Exhibit 10.60


 


AGREEMENT
RESPECTING CHANGE OF CONTROL


AND
EXECUTIVE BENEFIT PLAN ENTITLEMENTS


 


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


 


BETWEEN:


 


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


 


(hereinafter
referred to as the “Corporation”)


 


- and -


 


JAMES ARNOLD


 


(hereinafter
referred to as the “Executive”)


 


RECITALS:


 


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


 


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


 


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


 


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


 


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


 

















 


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


 


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


 


ARTICLE 1


DEFINITIONS


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


100 x A/B


 


Where:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(q)           “Convertible Securities” means:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(i)            a Change of Control occurs;


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(dd)         “Just Cause” means:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


ARTICLE 2


SCOPE
OF AGREEMENT


 


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


 


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


 


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


 


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


 


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


 


ARTICLE 3


TERM
OF AGREEMENT


 


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


 


ARTICLE 4


TERMINATION
FOR JUST CAUSE OR FOR OTHER THAN GOOD REASON


 


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


 


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


 


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ARTICLE 5


TERMINATION
BY CORPORATION


 


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


 


ARTICLE 6


TERMINATION
FOR GOOD REASON


 


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


 


ARTICLE 7


COMPENSATION
UPON TERMINATION


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


14

















 


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


 


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


 


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


 


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


 


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


 


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


 


ARTICLE 8


CONFIDENTIAL
INFORMATION


 


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


 


ARTICLE 9


RIGHTS
AND OBLIGATIONS OF EXECUTIVE UPON TERMINATION


 


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


 


15

















 


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


 


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


 


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


 


ARTICLE 10


SECURITIZATION
AND FUNDING PROCEDURE


 


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


 


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


 


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


 


16

















 


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


 


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


 


(a)           either:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


17

















 


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


 


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


 


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


 


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


 


(i)            be an irrevocable standby letter of credit;


 


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


 


(iii)          permit partial drawings; and


 


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


 


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


 


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


 


18

















 


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


 


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


 


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


 


(e)           Assuming all Obligations are included.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


19
















 


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


 


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


 


(b)           If:


 


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


 


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


 


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


 


(c)           Upon the earlier of:


 


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


 


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


 


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


 


20

















 


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


 


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


 


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


 


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


 


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


 


21

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


22

















 


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


 


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


 


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


 


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


 


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


 


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


 


(A)          the Refundable Tax Account, if any;


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


23

















 


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


 


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


 


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


 


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


 


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


 


(h)           In the event:


 


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


 


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


 


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


 


24

















 


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


 


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


 


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


 


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


 


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


 


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


 


(c)           Upon the earlier of:


 


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


 


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


 


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


 


25

















 


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


 


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


 


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


 


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


 


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


 


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


 


26

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


27

















 


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


 


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


 


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


 


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


 


ARTICLE 11


EXPEDITED
ARBITRATION


 


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


 


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


 


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


 


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


 


28

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


ARTICLE 12


GENERAL


 


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


 


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


 


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


 


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


 


29
















 


a.             in the case of the Corporation to:


 


Nexen Inc.


801 - 7th Avenue S.W.


Calgary, AB  T2P
3P7


Attention:        General
Manager, Compensation and Benefits


 


b.             in the case of the Executive to:


 


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


 


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


 


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


 


Notwithstanding
the foregoing,


 


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


 


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


 


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


 


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


 


30

















 


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


 


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


 


 


	
   

  	
   

  	
  NEXEN
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Per:

  	
  (signed) 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Per:

  	
  (signed)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SIGNED, SEALED & DELIVERED

  in the presence of 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (signed)

  	
   

  	
  (signed)

  
	
  WITNESS

  	
   

  	
  JAMES ARNOLD

  



 


31

















 


SCHEDULE
“A”


 


AGREEMENT
RESPECTING CHANGE OF CONTROL AND


EXECUTIVE
BENEFIT PLAN ENTITLEMENTS


 


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


 


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


 


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


 

















 


FINAL
RELEASE


 


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


 


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


 


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


 

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


2

















 


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


 


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


 


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


 


 


	
   

  	
   

  
	
  JAMES ARNOLD

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  WITNESS
  (signature)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  WITNESS
  (print name)

  	
   

  



 


3

















 


SCHEDULE
“B-1”


 


AGREEMENT
RESPECTING CHANGE OF CONTROL


AND
EXECUTIVE BENEFIT PLAN ENTITLEMENTS


Methodology
and Assumptions for Determining Settlement Value


 


Purpose


 


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


 


Overview
for Defined Benefit Pension


 


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


 


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


 


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


 


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


 


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


 


Calculation
Methodology


 


1.             Equivalent after-tax payments:


 


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


 


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


 

















 


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


 


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


 


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


 


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


 


3.             Tax adjustment:


 


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


 


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


 


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


 


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


 


Assumptions


 


Interest Discount Rate:


 




	
  · during deferral period

  	
   

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

  
	
   

  	
   

  	
   

  
	
  · after assumed pension commencement

  	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  less

  






 


2

















 




	
   

  	
   

  	
  assumed
  escalation of pensions after retirement.

  
	
   

  	
   

  	
   

  
	
  Increase in Consumer Price Index:

  	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  less

  
	
   

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Escalation
  of Pensions After Retirement:

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Mortality:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  · for life expectancy

  	
   

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

  
	
   

  	
   

  	
   

  
	
  · for present values

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ·  prior to assumed pension commencement

  	
   

  	
  Nil.

  
	
   

  	
   

  	
   

  
	
  ·  after
  assumed pension commencement

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Marital
  Status:

  	
   

  	
  Actual
  status at date of termination.

  
	
   

  	
   

  	
   

  
	
  Age
  of Spouse:

  	
   

  	
  Based
  on actual date of birth.

  






 


3

















 




	
  Individual
  Tax Rate:

  	
   

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

  






 


4
















 


SCHEDULE
“B-2”


 


AGREEMENT
RESPECTING CHANGE OF CONTROL AND


EXECUTIVE
BENEFIT PLAN ENTITLEMENTS


 


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


 


Purpose


 


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


 


Methodology


 


The
settlement methodology is described in Schedule B-1.


 


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


 


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


 


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


 


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


 


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


 


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


 


Assumptions


 




	
  Interest
  Discount Rate:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  · during deferral period

  	
   

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

  






 

















 




	
  · after assumed pension commencement

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Increase in Consumer Price Index:

  	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  less

  
	
   

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Escalation
  of Pensions After Retirement:

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Mortality:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  · for life expectancy

  	
   

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

  
	
   

  	
   

  	
   

  
	
  ·  for present values

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ·  prior to assumed pension commencement

  	
   

  	
  Nil.

  
	
   

  	
   

  	
   

  
	
  ·  after assumed pension commencement

  	
   

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

  






 


2

















 




	
  Marital
  Status:

  	
   

  	
  Actual
  status at the Anniversary.

  
	
   

  	
   

  	
   

  
	
  Age
  of Spouse:

  	
   

  	
  Based
  on actual date of birth.

  
	
   

  	
   

  	
   

  
	
  Individual
  Tax Rate:

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Bonus:

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Investment
  return:

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Decrements:

  	
   

  	
  None
  assumed prior to Calculation Date

  
	
   

  	
   

  	
   

  
	
  Eligibility
  for Pensions:

  	
   

  	
  100%
  vested

  
	
   

  	
   

  	
   

  
	
  Pension
  Commencement Age:

  	
   

  	
   

  
	
   

  	
   

  	
   

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

  	
   

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

  
	
   

  	
   

  	
   

  
	
  ·      not eligible for early retirement on the
  Calculation Date

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Fluctuation
  reserve 1

  	
   

  	
  15%
  of the pension obligations

  
	
  Cost
  of borrowing to settle the obligations:

  	
   

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

  






 


3

















 










Notes:


 


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


 


4

















 


SCHEDULE
“C”


 


AGREEMENT
RESPECTING CHANGE OF CONTROL AND EXECUTIVE BENEFIT PLAN ENTITLEMENTS


Estimated1 Entitlement to Compensation


Pursuant to Article 7 of the Agreement


 


Employee
— James Arnold


 


	
  Base
  Salary

  	
   

  	
  $840,000

  	
   

  
	
  Bonus Target Value

  	
   

  	
  $378,000

  	
   

  
	
  Benefits Uplift

  	
   

  	
  $109,200

  	
   

  
	
  Car Allowance

  	
   

  	
  $38,400

  	
   

  
	
  Savings Plan

  	
   

  	
  $50,400

  	
   

  
	
  Financial Counselling
  Services

  	
   

  	
  $10,500

  	
   

  
	
  Security Monitoring
  Services

  	
   

  	
  $2,400

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL VALUE

  	
   

  	
  $1,428,900

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Additional Lump Sum Settlement Value of Pension2

  	
   

  	
  $488,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL ESTIMATED ENTITLEMENT

  	
   

  	
  $1,916,900

  	
   

  



 


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


 


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


 


	
  ·

  	
   

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

  	
   

  	
  $1,019

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Estimated Lump Sum Transfer Value of Registered Pension Plan4

  	
   

  	
  $10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Estimated Lump Sum Value of Executive Benefit Plan4

  	
   

  	
  $22,000

  	
   

  



 






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


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


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


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


3                                           Deferred benefit
payable from age 60.


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