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                                  EXHIBIT 10.3
 
      EMPLOYMENT CONTRACT entered into on the 25th day of September, 1997.
 
BY AND BETWEEN:     REPAP ENTERPRISES INC., a corporation duly incorporated
                      under the laws of Canada, having a place of business at
                      1250 Rene Levesque Boulevard West, Suite 3800, in the City
                      of Montreal, Province of Quebec,
 
                              (hereinafter, the "Corporation")
 
                                                         PARTY OF THE FIRST PART
 
AND:                       STEPHEN C. LARSON, having his address, for the
                      purposes of the present Agreement, at 489 Elizabeth Drive
                      in the City of Beaconsfield, Province of Quebec,
 
                              (Hereinafter, the "Executive")
 
                                                        PARTY OF THE SECOND PART
 
      WHEREAS the Executive was hired by the Corporation on or about February 2,
1996 and held the position of Executive Vice-President, Coated Paper Division,
until on or about May 30, 1996;
 
      WHEREAS on or about May 30, 1996, the Executive was appointed President
and Chief Operating Officer of the Corporation;
 
      WHEREAS on or about October 16, 1996, the Executive and the Corporation
agreed on some amendments to be made to their initial employment agreement;
 
      WHEREAS a change of control, within the meaning of the terms of the
applicable employment agreement, as amended on October 16, 1996, occurred on or
about August 1st, 1997;
 
      WHEREAS as of on or about August 13, 1997, the Executive was appointed
Chief Executive Officer of the Corporation;
 
      WHEREAS the Corporation and the Executive agree that, as a result of the
above, the Executive could have left and benefited from the change of control
provision of his applicable employment agreement, as amended on October 16,
1996;
 
      WHEREAS the parties recognize that, in the circumstances, it was the
Executive's intention to leave the Corporation;
 
      WHEREAS the Corporation agreed that the Executive's retention was critical
to the Corporation's business and the development of further shareholders'
value;
 
      WHEREAS the parties have negotiated new terms and conditions of
employment, modifying their most recent employment agreement; and
 
      WHEREAS the parties wish to clarify the terms and conditions covering
their employment relationship as of the date hereof;
 
NOW, THEREFORE, the parties agree as follows:
 
1.     EMPLOYMENT, DUTIES AND ACCEPTANCE
 
1.1    The Corporation hereby employs the Executive to render exclusive and
full-time services to the Corporation as its President and Chief Executive
Officer, commencing on August 13, 1997.
 
1.2    The Executive hereby accepts such employment and agrees faithfully to
render the services described above to the best of his ability and knowledge and
to devote His full time, attention, skill and talents to the performance of his
duties hereunder in the best interests of the Corporation.
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1.3    The Executive agrees to serve during the term of his employment hereunder
as a director of the Corporation and as an officer and/or director of any
affiliates or subsidiaries of the Corporation without any compensation therefor
other than that specified in this Agreement.
 
2.     COMPENSATION AND BENEFITS
 
2.1    As compensation for all services to be rendered pursuant to this
Agreement, the Corporation agrees to pay to the Executive, during his
employment, a base salary at the rate of Three Hundred and Fifty Thousand
Dollars ($350,000) plus Two Hundred Thousand Dollars ($200,000) (U.S. funds) per
year of employment, subject to potential increase pursuant to Section 2.2,
payable in equal installments in accordance with the pay periods established by
the Corporation from time to time, in arrears, less such deductions or amounts
to be withheld as shall be required by all applicable laws and regulations. For
all purposes of this Agreement, "year of employment" shall mean a twelve (12)
consecutive month period commencing on the day of the same month on which the
Executive will first become employed by the Corporation hereunder, as
conclusively determined by the records of the Corporation, and ending on the day
preceding the anniversary of such day of the month. Notwithstanding the fact
that a portion of the base salary is payable in Canadian funds and a portion is
payable in U.S. funds, the sum of the amount's payable in Canadian funds and
U.S. funds shall constitute the base salary of the Executive for all purposes of
this Agreement including, without restriction, for purposes of computation of
his pension, stock options, bonus entitlement and indemnity in the event of
termination.
 
2.2    The base salary referred to in Section 2.1 will be reviewed annually to
consider the possible increase thereof.
 
2.3    In respect of the 1997 fiscal year of the Corporation and thereafter, the
Executive shall become a member of the Corporation's Executive Bonus Plan, a
copy of which is attached hereto; the parties acknowledge that such plan is
presently under review. The Corporation agrees that during the term of his
employment hereunder, the Executive cannot be removed as a member of the
Corporation's Executive Bonus Plan.
 
2.4    STOCK OPTIONS.
 
      (A)   On or about February 2, 1996, the Corporation granted to the
           Executive an option to purchase 500,000 common shares of the
           Corporation pursuant to the Corporation's 1987 Directors, Officers
           and Employees Amended Stock Option Plan at a price of $5.38 per
           share, which options were scheduled to vest in five (5) equal annual
           installments over the first five (5) years of employment, in arrears.
           The vesting of these options was accelerated at a Board meeting held
           on or about December 17, 1996 and these options have actually vested,
           effective the same date.
 
           In addition, the Executive shall be granted an option to purchase
           eighteen millions (18,000,000) common shares of the Corporation
           pursuant to the Corporation's 1987 Directors, Officers and Employees
           Amended Stock Option Plan (hereinafter, the "1987 Plan") as will be
           modified following the special meeting of the Holders of common
           shares of the Corporation, of which notice was given on August 15,
           1997 and which should be held on or about September 25, 1997, at an
           exercise price of $0.235 per share (being the closing price at the
           close of trading on August 28, 1997). These options will vest as
           follows:
 
           (i)   twenty percent (20%) of the total number of common shares set
               forth in this option vests immediately on August 28, 1997,
               provided that no options may be exercised until the shareholders
               of the Corporation approve the changes to the 1987 Plan;
 
           (ii)  a further twenty percent (20%) of the total number of common
               shares set forth in this option will vest on the earlier of the
               first (lst) anniversary date of the grant of these stock options
               (that is, August 29, 1998); or the first trading day after the
               shares of the Corporation close on ten (10) consecutive trading
               days after six (6) months from the grant of the option (that is,
               March 1, 1998) at a bid price in excess of $0.29375 (that is,
               125% of the exercise price);
 
           (iii) a further twenty percent (20%) of the total number of common
               shares set forth in this option will vest upon the earlier of the
               second (2nd) anniversary of the grant of these stock options
               (that is, August 29, 1999); or the first trading day after the
               shares of the Corporation close on ten (10) consecutive trading
               days after the first (lst) anniversary from the grant of the
               option at a bid price in excess of $0.3525 (that is, 150% of the
               exercise price); and
 
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           (iv) the balance of the total number of common shares set forth in
               this option will vest upon the earlier of the third (3rd)
               anniversary of the grant of the option (that is, August 29,
               2000), or the first (lst) trading day after the shares of the
               Corporation close on ten (10) consecutive trading days after the
               second (2nd) anniversary from the grant of the option at a bid
               price in excess of $0.47 (that is, 200% of the exercise price);
               provided that all options shall become exercisable upon a Change
               of Control of the Corporation or of Repap New Brunswick Inc.
 
2.5    The Executive shall be entitled to the pension benefits set forth in the
forms of the Corporation's Head Office Registered Pension Plan and Top Executive
Supplementary Pension Plan, copies of which are annexed hereto, provided that
the Corporation shall grant to the Executive credit in respect of five (5) years
past service for the purposes of both such plans; such credit shall be granted
on the basis of one (1) year of past service for each completed six (6) months
of the Executive's employment hereunder, until the earlier of five (5) years
past service being granted or termination of employment.
 
2.6    The Corporation will continue to hold the mortgage loan on the
Executive's residence located at 489 Elizabeth Avenue, Beaconsfield, Quebec
presently in the principal amount of $250,000, which mortgage loan shall bear no
interest (except after default, in which event interest shall be at Canadian
Imperial Bank of Commerce prime plus four, percent (4%) and shall be repayable
in fifteen (15) equal annual installments, the first such installment to be
payable on the first anniversary of the Commencement Date, subject to
acceleration of such maturity in accordance with the provisions hereof.
 
2.7    The Executive shall participate in the Corporation's existing health,
life, dental and other insurance plans and shall participate in the other
benefit plans generally available from time to time to other senior executives
of the Corporation. Members of the Executive's family who may reside in the
United States shall be entitled to coverage under the Corporation's U.S. dental,
health and accidental death and dismemberment insurance coverage; the parties
acknowledge that the plans providing such coverage are contributory plans and
thus will require a contribution from the Executive.
 
2.8    The Executive shall be reimbursed for all reasonable out-of-pocket
expenses actually and properly incurred by him in the performance of his duties
hereunder, upon presentation of expense statements, vouchers, receipts or other
such supporting documentation as the Corporation may reasonably require from
time to time.
 
2.9    The Executive shall be entitled to five (5) weeks of vacation during each
year of employment.
 
2.10   The Corporation shall provide the Executive with an automobile for his
personal and professional use, selected according to the Corporation's practice
for his level of position, the registration, insurance, operating and
maintenance costs be which shall be determined and borne in accordance with the
Corporation's automobile policy.
 
2.11   The Corporation shall pay the costs incurred by the Executive to join one
business club and one sport club. In the event that a share has to be purchased
and is purchased by the Corporation, it shall remain the Corporation's property.
 
2.12   The Executive may accept corporate directorships with the prior
authorization in writing of the Chairman of the Corporation.
 
3.     TERMINATION
 
3.1    Notwithstanding anything contained herein to the contrary, it is agreed
that the Executive's employment hereunder may be terminated with or without
Cause (as defined below) and without recourse by either party against the other
with respect to such termination except as herein provided: (i) by the
Corporation at any time, by giving written notice of termination to the
Executive (the date of such notice being herein called the "NOTICE DATE") which
notice shall set forth the date upon which the Executive's employment shall
terminate as determined by the Corporation in its sole discretion (which may be
the Notice Date or any later date selected by the Corporation in its sole
discretion), or (ii) by the Executive at the expiration of thirty (30) days
after the giving of written notice of termination to the Corporation, or at the
expiration of such shorter notice period as the Corporation in its sole
discretion may require and notify to the Executive following the Corporation's
receipt of such notice from the Executive. Either the Corporation or the
Executive may give such notice of termination at any time as such party sees
fit.
 
      For the purposes of this Agreement, the term "CAUSE" shall include, in
      addition to such meaning as shall have been or shall hereafter be ascribed
      to such term from time to time by the jurisprudence, a willful failure
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<PAGE>   4
 
      or refusal by the Executive to perform his customary duties or services
      for the Corporation; the conviction of the Executive for a criminal act or
      other offense pursuant to the provisions of the Criminal Code of Canada or
      any other criminal or penal statute of any jurisdiction; a breach by the
      Executive of, or a failure or refusal by the Executive to perform in any
      material respect, any of the Executive's obligations under this Agreement
      (including, without limitation, any of the covenants contained in Section
      5 hereof); a failure or refusal by the Executive to perform his duties to
      the Corporation in a loyal manner and with a view to promoting the best
      interests of the Corporation; gross negligence, willful misconduct or
      fraud of the Executive; or a failure or refusal by the Executive to obey
      the policies of the Corporation.
 
3.2    If the Executive shall die during his employment, this Agreement shall
then terminate without recourse by either party against the other with respect
to such termination.
 
3.3    If the Executive shall become substantially incapacitated so as to
prevent him from properly and continuously performing in full his duties to the
Corporation, the Corporation may, in its sole discretion, elect to terminate his
employment at any time during the continuance of such incapacity by giving
written notice of termination to the Executive and, if the Corporation gives
such notice of termination, the Executive's employment with the Corporation
shall terminate on the date set forth in such notice, without recourse by either
party against the other with respect to such termination.
 
3.4    If the Executive elects to exercise his right of termination pursuant to
Section 3.1, he shall deliver concurrently with such notice his written
resignation as a director and an officer of the Corporation and all its
subsidiaries, his written release of the Corporation, its subsidiaries and their
respective shareholders, directors and officers from all claims whatsoever
except claims under Section 4 hereof and from time to time at the request of the
Corporation such other documents as the Corporation may reasonably require. If
the Corporation elects to exercise its right of termination pursuant to Sections
or 3.3, the Executive shall deliver within five (5) days of the receipt of
notice of termination of his employment, his written resignation as a director
and an officer of the Corporation and of its subsidiaries and his written
release of the Corporation, its subsidiaries and their respective shareholders,
directors and officers from all claims whatsoever except claims under Section 4
hereof and from time to time at the request of the Corporation such other
documents as the Corporation may reasonably require.
 
3.5    Following the giving of notice of termination by either party, the
Corporation shall be entitled to assign the Executive during the remainder (if
any) of his employment to such duties as may, in the sole discretion of the
Corporation, be useful to prepare the Corporation for the Executive's departure
and to restrict the Executive's access to confidential information.
 
4.     PAYMENTS IN THE EVENT OF TERMINATION
 
4.1    In this Agreement, the expression "TERMINATION DATE" means (i) in the
case of termination by the Corporation pursuant to Sections 3.1 or 3.3 hereof,
the date of termination of the Executive's employment set forth in the written
notice of termination given by the Corporation pursuant to either of such
sections (as the case may be); (ii) in the case of termination by the Executive
pursuant to Section 3.1 hereof, the date which is thirty (30) days following the
date upon which the Executive has given notice of termination or, if the
Corporation has required a shorter notice period, the last day of such shorter
period; and (iii) in the case of termination pursuant to Section 3.2 hereof, the
date of the Executive's death.
 
4.2    In the event of termination of employment pursuant to Sections 3.1, 3.2
or 3.3 hereof, notwithstanding anything in this Agreement contained to the
contrary, all payments and benefits to the Executive under this Agreement and
otherwise arising from or by reason of the Executive's employment hereunder
shall cease except that:
 
4.2.1  the Executive's salary provided for in Section 2.1 hereof shall be pro
rated based on the number of days elapsed between (x) the last date to which
such salary was paid and (y) up to (but excluding) the Termination Date and
shall be paid to the Executive in the installments provided for in Section 2.1
hereof up to the Termination Date;
 
4.2.2  any amounts of bonus payable to the Executive in respect of a fiscal year
of the Corporation completed prior to the Termination Date shall be paid within
sixty (60) days following the certification of the audited financial statements
of the Corporation in respect of the prior fiscal year;
 
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4.2.3  the Corporation shall comply with the provisions of Section 2.8 hereof in
respect of reasonable authorized out-of-pocket expenses actually incurred prior
to the Termination Date;
 
4.2A   however, notwithstanding the above, should the Executive give a thirty
(30) days notice of his resignation, he should be entitled to receive the
following amounts and benefits, considering that, on or about August lst, 1997,
a change of control within the meaning of the Executive's previous employment
agreement, as amended on October 16th, 1996, has occurred:
 
      (i)    an indemnity equal to the Executive's annual base salary at such
           time, multiplied by 4.5;
 
      (ii)   the amounts and benefits provided for in Sections 4.2.4 (ii) and
           4.2.5 (B)(i, ii, iii, iv and v);
 
      (iii)  should the Executive give a thirty (30) days notice of his
           resignation, he shall be entitled, within ninety (90) days of his
           termination date, to exercise his stock options which have vested as
           of his termination date; however, all unvested stock options shall be
           returned to the Corporation;
 
      (iv)   it is to be noted that Sections 4.2.7 and 4.3 shall apply;
 
4.2.4  TERMINATION WITHOUT CAUSE.  If the Corporation gives notice of
termination of employment to the Executive pursuant to Section 3.1 and such
termination of employment constitutes a termination of employment without Cause
and prior to January 1, 2014, the Executive will be entitled to receive, (i) an
indemnity equal to the Executive's annual base salary at such time multiplied by
4.5, which indemnity shall be payable in a lump sum within thirty (30) days
after the Termination Date, (ii) a continuation of the Corporation's health,
accidental death and dismemberment and dental insurance plans then in existence
for a period ending on the earlier of fifty-four (54) weeks following the
Termination Date and the date when the Executive shall commence employment with
another employer and (iii) the Corporation (or its nominee) will purchase from
the Executive for a purchase price of Four Hundred Thousand Dollars ($400,000)
the immovable property owned by the Executive and located at 489 Elizabeth
Avenue, Beaconsfield, Quebec, provided that the Executive shall own such
immovable property at such time and such immovable property shall be conveyed to
the Corporation or its nominee free and clear of all liens and encumbrances of
any nature whatsoever and with good and marketable title. The said immovable
property will be conveyed with such fixtures and other improvements as are
normally conveyed in transactions of this type, and closing costs shall be
borrowed by the parties in the manner customary for sales of residential
properties in the City of Montreal. In the event that the said immovable
property is encumbered by the mortgage referred to in Section 2.6 hereof at the
time of such sale and purchase, the purchase price herein-above referred to
shall be reduced by the outstanding principal amount of such mortgage loan and
any interest accrued but unpaid thereon.
 
4.2.5  TERMINATION FOLLOWING CHANGE OF CONTROL.
 
      (A)   If within twenty-four (24) months following a Change of Control (as
           hereinafter defined), the Corporation gives notice of termination of
           employment to the Executive or the Executive gives notice of
           termination of employment to the Corporation, in EACH case pursuant
           to Section 3.1 and (a) such termination of employment if by the
           Corporation constitutes a termination of employment without Cause and
           (b) such notice of termination shall be given prior to January 1,
           2014, (i) the Corporation shall pay to the Executive within thirty
           (30) days following the Termination Date in a lump sum an indemnity
           equal to the Executive's annual base salary at such time multiplied
           by 4.5, (ii) any unvested stock options accruing for the benefit of
           the Executive referred to in Section 2.4 shall, on such date, become
           fully vested. If a payment is made to the Executive pursuant to this
           Section 4.2.5, the Executive shall not be entitled to receive the
           amount referred to in Section 4.2A or subsection (i) of Section
           4.2.4, but the provisions of subsections (ii) and (iii) of Section
           4.2.4 shall apply.
 
      (B)   In the event of a Change of Control, the Executive shall be entitled
           to the following, in addition to the amount; and benefits provided
           for in Section 4.2.5(A), and conditional upon the conditions stated
           in Section 4.2.5(A):
 
           (i)   a lump sum payment equal to the present value, as of the date
               of termination, of the Corporation's cost of providing coverage
               for a period of fifty-four (54) months from the Change in Control
               under any non-group life insurance policy on the Executive's life
               in force immediately prior to the date of termination;
 
           (ii)  entitlement, for a period of fifty-four (54) months from the
               Change in Control, to the Corporation's U.S. medical, disability,
               dental, drug and other health benefits and thereafter, at
 
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               the Executive's election and upon payment of all premiums
               associated therewith from time to time, to continue to be
               entitled to the benefits of the Corporation's U.S. medical,
               disability, dental, drug and other health programs;
 
           (iii) not later than the thirtieth (30th) day following the date of
               termination, the Corporation shall transfer to the Executive, if
               the Executive so elects, the automobile, if any, placed at his
               disposal, at the date of termination, at no cost to the
               Executive, other than such income tax as he may be required to
               pay;
 
           (iv) all legal fees and expenses incurred by the Executive in seeking
               to obtain or enforce any right or benefit provided by the
               Agreement;
 
           (v)  for the purposes of the Corporation's Head Office Registered
               Pension Plan and Top Executives Supplementary Pension Plan, a
               credit of 4.5 years past service in addition to the period of
               past service that the Executive is otherwise entitled to pursuant
               to Section 2.5 of the Agreement.
 
      (C)   In addition and subject to the same conditions, if, at the time of a
           Change of Control, any stock options under any of the Corporation's
           stock option plans which have been granted to the Executive have not
           yet fully vested, the Corporation shall either (i) amend the terms of
           the unvested options to enable those options to vest immediately
           prior to the event causing the Change of Control, or (ii) cause, upon
           the occurrence of the Change of Control, the Person who through the
           Change of Control is acquiring the common shares of the Corporation
           to acquire the Executive's unvested options at their fair value for
           one or more of the following: (a) cash, (b) publicly traded shares
           having the same attributes as the Corporation's common shares, or (c)
           options (having terms not materially adversely different from the
           Executive's unvested options) for publicly traded shares having the
           same attributes as the Corporation's common shares.
 
      (D)   Moreover, in the event of a Change of Control and subject to the
           same conditions stated in Section 4.2.5(A), the Executive shall
           receive (i) a lump sum amount of Five Hundred Thousand Dollars
           ($500,000) (U.S. funds); and (ii) if the Change of Control is the
           result of the sale or amalgamation of the Corporation at a common
           share price greater than the original strike price of $0.235, or, if
           the Change of Control is not a result of the sale or amalgamation of
           the Corporation, then if the common shares of the Corporation have an
           average weighted trading price during any twenty (20) consecutive
           trading days within sixty-five (65) trading days of the occurrence of
           the Change of Control greater than $0.235, the Executive shall
           receive an additional amount of Two Hundred and Fifty Thousand
           Dollars ($250,000) (U.S. funds).
 
4.2.6  the term "CHANGE OF CONTROL" as used in this Section 4 shall mean any of
the following events, occurring after the date of this Agreement:
 
           (i)   The purchase of at least twenty-five percent (25%) of the
               common shares of the Corporation or of Repap New Brunswick Inc.
               by a forest products industry participant; or
 
           (ii)  The purchase of at least thirty-three percent (33%) of the
               common shares of the Corporation or of Repap New Brunswick Inc.
               by a any other purchaser; or
 
           (iii) during any period of two (2) consecutive years, individuals who
               at the beginning of such period constituted the board of
               directors of the Corporation (together with any new directors
               whose election by such board of directors or whose nomination for
               election BY the shareholders of the Corporation was approved by a
               vote of two-thirds ( 2/3) of the directors of the Corporation
               then still in office who were either directors at the beginning
               of such period or whose election or nomination for election was
               previously so approved) cease for any reason to constitute a
               majority of the board of directors of the Corporation then in
               office; or
 
           (iv) a reduction in the common share ownership position of Silverton
               International and the Paloma Group to ten percent (10%) or less
               of the Corporation to a third (3rd) party, with the exclusion of
               a distribution to the public via a primary or secondary offering.
 
4.2.7  for greater certainty, the indemnity payable to the Executive pursuant to
the provisions of Sections 4.2A, 4.2.4 or 4.2.5 shall be reduced by the amount
of any payment or the value of any benefit received or to be received by the
Executive in connection with the termination of employment or the Change of
Control otherwise than
 
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pursuant to the terms of this Agreement, whether such payment is pursuant to
obligations arising from contract, statute or regulation or is entirely
gratuitous. It is expressly understood and agreed that pension benefits, stock
options, sickness or disability benefits or any other-benefits then existing
which the Executive receives or becomes entitled to receive from the Corporation
as a result of employment, but which are not received in connection with the
termination of employment of the Executive or the Change of Control shall not
reduce the indemnity therein referred to. The value of any non-cash benefit or
any deferred cash payment shall be determined by the Executive's independent
auditors in accordance with such generally accepted accounting valuation
principles AS such auditors may consider appropriate.
 
4.2.8  On the recommendation of the Executive's financial advisors, the nature,
manner and timing of payments to be made to him pursuant to this Agreement shall
be varied in order to optimize his financial planning, such request to be agreed
to, provided the Corporation is not prejudiced.
 
4.3    Notwithstanding the provisions of Section 4.'e hereof, if the Executive's
engagement hereunder is terminated for Cause by the Corporation pursuant to
Section 3.1 hereof or on or after the Executive attaining his sixty-fifth (65th)
birthday, the Corporation's only obligation will be to pay the amounts referred
to in Sections 4.2.1, 4.2.2 and 4.2.3 hereof.
 
4.4    Any loans or other indebtedness payable by the Executive to the
Corporation .or any of its subsidiaries (including, without limitation, any
loans secured by a hypothec or mortgage on the Executive's residence) shall
become immediately due and payable on the Termination Date without any notice or
demand whatsoever and despite any term for payment which may previously have
been granted to the Executive and, if such loans or other indebtedness are not
paid in full on the Termination Date, the aggregate unpaid principal amount
thereof shall be regarded as an amount in arrears and shall henceforth bear
interest, from the Termination Date until paid in full, at a rate per annum
equal to the prime rate announced from time to time by the Canadian Imperial
Bank of Commerce plus four percent (4%). The provisions of the preceding
sentence shall not apply to the Executive's residence if the provisions of
subsection 4.2.4(ii) will apply thereto and the Corporation be thereby obliged
to purchase such residence, in which event the purchase price of such residence
shall be reduced by the amount of indebtedness secured thereby. The Corporation
is hereby authorized and directed to apply any amounts payable by it to the
Executive or his estate in reduction of any amounts payable to the Corporation
or its subsidiaries by the Executive or his estate.
 
5.     CONFIDENTIALITY
 
5.1    During the period in which the Executive is employed by the Corporation
and at all times thereafter, the Executive will hold in confidence all matters
and things relating to the business of the Corporation or any of its
subsidiaries of which the Executive may acquire information during his
employment including, without limitation, all records, papers, documents,
budgets, specifications, correspondence, cost data, estimates, know-how, market
surveys, suppliers' lists and prices, manufacturers' lists and prices,
customers' lists, sales, purchasing or financial information of any kind or
description or any trade secrets (all of the foregoing being herein collectively
called the "MATERIALS") provided that the Executive shall not be required to
hold in confidence any information Disclosed by the Corporation without
restriction to the general public or information disclosed by the Executive
pursuant to a requirement of law or information which is in the public domain or
known to the industry at large; and the Executive will not, without the written
consent of the Corporation, except as may be required in the fulfillment of his
duties as a loyal employee of the Corporation, us(,- any such matter, thing or
information which might possibly be contrary to the best interests of the
Corporation or any of its subsidiaries. Without limiting the generality of the
foregoing, the Executive will not, without the written consent of the
Corporation, disclose or authorize anyone else to disclose any confidential
information or trade secrets relating to the business of the Corporation or any
of its subsidiaries, including, without limitation, any Materials (except as may
be permitted by the proviso set forth above).
 
5.2    The, Executive hereby acknowledges and agrees that the Corporation and
its subsidiaries have all rights to possession of, title to and ownership of all
Materials and any copies, extracts and summaries thereof and other confidential
information originating during or prior to the period in which the Executive is
employed hereunder or which may come into his possession in any way during such
period which relate to the business of the Corporation or any of its
subsidiaries, and the Executive further agrees to deliver all of the foregoing
promptly to the Corporation on the date on which he ceases to be employed
hereunder or at any other time the Corporation may request and not to
 
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make or permit to be made, except for the sole use and account of the
Corporation, any copies, abstracts or summaries thereof.
 
6.     NOTICES
 
6.1    All notices, requests, consents and other (communications required or
permitted to be given hereunder shall be in writing and either delivered by hand
or sent by telegram, telex, telecopier or by prepaid registered mail, and shall
be deemed given when so delivered by hand or twenty-four (24) hours after the
sending by telecopier or upon receipt thereof by prepaid registered mail, as
follows:
 
      To the Executive:         489 Elizabeth Avenue
                                Beaconsfield, Quebec
 
      To the Corporation:       1250 Rene-Levesque Blvd. W.,
                                Suite 3800
                                Montreal, Quebec
                                Attention: The Chairman
                                Telecopier: (514) 846-1328
 
or to such other person or address as either party shall designate by notice in
writing to the other in accordance herewith. In the event of postal strike or
other mail service interruption, existing or threatened, all notices shall be
hand delivered or sent by telecopier.
 
7.     REMEDIES
 
7.1    In the event the Executive shall breach any of the covenants or
      agreements contained in Section 5 hereof, the Executive agrees -- that
      without prejudice to any and all other rights and recourses of the
      Corporation, -- the Corporation shall have the right to enforce the terms
      and provisions thereof by means of compelling specific performance and/or
      by means of injunction; and without limiting the generality of the
      foregoing, the Executive hereby expressly consents to the granting of an
      injunction by a court of competent jurisdiction for the purposes of
      enforcing the provisions of Section 5 hereof. In the event this Agreement
      is breached, the parties shall, except as otherwise provided herein, be
      entitled to all rights and remedies available at law, save that the
      Executive hereby expressly waives all of his rights and recourses at law
      (including any rights and recourses under any applicable statute)
      resulting from any termination of employment in compliance with the
      provisions of Section 3 hereof provided that the Corporation complies with
      its obligations under Section 4 hereof. For greater certainty, the
      Executive hereby agrees that the payments provided for in Section 4 above
      shall be the only amounts to which the Executive will be entitled as a
      result of any termination of his employment and will also serve as
      liquidated damages for any claim by the Executive whatsoever in connection
      therewith. Furthermore, the Executive hereby gives to the Corporation a
      full and final release and discharge of any claim whatsoever for salary,
      employment rights, bonus, indemnity, damages and/or other forms of
      monetary compensation (except any acquired rights (if any) under the
      Option Plan) which he may have against the Corporation, its subsidiaries
      or any of their respective shareholders, directors or officers by reason
      of the termination of his employment or otherwise the whole subject to the
      Corporation fulfilling its obligations to the Executive as set forth in
      Section 4.
 
7.2    The provisions of Sections 4, 5, and 7 hereof shall survive any
expiration or termination of this Agreement.
 
8.     GENERAL
 
8.1    All dollar amounts referred to herein are in lawfull currency of Canada,
except wherein specifically otherwise provided.
 
8.2    This Agreement shall be governed by- and construed and enforced in --
accordance with the laws of the Province of Quebec and the laws of Canada
applicable therein.
 
8.3    The articles and section headings herein are for convenience of reference
only and shall not affect in any way the meaning or interpretation of this
Agreement.
 
8.4    This Agreement and the Executive's rights and obligations hereunder may
not be assigned by the Executive. The Corporation may assign its rights together
with its obligations hereunder in connection with any merger, consolidation,
sale, transfer, liquidation or other disposition of part or all or substantially
all of its business or assets,
 
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<PAGE>   9
 
provided that its obligations hereunder shall be assumed by its successors or
assigns pursuant to any of the foregoing events. The terms and conditions of
this Agreement shall be binding upon the parties hereto, their heirs, executors,
administrators, successors and legatees and shall enure to their benefit.
 
8.5    This Employment Contract sets out all of the terms and conditions of the
Executive's employment with the Corporation and supersedes any and all previous
agreements, whether verbal or written, express or implied, which may have been
entered into by and between the parties hereto, and any and all such other
agreements are hereby canceled and terminated in every respect.
 
8.6    This Agreement may be amended, modified, superseded, canceled, renewed or
extended, and the party waiving compliance hereof may waive the terms and
conditions. The failure by either party at any time or times to require
performance of any provisions hereof shall in no way affect the right at a later
time to enforce the same. No waiver by either party of the breach of any term or
covenant contained in this Agreement whether by conduct or otherwise or in
respect of any one or more instances, shall be deemed to be, or be construed as,
a further or continuing waiver of any breach, or a waiver of the breach of any
other term or covenant contained in this Agreement.
 
8.7    Each and every term, condition and provision of this Agreement is and
shall be severable one from the other, and in the event that any term, condition
or provision hereof is at any time declared by final judgment of a court of
competent jurisdiction to be void, invalid or unenforceable, same shall not
extend to invalidate, make void or unenforceable any other term, condition or
provision of this Agreement and such term, condition, or provision so declared
void, invalid or unenforceable shall be severed from the rest of this Agreement.
 
8.8    The parties hereby state their express wish that in this Agreement and
all notices in connection herewith be drafted in the English language only. Les
parties aux presentes ont exprime leur volonte expresse que cette convention et
tous les avis s'y rapportant soient rediges en langue anglaise seulement.
 
      IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
 
                                         REPAP ENTERPRISES INC.
 
                                         Per:          STEPHEN C. LARSON
                                                     Stephen C. Larson
 
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