) |
| ** **                                                  | ** ** |             |
| ** **                                                  | ** ** |             |
| **SIGNED, SEALED & DELIVERED**  in the presence of | ** ** | ** **       |
|                                                        |       |             |
| (signed)                                                    | ** ** | (signed)         |
| **WITNESS**                                                 |       | **JAMES ARNOLD** |

 

31

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**SCHEDULE“A”**

 

**AGREEMENTRESPECTING CHANGE OF CONTROL AND**

**EXECUTIVEBENEFIT PLAN ENTITLEMENTS**

 

Inorder to receive the entitlements referred to in the Article 7 of thisAgreement, the Executive shall execute the attached Release, fully releasingthe Corporation from all further claims in relation to the Executive’semployment or Employment Benefits and the termination thereof upon payment ofthe remuneration and benefits referred to in Article 7 of thisAgreement.  The attached Release shallnot, however, require that the Executive relinquish or release any rights toindemnity which the Executive may, as an officer or director of the Corporationor any of its Affiliates, Associates and Subsidiaries, have as against theCorporation or any of its Affiliates, Associates and Subsidiaries, for costs,charges and expenses reasonably incurred by the Executive in respect of anycivil, criminal or administrative action or proceeding to which the Executiveis made a party by reason of being or having been a director or officer of theCorporation or any of its Affiliates, Associates and Subsidiaries, where:

 

**(a)**           the Executive has acted honestly and ingood faith with a view to the best interests of the Corporation or any of itsAffiliates, Associates and Subsidiaries; and

 

**(b)**           in the case of a criminal or administrativeaction or proceeding enforced by a monetary penalty, the Executive hadreasonable grounds for believing the Executive’s conduct was lawful.

 

----

 

**FINALRELEASE**

 

**KNOWALL MEN BY THESE PRESENTS** that I, **JAMES ARNOLD**,of the City of Calgary, in the Province of Alberta, in consideration of theamounts provided in that certain Agreement Respecting Change of Control andExecutive Benefit Plan Entitlements (the “Agreement”) dated as of the             day of                        ,2009 between myself and **NEXEN INC.** andfor other good and valuable consideration, the receipt and sufficiency of whichis 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 andformer directors, officers, agents and employees (the “Releasees”), includingeach of their respective successors, heirs, administrators and assigns, fromall manner of actions, causes of action, debts, obligations, covenants, claimsor demands, whatsoever which I may ever have had, now have, or can, shall ormay hereafter have against the Releasees or any of them, by reason of orarising out of any cause, matter or thing whatsoever done, occurring orexisting up to and including the present date and, in particular, without inany way restricting the generality of the foregoing, in respect of all claimsof any nature whatsoever, past, present or future, directly or indirectlyrelated to or arising out of or in connection with my relationship with theReleasees, as an employee, officer or director, and the termination of myemployment from the Corporation including, but not limited to, any claimsrelated to any entitlement I may have or may have had to any payment or claimeither at common law or under the *Employment Standards Code,Human Rights, Citizenship and Multiculturalism Act*or any otherapplicable legislation governing or related to my employment with theReleasees.

 

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

 

**ITIS FURTHER ACKNOWLEDGED** that the payment to me includes full compensation andconsideration for the loss of my employment benefits, as provided by theReleasees, and that all of my employment benefits and privileges shall cease onthe date of termination of my employment, except as otherwise expresslyprovided in the Agreement.  I furtheracknowledge that I have received all benefits due to me and have no furtherclaim against the Releasees for such benefits. I further accept sole responsibility to replace such benefits which Iwish to continue or to exercise conversion

 

----

 

privilegeswhere applicable with respect to such benefits and, in particular any lifeinsurance and long-term disability benefits. In the event that I become disabled following termination of myemployment, I covenant not to sue the Releasees for insurance or other benefitsor loss of same and hereby release the Releasees from any and all furtherobligations or liabilities arising therefrom.

 

Notwithstandinganything contained herein, this Release shall not extend to or affect, orconstitute a release of, my right to sue, claim against or recover from theReleasees 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 bystatute, contract or pursuant to any of the constating documents of theCorporation provided in my favour in respect of my having acted at any time asa director, officer or both of the Corporation;

 

**(b)**           my entitlement to any insurance maintained forthe 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 orcompensation due to me under the terms of my employment pursuant to theAgreement.

 

**ITIS HEREBY AGREED** that the terms of the Agreement and of this Releasewill be kept confidential.  No partyhereto shall communicate any such terms to any third party under anycircumstances whatsoever, excepting any necessary communication with my legaland financial advisors, as required, on the express condition that theymaintain the confidentiality thereof, and any disclosure which is required bylaw, although either party shall be at liberty to disclose to third parties thata mutually acceptable Release was agreed upon. The invalidity and unenforceability of any provision of this Releaseshall not affect the validity or enforceability of any other provision of thisRelease, which shall remain in full force and effect.

 

**IHEREBY DECLARE** that I have read all of this Release, fully understand the terms ofthis Release and voluntarily accept the consideration stated herein as the soleconsideration for this 

 

2

----

 

Releasefor the purpose of making a full and final settlement with the Releasees.  I further acknowledge and confirm that I havebeen given an adequate period of time to obtain independent legal counselregarding the meaning and the significance of the terms herein and thecovenants mutually exchanged.

 

**ITIS HEREBY AGREED THAT**as a term of the termination of my employment from theCorporation, and in consideration of the amount noted above, I hereby resign asofficer and director of the Corporation and its affiliates.

 

**INWITNESS 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”**

 

**AGREEMENTRESPECTING CHANGE OF CONTROL**

**ANDEXECUTIVE BENEFIT PLAN ENTITLEMENTS**

**Methodologyand Assumptions for Determining Settlement Value**

 

**Purpose**

 

Inaccordance 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 sumsettlement value, the remaining balance is intended to be sufficient to provideafter-tax monthly payments equivalent to the after-tax monthly payments theExecutive would have received under the terms of the Executive Benefit Plan asprovided for under this Agreement.

 

**Overviewfor Defined Benefit Pension**

 

Thefollowing outlines the actuarial methods, assumptions and calculation processto be used in determining the lump sum settlement value of the defined benefitpension entitlements under the Executive Benefit Plan when settlement occurs inaccordance with Section 10 of the Agreement.  Section 300 of the Income TaxRegulations establishes the procedure applicable in using an after-tax lump sumto purchase a prescribed annuity:

 

**1.**             A prescribed annuity payment consists oftwo components:  (a) the deemedcapital element of the annuity payment on which no tax is payable, and (b) thedeemed non-capital portion of the annuity payment which is taxed at themarginal rate.

 

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

 

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

 

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

 

**CalculationMethodology**

 

1.             Equivalent after-tax payments:

 

**a.**             Determine initial gross annual pension entitlementunder the Executive Benefit Plan.

 

**b.**             Determine after-tax annual pensionentitlement under the Executive Benefit Plan based on Individual Tax Rate asdefined in Schedule “B-1”.

 

----

 

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

 

**d.**             Determine the monthly payment whichprovides 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 pensiondetermined in 1.d. above using the assumptions described below in this Schedule“B-1”.  For greater certainty, the valueof the post-retirement indexation is to be reflected in determining the presentvalue of the accrued pension entitlement in respect of post-1992 service, andany accrued pension in respect of service granted during the Severance Period.

 

**3.**             Tax adjustment:

 

**a.**             Gross-up the present value determined in2.a. above to reflect the tax assumed to be required to be paid on the lumpsum.

 

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

 

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

 

**a.**             The amount determined in 3.b. above shallbe 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

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| 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”**

 

**AGREEMENTRESPECTING CHANGE OF CONTROL AND**

**EXECUTIVEBENEFIT PLAN ENTITLEMENTS**

 

**Methodologyand Assumptions for Determining the Amount to be Secured or Funded inAccordance with Section 10 based on the Methodology described inSchedule  “B-1”**

 

**Purpose**

 

Thepurpose of this Schedule “B-2” is to provide the actuarial methodology andassumptions for determining the amount to be secured or funded in accordancewith Section 10 of the Agreement.

 

**Methodology**

 

Thesettlement methodology is described in Schedule B-1.

 

Thefunding methodology applicable to the Executive Benefit Plan Obligations isbased on the following:

 

1.             Estimate the accrued pension and/orSupplemental Company Accounts payable from the Executive Benefit Plan as at theValuation Date.

 

2.             Assume that the assets of the plan are tobe 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 amountsin 1 through 2 above.

 

4.             Estimate the settlement value that could bepaid in accordance with the methodology and assumptions described in ScheduleB-1.

 

5.             The funding amount in respect of theExecutive Benefit Plan Obligations shall be the greater of the amount determinedin 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 inthe 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 SeverancePeriod 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 Billsas 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

----

 

----

**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 areserve for a potential decrease in the Interest Discount Rate in combinationwith potential increases in the Consumer Price Index for an aggregate change of 1.0%.

 

4

----

 

**SCHEDULE“C”**

 

**AGREEMENTRESPECTING CHANGE OF CONTROL AND EXECUTIVE BENEFIT PLAN ENTITLEMENTS**

****Estimated******1**** ******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 Pension****2 | **** **** | ****$488,000****   | **** **** |
| **** ****                                           | **** **** | **** ****     | **** **** |
| ****TOTAL ESTIMATED ENTITLEMENT****                      | **** **** | ****$1,916,900**** | **** **** |

 

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

 

**INADDITION**to the above pension entitlement under the Agreement, the Executive has thefollowing pension entitlements under the Defined Benefit Registered PensionPlan and Executive Benefit Plan.  As isthe case with the figures shown above, these values are estimated values (as ofJuly 16, 2009) and are for illustrative purposes only.  Actual values will be calculated as of thedate of the entitlement or payment in accordance with the Defined BenefitRegistered Pension Plan and the Executive Benefit Plan, respectively, andtherefore 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 inSection 7.1 of the Agreement, the above calculations represent only the currentestimated value (as of July 16, 2009) of the Executive’s entitlement to compensationupon a Change of Control.  Accordingly,the above calculations are for illustrative purposes only.

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

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

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

3                                           Deferred benefitpayable from age 60.

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

 

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