**Exhibit 4.2**

** **

**EMPLOYMENT AGREEMENT OF PAUL BLAKE, M.D.**

** **

**Æ****TERNA ZENTARIS, INC.**

** **

**Dated July 18, 2007**

 

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**EMPLOYMENT AGREEMENT**

 
| **BETWEEN:** | ** ** | **Æ****TERNA ZENTARIS, INC.,**a Corporation duly incorporated under the laws of Delaware, having  its head office at 20 Independence Boulevard, Warren, New Jersey, 07950 |
|--------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **   | ** ** | ** **                                                                                                                                                                     |
| ** **   | ** ** | (hereinafter  the **“Corporation”**)                                                                                                                                 |
| ** **   | ** ** | ** **                                                                                                                                                                     |
| **AND:**     | ** ** | **PAUL BLAKE, M.D.,**domiciled at [civic address redacted for privacy reasons],  Pennsylvania, USA                                                                             |
| ** **   | ** ** | ** **                                                                                                                                                                     |
| ** **   | ** ** | (hereinafter  the **“Executive”**)                                                                                                                                   |
| ** **   | ** ** | ** **                                                                                                                                                                     |
| **AND:**     | ** ** | **Æ****TERNA ZENTARIS INC.,**a Corporation duly incorporated, having its head office at 1405  Parc-Technologique Blvd., Québec, QC GIP 4P5,                          |
| ** **   | ** ** | ** **                                                                                                                                                                     |
| ** **   | ** ** | (hereinafter  the **“Parent Corporation”**)                                                                                                                          |
| ** **   | ** ** | ** **                                                                                                                                                                     |

 

**SECTION 1 – PURPOSE**

 

1.1                                 The Corporation wishes to employ theExecutive as its Senior Vice President, Clinical and Medical Affairs and ChiefMedical Officer, starting on August 6, 2007. The Executive is willing tobe employed by the Corporation, on the terms and conditions set forth herein inthis Employment Agreement (the **“Agreement”**)**.**TheExecutive shall report to the President and Chief Executive Officer of theCorporation.

 

**SECTION 2 – DUTIES**

 

2.1                                 The Executive agrees to devote his fullbusiness time to the Corporation, to make every effort necessary to performadequately the duties that are assigned to him and to act in the best interestsof the Corporation at all times. The Employee shall refrain from any activitythat could be prejudicial to the Corporation’s interests. In performing hisduties with the Corporation, the Executive shall act faithfully and honestly atall times.

 

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2.2                                 The Executive shall carry out his duties fromNew Jersey, USA. However, the Executive acknowledges that his position willrequire traveling, including to Canada and Europe, and the Executive agrees todevote the necessary and reasonable time to such traveling.

 

2.3                                 The Executive declares that he has noobligation toward any person, including his former employers, that would beincompatible with this Agreement or that could be an impediment to theperformance of his duties with the Corporation.

 

2.4                                 The Executive agrees to comply with all theinstructions, policies and/or rules that are established verbally or inwriting by the Corporation.

 

2.5                                 The Executive agrees and undertakes that, inthe event the Executive shall be appointed a corporate officer of the ParentCorporation by the Parent Corporation’s Board of Directors, the Executive shallfulfill such corporate functions and duties commensurate therewithgratuitously.

 

2.6                                 The Executive shall be entitled to sit on aboard of directors of another corporation, solely with the prior writtenauthorization of the Board. It is agreed that the Executive may remain on anyBoards of which he is a member at the time of execution of this contract solelyif, with mutual agreement of the CEO of the Corporation, his continuedmembership on those Boards does not constitute a conflict of interest or anencumbrance to the proper execution of his position within the Corporation.

 

**SECTION 3 –COMPENSATION**

** **

3.1                                 Salary

 

TheCorporation shall pay the Executive, for the duration of this Agreement, a baseannual salary (the **“Base Salary”**)****of THREE HUNDRED AND FIFTY THOUSAND USDOLLARS (US$350,000.00), payable in accordance with the Corporation’s standardpayroll practice. Such Base Salary shall be reviewed annually and may beincreased in accordance with the Corporation’s policy.

 

3.2                                 Bonus

 

Duringthe term of this Agreement, the Executive shall be eligible to receive anannual lump sum cash bonus (the **“Annual Bonus”**)****in respect of each full or partial fiscalyear of the Corporation, which is from January 1 to December 31. TheAnnual Bonus for the 2007 fiscal year, which shall be prorated, shall be equalto an amount representing thirty- five (35%) of the Base Salary. If an AnnualBonus is to be paid hereunder in respect of a period that is a partial fiscalyear, such Annual Bonus shall be prorated for service through the Executive’sdate of termination. In all cases, the Executive’s eligibility for such AnnualBonus is conditional upon the attainment of objectives, which shall be mutuallyagreed upon within one month of the commencement of the Executive’s employmentfor year 2007 and thereafter yearly. According the Corporation’s policy, thegranting of Annual Bonus is based upon an assessment of each individual’sperformance as well as the performance of the Corporation and requires Boardapproval.

 

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3.3                                 Stock Options

 

Subjectto regulatory approval, the Corporation shall grant to the Executive, no laterthan the date of signature of this Agreement, 45,000 options under theCorporation’s Stock Option Plan (the **“Plan”**). These stock options shall vest equally over aperiod of three (3) years from the date of the original grant. The saidoptions, the exercise price, the period during which they may be exercised andthe other terms and conditions attaching to their exercise shall be subject tothe terms and conditions of the Plan.

 

3.4                                 Signing Bonus

 

TheExecutive shall receive a signing bonus, of a net amount representing the valueof 10,000 Corporation’s Common Shares. This amount will be net of income taxesand will be payable only if the Executive utilizes the funds to acquire CommonShares of the Corporation on the market, within the first month following thesignature of this Agreement, subject to compliance with the Corporation’sinsider trading and blackout policies and all relevant securities regulations.

 

3.5                                 CarAllowance

 

TheCorporation shall pay the Executive an annual taxable car allowance of TWENTYTHOUSAND US DOLLARS (US$20,000.00). In addition, the Corporation will assumeall related operating costs of the vehicle (including insurance, registration,maintenance, repairs and fuel).

 

3.6                                 BusinessExpenses

 

TheCorporation shall reimburse the Executive, upon presentation of vouchers, forreasonable entertainment, traveling and other expenses incurred by him onbehalf of the Corporation, in accordance with the Corporation’s policies andrules.

 

**SECTION 4 – VACATION**

 

TheExecutive shall be entitled to paid annual vacation of four (4) weeks, inaccordance with the Corporation’s policy, which vacation is to be taken attimes prearranged with the Corporation. Vacation must be taken during the yearand shall not be cumulative. The full vacation for 2007 is vested for theExecutive upon execution of this agreement.

 

**SECTION 5 – GROUP INSURANCE**

 

5.1                                 Medical/DentalInsurance, Life and Disability Insurance

 

TheCorporation shall pay the monthly premium for family benefits plan insuranceaccording the Corporation’s existing plan Insurance.

 

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**SECTION 6– DURATION AND TERMINATION**

 

6.1                                 Duration

 

Thiscontract is for an indeterminate term.

 

6.2                                 Automatictermination

 

TheExecutive’s employment shall terminate automatically, without the Corporationbeing bound to pay any compensation whatsoever, upon the death of the Executiveor the date upon which his resignation becomes effective.

 

TheExecutive’s employment may also be terminated by the Corporation for cause uponsimple notice in writing transmitted to the Executive, without the Corporationbeing bound to pay any compensation whatsoever, in the following cases,hereinafter referred to as **“Cause”**:

 

(a)                             If the Executive is declared bankrupt or insolvent or makes anassignment of his property or is placed under protective supervision, whichsituations the Executive acknowledges to be incompatible with the continuationof his employment.

 

(b)                            If the Executive becomes physically or mentally disabled to such anextent as to make him unable to perform his duties normally and adequately foran aggregate of six (6) months during a period of twelve (12) consecutivemonths. In such a case, the Executive may continue to benefit under short-termand long-term disability insurance plans, subject to the terms of such plans,if any.

 

(c)                             If the Executive breaches the terms of thisAgreement.

 

(d)                            If the Executive commits any fraud, theft, embezzlement or othercriminal act of a similar nature.

 

(e)                             If the Executive has committed serious misconduct or willful negligencein the performance of his duties.

 

(f)                               If the Executive refuses or fails to followreasonable directives of the Corporation.

 

(g)                            If the Executive’s demonstrates willful or reckless conduct causingmaterial damage to the Corporation or the Corporation’s business.

 

(h)                            If the Executive misuses or abuses alcohol,drugs or controlled substances.

 

6.3                                 Termination without Cause

 

The Corporation may also terminate the Executive’s employment, withoutcause, by paying him the following:

 

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(a)                             If the Executive’s employment is terminatedby the Corporation on or before the date that is the twelve (12)-monthanniversary of the date of this Agreement, an amount equivalent of monthsworked of:

 

(i)                                the Executive’s annual Base Salary;

 

(ii)                             the annualized Annual Bonus received or toreceive by the Executive for 2007; and

 

(iii)                          the cost of the benefits which were in forceat the time of termination of the Executive’s employment, calculated on ayearly basis, including the car allowance but excluding the related operatingcosts. However, Stock Options are expressly excluded from this provision andthe Executive shall be treated, in this regard, in accordance with the terms ofthe Plan.

 

(b)                            If the Executive’s employment is terminatedby the Corporation after the date that is the twelve (12)-month anniversary ofthe date of this Agreement:

 

(i)                                an amount equivalent to twelve (12) months ofthe Executive’s annual Base Salary;

 

(ii)                             An amount equivalent to the Annual Bonusreceived by the Executive for the last completed fiscal year prior to thetermination date calculated on a yearly basis; and

 

(iii)                          An amount equivalent to twelve (12) months ofthe cost of the benefits which were in force at the time of termination of theExecutive’s employment, calculated on a yearly basis, including the carallowance but excluding the related operating costs. However, Stock Options areexpressly excluded from this provision and the Executive shall be treated, inthis regard, in accordance with the terms of the Plan.

 

(c)                             The Executive acknowledges that the saidpayments are fair and sufficient and, in consideration of the Corporationgiving him such payments in the event of the termination of his employmentwithout cause, the Executive shall grant the Corporation and its directors,officers, employees, shareholders, representatives and agents, and thedirectors, officers, employees, shareholders, representatives and agents of anyaffiliate of the Corporation, a full and final release and discharge from anyand all claims, past, present or future, that he has or may have, arisingdirectly or indirectly from the termination of his employment, whether forprior notice of termination, severance pay, damages in lieu thereof or for anyother reason.

 

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6.4                                 Resignation

 

In the event that the Executive wishes to terminate his employment, heshall give the Corporation prior written notice of at least 6 weeks.

 

**SECTION 7– TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE OF CONTROL**

 

7.1                                 If the employment of the Executive isterminated by the Corporation within twelve (12) months following a Change ofControl, without Cause by the Corporation or by the Executive for Good Reason,the whole as defined in Appendix 1, the Executive shall receive the following:

 

(a)                             An amount equivalent to eighteen (18) monthsof his annual Base Salary;

 

(b)                            An amount equivalent to 1 .5 times the AnnualBonus, if any, which the Executive would have been entitled to receive in theyear during which the Change of Control occurred; and

 

(c)                             An amount equivalent to eighteen (18) monthsof the cost of the benefits which were in force at the time of termination ofthe Executive’s employment, calculated on a yearly basis, including the carallowance, but excluding operating costs. However, Stock Options are expresslyexcluded from this provision and the Executive shall be treated, in thisregard, in accordance with the terms of the Plan.

 

**SECTION 8– NO COMPETITION, NO SOLICITATION AND LOYALTY**

 

8.1                                 TheExecutive shall not compete with the Corporation, directly nor indirectly. Heshall not participate in any capacitywhatsoever in a business that would directly or indirectly compete with theCorporation, namely one involved in the development and commercialization ofthe specific endocrine therapies and oncology treatments which the Corporationis actively developing, including, without limitation, as an executive,director, officer, employer, principal, agent, fiduciary, administrator ofanother’s property, associate, independent contractor, franchisor, franchisee,distributor or consultant unless such participation is fully disclosed to theCorporation and approved in writing in advance by the Board. In addition, theExecutive shall not have any interest whatsoever in such an enterprise,including, without limitation, as owner, shareholder, partner, limited partner,lender or silent partner. This no competition covenant is limited as follows :

 

8.1.1                        **As to the time period,** tothe duration of the Executive’s employment and for a period of one (1) yearas of the date of termination of his employment;

 

8.1.2                        **As to the geographical area,** theterritory in which a specific product had been actively exploited by theCorporation during the two years preceding the termination date. For purposesof this clause, the Corporation is deemed to have actively exploited suchterritory for such product if, during the two (2) years immediatelypreceding the termination date:

 

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(i)                                Distribution rights for this product weregranted to a distributor of the Corporation, pursuant to a distributionagreement (exclusive or nonexclusive) except if such distribution agreementceased to have effect, prior to the termination date, with the Corporation’sconsent and provided that the Corporation did not actively search for otherdistributors for the territory covered by this Agreement; or if

 

(ii)                             The Corporation has completed phase II clinicaldevelopment work for this product in this territory, or searched for commercialpartners or applied to protect its intellectual property rights in relation tothe product and its use, including patent applications in relation to theproduct or its use, which applications referred to these territories.

 

8.1.3**        As to thenature of the activities,**to duties or activities which are identical or substantially similar tothose performed or carried on by the Executive during the twenty-four (24)months preceding the termination of his employment.

 

8.2                                 The foregoing stipulation shall neverthelessnot prevent the Executive from buying or holding shares or other securities ofa Corporation whose securities are publicly traded on a recognized stockexchange where the securities so held by the Executive do not represent morethan five percent (5%) of the voting shares of such Corporation and do notallow for its control.

 

8.3                                 TheExecutive also undertakes, for the same period and in respect of the sameterritory referred to hereinabove insub-sections 8.1.1 and 8.1.2, not to solicit clients of the Corporation,directly or indirectly, not to permit the use of his name in order to solicitsaid clients or do anything whatsoever to induce or to lead any person to decideto put an end, in whole or in part, to his business relations with theCorporation.

 

8.4                                 TheExecutive also undertakes, for the same period and in respect of the sameterritory referred to hereinabove insub-sections 8.1.1 and 8.1.2, not to induce, attempt to induce or otherwiseinterfere in the relations which the Corporation has with its distributors,suppliers, representatives, agents and other parties with whom the Corporationdeals.

 

8.5                                 TheExecutive also undertakes, for the same period and in respect of the sameterritory referred to hereinabove insub-sections 8.1.1 and 8.1.2 not to induce, attempt to induce or otherwisesolicit the personnel of the Corporation to leave their employment with theCorporation nor to hire the personnel of the Corporation for any enterprise inwhich the Executive has an interest.

 

8.6                                 The Executive acknowledges that theprovisions of this section 8 are limited as to the time period, the geographicarea and the nature of the activities to what the parties deem necessary toprotect the legitimate interests of the Corporation, while allowing theExecutive to earn his living.

 

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8.7                                 Nothingin this section shall operate to reduce nor to extinguish the obligations ofthe Executive arising at law or underthis contract which survive at the termination of the contract in reason oftheir nature and, in particular, without limiting the foregoing, the Executive’sduty of loyalty and obligation to act faithfully and honestly.

 

**SECTION 9– CONFIDENTIALITY**

 

9.1                                 TheExecutive acknowledges that he has received and will receive or conceive, in carrying on or in the course of his workduring his employment with the Corporation, confidential information pertainingto the activities, the technologies, the operations and the business, past,present and future, of the Corporation or its subsidiaries or related orassociated companies which information is not in the public domain. TheExecutive acknowledges that such confidential information belongs to theCorporation and that its disclosure or unauthorized use could be prejudicial tothe Corporation and contrary to its interests.

 

Accordingly,the Executive agrees to respect the confidentiality of such information and notto make use of or disclose or discuss it to or with any person, other than inthe course of his duties with the Corporation, without the explicit priorwritten authorization of the Corporation.

 

Thisundertaking to respect the confidentiality of such information and not to makeuse of or disclose or discuss it to or with any person shall continue to havefull effect notwithstanding the termination of the Executive’s employment withthe Corporation, so long as such confidential information does not becomepublic as a result of an act by the Corporation or a third party which act doesnot involve the fault of one its Executives.

 

9.2                                 The term “confidential information” includesamong other things:

 

9.2.1                        products, formulae, processes and compositionof products, as well as raw materials and ingredients, of whatever kind, thatare used in their manufacture;

 

9.2.2                        technical knowledge and methods, qualitycontrol processes, inspection methods, laboratory and testing methods,information processing programs and systems; manufacturing processes, plans,drawings, tests, test reports and software;

 

9.2.3                        equipment, machinery, devices, tools,instruments and accessories;

 

9.2.4                        financial information, production cost data,marketing strategies, raw materials supplies, suppliers, staff and client listsand related information, marketing plans, sales techniques and policies,including pricing policies, sales and distribution data and present and futureexpansion plans; and

 

9.2.5                        research, experiments, inventions,discoveries, developments, improvements, ideas, industrial secrets and “know-how”.

 

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9.3                                 TheExecutive undertakes to keep the terms of this Agreement confidential.

 

**SECTION 10– OWNERSHIP OF INTELLECTUAL PROPERTY**

 

10.1                           The Executive hereby assigns and agrees toassign to the Corporation all his intellectual property rights as of theircreation and to make full and prompt disclosure to the Corporation of allinformation relating to anything made or designed by him or that may be made ordesigned by him during the period of his employment, whether alone or jointlywith other persons, or within a period of two (2) years following thetermination of his employment and resulting from or arising out of any workperformed by the Executive on behalf of the Corporation or connected with anymatter relating or possibly relating to any business in which the Corporationor any of its subsidiaries or related or associated companies is involvedunless specifically released from such obligation in writing by the Board.

 

Inaddition, the Executive renounces all moral rights in any document or workrealized during the period of his employment. The Executive acknowledges thatthe Corporation has the right to use, modify or reproduce any document or workrealized by the Executive, at its entire discretion, without the Executive’sauthorization and without his name being mentioned.

 

10.2                           At any time during the period of hisemployment or after the termination of his employment, the Executive shallsign, acknowledge and deliver, at the Corporation’s expense, but withoutcompensation other than a reasonable sum for his time devoted thereto if hisemployment has then terminated, any document required by the Corporation togive effect tosection 10.1, including patent applications and documents evidencing theassignment of ownership. The Executive shall also provide such other assistanceas the Corporation may require with respect to any proceeding or litigationrelating to the protection or defense of intellectual property rights belongingto the Corporation.

 

10.3                           This section shall be binding on theExecutive’s heirs, assignees and legal representatives.

 

**SECTION 11 – OWNERSHIP OF FILES AND OTHER PROPERTY**

 

11.1                           Any file, sketch, drawing, letter, report,memo or other document, any equipment, machinery, tool, instrument or otherdevice, any diskette, recording tape, compact disc or software or any otherproperty which comes into the Executive’s possession during his employment withthe Corporation, in the performance or in the course of his duties, regardlessof whether he has participated in its preparation or design, how it may havecome into his possession and whether or not it is an original or a copy, shallat all times remain the property of the Corporation and, upon the terminationof the Executive’s employment, shall be returned to the Corporation or itsdesignated representative before the Executive leaves his place of work. TheExecutive may not keep a copy or give one to a third party.

 

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**SECTION 12 – TERMINATION OF PRIOR CONTRACTS**

 

12.1                           As of the effective date hereof, thisAgreement supersedes and cancels any prior agreement, verbal or written, withrespect to the Executive’s employment with the Corporation.

 

**SECTION 13 – AMENDMENT OF THE AGREEMENT**

 

13.1                           To be valid, any amendment to this Agreementmust be confirmed in writing by the Corporation and by the Executive.

 

**SECTION 14 – NOTICES**

 

14.1                           Any notice given hereunder shall be given inwriting and sent by registered or certified mail or hand delivered. If suchnotice is sent by registered or certified mail, it shall be deemed to have beenreceived five (5) business days following the date of its mailing if thepostal services are working normally. If such is not the case, the notice mustbe hand delivered or served by bailiff, at the discretion of the sender. In thecase of hand delivery or service, the notice shall be deemed to have beenreceived the same day. It is agreed that if the delivery date is a non-businessday, the notice shall be deemed to have been received on the following businessday.

 

**SECTION 15 – ELECTION OF DOMICILE**

 

15.1                           For the purposes of the exercise of anyrights flowing from this Agreement and the institution of legal proceedings,the parties elect domicile in the judicial district of Québec

 

**SECTION 16 – SUCCESSORS**

 

16.1                           This Agreement shall be binding on thesuccessors, heirs, assignees and legal representatives of the parties.

 

**SECTION 17 – INTERPRETATION**

 

17.1                           This Agreement shall be governed by andinterpreted in accordance with the laws of the province of Québec.

 

**SECTION 18 – LANGUAGE**

 

Theparties have expressly requested that this Agreement be drafted in the Englishlanguage. *Les parties ont express**ément requis que cetteconvention d’emploi soit r*é*dig**ée en anglais.*

 

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**IN WITNESSWHEREOF**the parties hereto have duly signed this Agreement onthis 27th day of July, 2007.

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** **
| **ÆTERNA ZENTARIS, INC.**         | ** **                  | ** **        |
|----------------------------------------|-----------------------------|-------------------|
| ** **                             | ** **                  | ** **        |
| By:                                    |  /s/ Mario Paradis for |              | /s/ Paul  Blake 27th July 2007, |
|                                   |                        |              |   |
| David J.  Mazzo, Ph.D.                 |                        | Paul Blake,  M.D. |
|                                   |                        |              |
| President  and Chief Executive Officer |                        |              |
|                                   |                        |              |
|                                   |                        |              |
| **ÆTERNA ZENTARIS INC.**          |                        |              |
|                                   |                        |              |
| By:                                    |  /s/ Mario Paradis for |              |   |
|                                   |                        |              |
| David J.  Mazzo, Ph.D.                 |                        |              |
|                                   |                        |              |
| President  and Chief Executive Officer |                        |              |
|                                        |                             |                   |  |  |

** **

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**ANNEX 1**

 

**CHANGE OF CONTROL PROGRAM (the “Program”)**

 

**1.**             **Applicability of the Program**

 

TheExecutive shall be entitled to the benefit of the Program if both conditionsmentioned below occur:

 

(A)       there is a **“****Change of Control”**of the Corporation, as defined below; and

 

(B)       TheExecutive’s employment is terminated, within twelve (12) months following aChange of Control :

 

(i)         involuntarily,at the request of the Corporation or its successors, except **“for Cause”**or

 

(ii)**       **by him, for   **“****Good Reason”****.**

 

**2.**             **Definitions**

 

(A)       For purposes of the Program and unless otherwise defined, thecapitalized terms used herein shall have the following meaning:

 

(i)**        “Person”**includes anyindividual, firm, partnership, association, trust, trustee, executor,administrator, legal personal representative, government, governmental body orauthority, corporation, or other incorporated or unincorporated organization,syndicate or other entity;

 

(ii)         Subjectto the exceptions set out in Schedule A hereto, a Person shall be deemedthe **“****BeneficialOwner”**of or to **“Beneficially Own”**(a) anysecurities of which such Person or any of such Person’s affiliates orassociates, as such terms are defined in *NationalInstrument 45-106 – Prospectus and Registration Exemptions,*is ownerat law or in equity; (b) any securities which the Person or any of suchPerson’s affiliates or associates has the right to acquire within 60 days(whether such right is exercisable immediately or after the passage of not morethan 60 days thereafter or upon the occurrence of a contingency or the makingof a payment) pursuant to any securities convertible into Voting Shares,agreement, arrangement, pledge or understanding, whether or not in writing(other than customary agreements with and between underwriters and/or bankinggroup and/or selling group members with respect to a distribution of securitiesor pledges of securities in the ordinary course of the pledgee’s business); and(c) any securities that are Beneficially Owned within the meaning ofclauses (i) or (ii) of this Subsection 2(A)(ii) by any otherPerson with which such Person is acting jointly or in concert;

 

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(iii)        **“Voting Shares”**means the common shares andany other securities the holders of which are entitled to vote generally on theelection of directors of the Corporation.

 

(B)       For purposes of the Program, involuntary termination ofemployment **“for Cause”**includesthe following:

 

(i)           ifthe Executive commits any fraud, theft, embezzlement or other criminal act of asimilar nature; or

 

(ii)          ifthe Executive is guilty of serious misconduct or willful negligence in theperformance of his duties.

 

(C)       For purposes of the Program, **“GoodReason”**means the occurrence, without the Executive’s expresswritten consent, of any of the following acts:

 

(i)          amaterial reduction of the Executive’s total compensation (including annual BaseSalary plus Annual Bonus, benefits and number of stock options) as in effect onthe date of this Agreement or as same may be increased from time to time ;

 

(ii)         amaterial reduction or change in the Executive’s duties, authority,responsibilities, accountability or a change in the business or corporatestructure of the Corporation which materially affects his authority,compensation or ability to perform duties or responsibilities (such as shiftingfrom a policy making position to a policy implementation position);

 

(iii)        aforced relocation; or

 

(iv)        a material change in the terms and conditions of thisProgram.

 

(D)       For purposes of the Program, a **“Change of Control”**shall be deemed to have occurred in any ofthe following circumstances:

 

(i)          subject to theexceptions set out in Schedule B hereto, upon the purchase oracquisition, in one or more transactions, by a Person or one or more Personswho are affiliates of one another or who are acting jointly or in concert (assuch expressions are defined in the *Securities Act*(Ontario)) (the**“Acquiring Person”**)****ofa beneficial interest in securities of the Corporation representing in anycircumstance fifty percent (50%) or more of the voting rights attaching to thethen outstanding securities of the Corporation; or

 

(ii)         upona sale or other disposition of all or substantially all of the Corporation’sassets; or

 

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(iii)            upon a plan of liquidation or dissolution of theCorporation; or

 

(iv)            if,for any reason, including an amalgamation, merger or consolidation of theCorporation with or into another company, the individuals who at the datehereof constitute the Board of Directors of the Corporation (and any newdirectors whose appointment by the Board of Directors of the Corporation orwhose nomination for election by the Corporation’s shareholders was approved bya vote of at least two-thirds (2/3) of the directors then still in office whoeither were directors at the date hereof or whose appointment or nomination forelection was previously so approved) cease to constitute a majority of themembers of the Board of Directors of the Corporation.

 

**3.            ****Payment**

 

Inthe event that the two (2) conditions mentioned in Section 1 aboveare met, the Executive shall receive, in a lump sum, at the latest within ten (10) daysof the effective date of the termination of employment, the payment of theamounts mentioned insection 7 of the Agreement.

 

Shouldthe Executive die before he has received the full payments, his estate shallreceive, immediately following his death, a cash amount equal to the unpaidbalance, less required statutory deductions.

 

Itis understood that the Executive will not be required to mitigate the amount ofany payment hereunder by seeking other employment or otherwise.

 

**4.            ****Release**

 

TheExecutive acknowledges that the full and complete execution of all obligationsundertaken by the Corporation and its successors under the Program, to theextent the Program becomes applicable pursuant to Section 1 of theProgram, constitutes adequate notice of termination and in consideration andsubject to the full and complete execution of all such obligations, theExecutive agrees to grant the Corporation, its affiliated and related companiesand their respective directors, officers, shareholders, representatives,employees, successors and assigns, a full and final release and discharge forall claims, past, present or future, that he has or may have, arising directlyor indirectly from his employment and the termination thereof, whether forprior notice of termination, severance pay, damages in lieu thereof or for anyother reason.

 

**5.             General**

 

TheExecutive’s participation in the Program shall end immediately upon thetermination of his employment with the Corporation or one of its affiliates forany reason whatsoever. The Program is for an indefinite term commencing on thedate of this Agreement. Furthermore, the Corporation shall have the right priorto the occurrence of a Change of Control, in its sole discretion, to terminatethe Executive’s participation in the Program at the end of each twelve(12)-month period commencing on the date of this Agreement by sending him awritten notice of termination at least thirty (30) days prior to the firstanniversary date of this Agreement and of

 

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eachanniversary date thereafter. For example, the Corporation would be entitled toexercise its discretion to terminate the Executive’s participation in theProgram if, as of the date of the notice of termination, there has been duringsaid twelve (12)-month period a material reduction in the responsibilities ofthe Executive.

 

**6.             Successors**

** **

Theterms and conditions hereof shall bind the Corporation, its successors andassignees.

 

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**Schedule A**

 

***Exceptions to the definition of “BeneficialOwner” and “Beneficially Own” (Section 2 (A)(ii) of the Program)***

 

APerson shall not be deemed the **“BeneficialOwner”** of or to **“BeneficiallyOwn”**any security:

 

(A)        asa result of such security having been deposited or tendered pursuant to a take-overbid (as such term is defined in the *SecuritiesAct*(Ontario)) made by such Person or any of such Person’saffiliates or associates or any other Person acting jointly or in concert withsuch Person until such deposited or tendered security is taken up and paid for;

 

(B)         asa result of entering into an agreement, including a lock-up agreement, pursuantto which it has been agreed that such security will be deposited or tendereduntil such deposited or tendered security is taken up and paid for;

 

(C)         asa result of (a) such Person or any of the affiliates or associates of suchPerson holding such security provided that the ordinary business of any suchPerson (the **“Fund Manager”**)****includes themanagement of investment funds for others and such security is held by the FundManager in the ordinary course of such business in the performance of such FundManager’s duties for the account of any other Person (a **“Client”**);****(b) such Person (the **“Trust Company”**)****being licensed to carry onthe business of a trust company under applicable laws and, as such, acting astrustee or administrator or in a similar capacity in relation to the estates ofdeceased or incompetent Persons (each an **“EstateAccount”**)****or in relation to otheraccounts (each an “**Other Account”**){****and holdingsuch security in the ordinary course of such duties for such Estate Accounts orfor such Other Accounts; (c) such Person (the **“Plan Administrator”**)****being the administrator orthe trustee of one or more pension funds or plans (a **“Plan”**)****registered under the laws ofCanada or any province thereof or the laws of the United States of America orany state thereof and such security being held by the Plan Administrator or thePlan in the ordinary course of such Plan Administrator’s or Plan’s activities; (d) suchPerson (the **“Crown Agent”**)****being establishedby statute for purposes that include, and the ordinary business or activity ofsuch Person includes, the management of investment funds for employee benefitplans, pension plans or insurance plans of various public bodies and suchsecurity is held

 

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bythe Crown Agent in the ordinary course of the management of such investmentfunds; or (e) such Person being a Plan and such security being held by thePlan in the ordinary course of such Plan’s activities; provided, however, thatin any of the foregoing cases the Fund Manager, the Trust Company, the PlanAdministrator, the Crown Agent or the Plan, as the case may be, is not thenmaking or has not then announced a current intention to make a take-over bid (assuch term is defined in the *Securities Act*(Ontario)),alone or by acting jointly or in concert with any other Person, other than anoffer to acquire the Voting Shares pursuant to a distribution by theCorporation or by means of market transactions made in the ordinary course ofbusiness of such Person (including pre-arranged trades entered into in theordinary course of business of such Person) executed through the facilities ofa stock exchange or organized over-the-counter-market;

 

(D)         becausesuch Person is a Client of the same Fund Manager as another Person on whoseaccount the Fund Manager holds such security, or because such Person is anEstate Account or an Other Account of the same Trust Company as another Personon whose account the Trust Company holds such security, or because such Personis a Plan with the same Plan Administrator as another Plan on whose account thePlan Administrator holds such security;

 

(E)         becausesuch Person is a Client of a Fund Manager and such security is owned at law orin equity by the Fund Manager, or because such Person is an Estate Account oran Other Account of a Trust Company and such security is owned at law or inequity by the Trust Company, or because such Person is a Plan and such securityis owned at law or in equity by the Plan Administrator; or

 

(F)         becausesuch Person is the registered holder of securities as a result of carrying onthe business of, or acting as, a nominee of a securities depositary.

 

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**Schedule B**

 

***Exceptions to the definition of “AcquiringPerson” (Section 2 (D)(i) of the Program)***

 

**“ACQUIRING PERSON”**SHALL MEAN ANY PERSON WHO ISAT ANY TIME AFTER THE DATE HEREOF THE BENEFICIAL OWNER OF **FIFTY PERCENT (50%)**OR MORE OF THEOUTSTANDING VOTING SHARES OF THE CORPORATION; PROVIDED, HOWEVER, THAT THE TERM “ACQUIRINGPERSON” SHALL NOT INCLUDE:

 

(i)              the Corporationor any corporation controlled by the Corporation;

 

(ii)             any Person whobecomes the beneficial owner of **fifty percent(50%)**or more of the outstanding Voting Shares as a result of one orany combination of: (a) a Voting Share Reduction; (b) an ExemptAcquisition; or (c) a Pro Rata Acquisition; provided, however, that if aPerson shall become the Beneficial Owner of **fiftypercent (50%)**or more of the outstanding Voting Shares by reason ofone or any combination of a Voting Share Reduction, an Exempt Acquisition or aPro Rata Acquisition, and thereafter becomes the Beneficial Owner of anadditional one percent of any Voting Shares then outstanding (otherwise thanpursuant to an additional Voting Share Reduction, Exempt Acquisition or ProRata Acquisition), then, as of the date that such Person becomes a BeneficialOwner of such additional Voting Shares, such Person shall become an **“Acquiring Person”**;****or

 

(iii)            an underwriter ormember of a banking or selling group acting in such capacity that becomes theBeneficial Owner of **fifty percent (50%)**ormore of the Voting Shares in connection with a distribution of securitiespursuant to an underwriting agreement with the Corporation;

 

Forpurposes of the Program, the capitalized terms used herein shall have thefollowing meaning:

 

(a)          **“VotingShare Reduction”**means an acquisition or redemption by the Corporationor any corporation controlled by the Corporation of Voting Shares which, byreducing the number of Voting Shares outstanding, increases the percentage ofVoting Shares Beneficially Owned by any Person to fifty percent (50%) or moreof the Voting Shares then outstanding;

 

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(b)**        “ExemptAcquisition”**means an acquisition whereby a Person became anAcquiring Person by inadvertence and without any intention to become, orknowledge that it would become, an Acquiring Person under this Program and, inthe event that a waiver is granted by the Board of Directors, such acquisitionshall be deemed not to have occurred for the purposes hereof. Any such waivermay only be given on the condition that such Person, within10 days after the foregoing determination by the Board of Directors or suchlater date as the Board of Directors may determine (the “Disposition Date”),has reduced its Beneficial Ownership of Voting Shares such that the Person isno longer an Acquiring Person and such waiver shall only be effective if thereduction has occurred within such 10-day period; **[NTD: To consider whether suchan event can ever occur]**

 

(c)**         “ProRata Acquisition”**means an acquisition by a Person of VotingShares pursuant to (i) any dividend reinvestment plan, such purchase planor other plan of the Corporation made available to all holders of Voting Shares(other than holders resident in any jurisdiction where participation in suchplan is restricted or impractical as a result of applicable law); (ii) astock dividend, a stock split or other event pursuant to which such Personbecomes the Beneficial Owner of Voting Shares on the same pro rata basis as allother holders of Voting Shares of the same class or series; (iii) theacquisition or exercise of rights to purchase Voting Shares distributed to allholders of Voting Shares (other than holders resident in any jurisdiction wheresuch distribution or exercise is restricted or impractical as a result ofapplicable law) by the Corporation pursuant to a rights offering (but only ifsuch rights are acquired directly from the Corporation); or (iv) adistribution of Voting Shares or convertible securities in respect thereofoffered pursuant to a prospectus or by way of a private placement by theCorporation or a conversion or exchange of any such convertible security,provided that such Person does not thereby acquire a greater percentage ofVoting Shares or convertible securities so offered than the Person’s percentageof Voting Shares Beneficially Owned immediately prior to such acquisition.

 

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