Document:

Employment Agreement dated May 31, 2006

 

EXHIBIT 10.44

					
	
	 	EMPLOYMENT AGREEMENT
	 	 

This Employment Agreement made effective as of May 31, 2006.

BETWEEN:

QLT INC., having an address of 887 Great Northern Way, Vancouver,
British Columbia, V5T 4T5, Canada.

(“QLT” or the “Company”)

AND:

PETER J. O’CALLAGHAN, having an address of [redacted], Vancouver,
British Columbia, [redacted], Canada.

(“Mr. O’Callaghan”)

WHEREAS:

	A.	 	QLT has offered to Mr. O’Callaghan, and Mr. O’Callaghan has accepted, employment with QLT as
Senior Vice President, Corporate Development and General Counsel.

	B.	 	QLT and Mr. O’Callaghan wish to enter into this Agreement to set out the terms and conditions
of Mr. O’Callaghan’s employment with QLT.

NOW THEREFORE in consideration of the compensation to be paid under this Agreement by QLT to Mr.
O’Callaghan, the promises made by each party to the other as set out in this Agreement and other
good and valuable consideration, the receipt and sufficiency of which the parties acknowledge and
agree, QLT and Mr. O’Callaghan agree as follows:

	1.	 	POSITION AND DUTIES

	1.1	 	Position Effective June 2, 2006 or such other date as QLT and Mr. O’Callaghan
mutually agree that his employment will commence, QLT will employ Mr. O’Callaghan in the
position of Senior Vice President, Corporate Development and General Counsel and Mr.
O’Callaghan agrees to be employed by QLT in that position, subject to the terms and conditions
of this Agreement.

	1.2	 	Duties, Reporting and Efforts — In the performance of his duties as Senior Vice
President, Corporate Development and General Counsel, Mr. O’Callaghan will:

	 	(a)	 	Overall Responsibilities — Have overall responsibility for the development,
implementation and coordination of QLT’s corporate development, legal and intellectual
property requirements, policies, objectives and operations in a manner that will allow for
achievement of QLT’s overall long-term strategic objectives. This will include oversight
of all QLT’s legal and intellectual property staff and responsibility for management of
relationships with and delegation of work to external law firms, patent agents and
trademark agents.

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	 	(b)	 	Report — Report, as and when required, to the Chief Executive Officer of QLT or such
person appointed by the Board of Directors of QLT (the “Board”) to act in that capacity.
	 
	 	(c)	 	Best Efforts — Use his best efforts, industry and knowledge to improve and increase
QLT’s business, to comply with all of QLT’s rules, regulations, policies (including QLT’s
Code of Ethics and Code of Exemplary Conduct) and procedures, as established from time to
time and to ensure that QLT is at all times in compliance with applicable provincial,
state, federal and other governing statutes, policies and regulations.
	 
	 	(d)	 	Working Day — Devote the whole of his working day attention and energies to the
business and affairs of QLT, provided that this will not prevent Mr. O’Callaghan from
accepting appointments to boards of directors and other appointments that are not in
conflict with his obligations under this Agreement.

	2.	 	COMPENSATION

	2.1	 	Annual Compensation — In return for his services under this Agreement, effective
immediately, QLT agrees to pay or otherwise provide the following total annual compensation to
Mr. O’Callaghan:

	 	(a)	 	Base Salary — A base salary in the amount of Cdn.$450,000.00 (less statutory
withholdings) in 24 equal installments payable semi-monthly in arrears, which is subject to
periodic annual reviews and may be increased from time to time at the discretion of QLT.
	 
	 	(b)	 	Benefit Plans — Effective immediately, coverage for Mr. O’Callaghan and his eligible
dependents under any employee benefit plans provided by/through QLT to its employees,
subject to:

	 	I.	 	Each plan’s terms for eligibility, excluding any waiting periods,
	 
	 	II.	 	Mr. O’Callaghan taking the necessary steps to ensure effective enrollment or
registration under each plan, and
	 
	 	III.	 	Customary deductions of employee contributions for the premiums of each plan.

	 	 	 	As at the date of this Agreement, the employee benefit plans provided by/through QLT to its
employees include life insurance, accidental death and dismemberment insurance, dependent
life insurance, vision-care insurance, health insurance, dental insurance and short and long
term disability insurance. QLT and Mr. O’Callaghan agree that employee benefit plans
provided by/through QLT to its employees may change from time to time.
	 
	 	(c)	 	Expense Reimbursement — Reimbursement, in accordance with QLT’s Policy and Procedures
Manual (as amended from time to time), of all reasonable business related promotion,
entertainment and/or travel expenses incurred by Mr. O’Callaghan, subject to him
maintaining proper accounts and providing documentation for these expenses upon request.
QLT will pay on behalf of Mr. O’Callaghan, his Law Society of British Columbia fees,
practice insurance (to the extent reasonably available) and Canadian Bar Association dues.
Collectively, these expenses and payments are the “Expenses”.
	 
	 	(d)	 	Vacation — Four weeks of paid vacation per year as determined in accordance with QLT’s
standard vacation policy for executive level employees. As per QLT’s Policy and Procedures
Manual (as amended from time to time), unless agreed to in writing by QLT:

	 	I.	 	All vacation must be taken within one year of the year in which it is earned by
Mr. O’Callaghan, and
	 
	 	II.	 	Vacation entitlement will not be cumulative from year to year.

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	 	(e)	 	RRSP Contributions — QLT will make a matching contribution to Mr. O’Callaghan’s
Registered Retired Savings Plan (“RRSP”) in an amount equal to Mr. O’Callaghan’s
contribution, up to a maximum of 7% of Mr. O’Callaghan’s annual base salary in any calendar
year. The maximum contribution to be made by QLT to Mr. O’Callaghan’s RRSP is 50% of the
annual limit for the RRSP as established by Canada Revenue Agency for the relevant calendar
year in which such income was earned and will be paid by QLT in accordance with QLT’s RRSP
contribution policies applicable to all employees.
	 
	 	(f)	 	Cash Incentive Compensation Plan — Participation in QLT’s annual cash incentive
compensation plan, as amended from time to time by the Board, at a target cash incentive
compensation payment of 45% of your base salary, prorated in the first year of
employment . Subject to the provisions of this Agreement, the amount of that payment
each year will be determined at the sole discretion of the Board and will be based on the
performance of QLT relative to pre-set individual and corporate objectives and milestones
for the immediately preceding fiscal year.
	 
	 	(g)	 	Stock Option Plan — Participation in any stock option plan offered by QLT to its
executive officers, in accordance with the terms of the plan in effect at the time of the
stock option offer(s).
	 
	 	(h)	 	One-time Signing Bonus — QLT will pay to Mr. O’Callaghan a one-time signing bonus equal
to Cdn.$130,000.00 (less statutory withholdings) payable on the date you commence
employment with QLT.
	 
	 	(i)	 	Signing Stock Options — Conditional on Mr. O’Callaghan entering into this Agreement and
commencing employment with QLT, the Board has approved the grant of stocks option to Mr.
O’Callaghan to purchase 300,000 common shares of QLT. The options will be subject to the
terms and conditions set out in QLT’s current Stock Option Incentive Plan, have a five-year
term from the date Mr. O’Callaghan commences employment with QLT and will vest monthly in
equal numbers over three years from the employment commencement date. The exercise price
of these signing options is the closing price of the common shares of QLT on the Toronto
Stock Exchange on the grant date, May 19, 2006, being the close of the market immediately
prior to the granting of such stock options.
	 
	 	(j)	 	Indemnity and Insurance —  QLT will enter into an indemnity agreement in the form
previously provided to Mr. O’Callaghan to indemnify Mr. O’Callaghan against liability as an
officer and director of QLT and any affiliate and subsidiary on the terms and conditions
set out in such indemnity agreement. QLT will provide directors and officers insurance
coverage for Mr. O’Callaghan at not less than that provided from time to time to other
senior executives of QLT.

	3.	 	RESIGNATION
	 
	3.1	 	Resignation — Mr. O’Callaghan may resign from his employment with QLT by giving QLT
60 days prior written notice (the “Resignation Notice”) of the effective date of his
resignation. On receiving a Resignation Notice, QLT may elect to provide the following
payments in lieu of notice to Mr. O’Callaghan and require him to leave the premises forthwith:

	 	(a)	 	Base Salary — Base salary owing to Mr. O’Callaghan to the end of the 60-day notice
period.
	 
	 	(b)	 	Benefits — Except as set out below in this subparagraph 3.1(b), for the 60-day notice
period, all employee benefit plan coverage enjoyed by Mr. O’Callaghan and his eligible
dependents prior to the date of his Resignation Notice. Mr. O’Callaghan acknowledges and
agrees that any short and long

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	 	 	 	term disability plans provided through QLT will not be continued beyond the last day that
Mr. O’Callaghan works at QLT’s premises (the “Last Active Day”).
	 
	 	(c)	 	Expense Reimbursement — Reimbursement (in accordance with subparagraph 2.1(c)) of all
Expenses incurred by Mr. O’Callaghan or due and owing prior to his Last Active Day.
	 
	 	(d)	 	Vacation Pay — Payment in respect of accrued but unpaid vacation pay owing to Mr.
O’Callaghan as at the expiry of the 60-day notice period.
	 
	 	(e)	 	Prorated RRSP Contribution — Payment of any unpaid RRSP contribution in respect of any
calendar year preceding the calendar year in which the 60-day period expires and a prorated
contribution to the RRSP, the pro-ration to be with respect to the portion of the current
calendar year worked by Mr. O’Callaghan, up to and including the 60-day notice period, and
the contribution to be subject to the conditions set out in subparagraph 2.1(e).

	3.2	 	Others — In the event of resignation of Mr. O’Callaghan as set out in paragraph 3.1,
the parties agree:

	 	(a)	 	No Bonus — Mr. O’Callaghan will have no entitlement to any unpaid amounts under QLT’s
Cash Incentive Compensation Plan; and
	 
	 	(b)	 	Stock Option Plan — Mr. O’Callaghan’s participation in any stock option plan offered
by QLT to its employees will be in accordance with the terms of the plan and option
agreement applicable to each stock option grant made to Mr. O’Callaghan.

	4.	 	RETIREMENT
	 
	4.1	 	Retirement — Effective the date of retirement (as defined in QLT’s Policy and
Procedures Manual, as amended from time to time) of Mr. O’Callaghan from active employment
with QLT, the parties agree that:

	 	(a)	 	This Agreement — Subject to the provisions of paragraph 10.6, both parties’ rights and
obligations under this Agreement will terminate without further notice or action by either
party.
	 
	 	(b)	 	Stock Options —Mr. O’Callaghan’s participation in any stock option plan offered by QLT
to its employees will be in accordance with the terms of the plan and option agreement
applicable to each stock option grant made to Mr. O’Callaghan.

	5.	 	TERMINATION
	 
	5.1	 	Termination for Cause — QLT may terminate Mr. O’Callaghan’s employment at any time
for cause. Should Mr. O’Callaghan be terminated for cause, he will be entitled to all
compensation due and owing to the date of termination but will not be entitled to any advance
notice of termination or pay in lieu thereof.
	 
	5.2	 	Termination Other than for Cause — QLT reserves the right to terminate Mr.
O’Callaghan’s employment at any time without cause. However, if QLT terminates Mr.
O’Callaghan’s employment for any reason other than for cause, then, except in the case of Mr.
O’Callaghan becoming completely disabled (which is provided for in paragraph 5.6) and subject
to the provisions set forth below, Mr. O’Callaghan will be entitled to receive notice, pay
and/or benefits (or any combination of notice, pay and/or benefits) as more particularly set
out in paragraph 5.3.
	 
	5.3	 	Severance Notice and Pay — In the event QLT terminates Mr. O’Callaghan’s employment
as set out in paragraph 5.2, Mr. O’Callaghan will be entitled to:

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	 	(a)	 	Notice — Advance written notice of termination (“Severance Notice”) or pay in lieu
notice of termination (“Severance Pay”), or any combination of Severance Notice and
Severance Pay, as more particularly set out below:

	 	I.	 	A minimum of twelve months Severance Notice, or Severance Pay in lieu thereof,
and
	 
	 	II.	 	One additional month’s Severance Notice, or Severance Pay in lieu thereof, for
each complete year of continuous employment with QLT,

	 	 	 	up to a maximum total of 24 months’ Severance Notice, or Severance Pay in lieu of Severance
Notice. Mr. O’Callaghan acknowledges and agrees that Severance Pay is in respect of base
salary only and, provided Mr. O’Callaghan executes and provides to QLT the release referred
to in paragraph 5.5(b) within the time period specified therein all Severance Pay will be
paid to Mr. O’Callaghan within 30 days of his Last Active Day. If Mr. O’Callaghan does not
execute and provide to QLT such release within that time period, QLT will pay to Mr.
O’Callaghan the Severance pay on a bi-weekly or monthly basis, at QLT’s discretion.
	 
	 	(b)	 	Benefits — Except as set out below, for 30 days after Mr. O’Callaghan’s Last Active
Day, all employee benefit plan coverage enjoyed by Mr. O’Callaghan and his dependents prior
to the date of termination. Thereafter, and in lieu of employee benefit plan coverage, Mr.
O’Callaghan will receive compensation (“Benefits Compensation”) in the amount of 10% of his
base salary for the balance of his Severance Notice period. Alernatively, if Mr.
O’Callaghan so notifies QLT in writing within that 30 day period that he wishes to continue
such benefits through the Severance Notice period, then in lieu of receiving such amount,
and provided Mr. O’Callaghan and his eligible dependents remain resident in Canada and
continue to be eligible for coverage, QLT will continue all health, life and dental
benefits (other than short and long term disability) through the Severance Notice period.
Mr. O’Callaghan acknowledges and agrees that short and long term disability plans provided
through QLT will not be continued beyond Mr. O’Callaghan’s Last Active Day.
	 
	 	(c)	 	Out Placement Counseling — QLT will pay to an out placement counseling service (to be
agreed to by Mr. O’Callaghan and QLT, each acting reasonably) a maximum of Cdn$5,000 for
assistance rendered to Mr. O’Callaghan in seeking alternative employment.
	 
	 	(d)	 	Other Compensation — QLT will provide the following additional compensation:

	 	I.	 	Reimbursement or payment of Expenses (in accordance with subparagraph 2.1(c))
incurred by Mr. O’Callaghan or due and owing on or prior to his Last Active Day [NTD:
Perks?].
	 
	 	II.	 	Payment to Mr. O’Callaghan in respect of his accrued but unpaid base salary and
vacation pay to the date of termination of his employment with QLT.
	 
	 	III.	 	Payment of any unpaid RRSP contribution in respect of any calendar year
preceding the calendar year in which the Last Active Day occurs and a prorated
contribution to the RRSP, the pro-ration to be with respect to the portion of the
current calendar year worked by Mr. O’Callaghan and the contribution to be subject to
the conditions set out in subparagraph 2.1(e).
	 
	 	IV.	 	Prorated payment to Mr. O’Callaghan in respect of his entitlement to
participate in QLT’s Cash Incentive Compensation Plan and any other incentive
compensation plan in place, the pro-ration to be with respect to the portion of the
current calendar year worked by Mr. O’Callaghan and the entitlement to be at the target
level Mr. O’Callaghan would have otherwise been eligible to receive in the current
calendar year if all corporate, and, if applicable, individual goals were met but not
exceeded provided that if the Last Active Day precedes the date that the amount
under

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	 	 	 	the Cash Incentive Compensation Plan or other incentive compensation is otherwise
actually paid to QLT’s executive officers for a preceding year then Mr. O’Callaghan will
also receive a payment in respect of his entitlement to participate in QLT’s Cash
Incentive Compensation Plan and any other incentive compensation plan in place for the
preceding calendar year and the entitlement to be at the target level Mr. O’Callaghan
would have otherwise been eligible to receive in the that calendar year if all
corporate, and individual goals were met but not exceeded.
	 
	 	V.	 	Mr. O’Callaghan’s participation in any stock option plan offered by QLT to its
employees will be in accordance with the terms of the plan and option agreement
applicable to each stock option grant made to Mr. O’Callaghan.

	5.4	 	Acknowledgement and Release — Mr. O’Callaghan acknowledges and agrees that in the
event QLT terminates Mr. O’Callaghan’s employment as set out in paragraph 5.2, in providing:

	 	(a)	 	The Severance Notice or Severance Pay, or any combination thereof;

	 
	 	(b)	 	The Benefits Compensation;
	 
	 	(c)	 	Out placement counseling service as more particularly set out in subparagraph 5.3(c);
and
	 
	 	(d)	 	The other compensation set out in subparagraph 5.3(d);

	 	 	QLT will have no further obligations, statutory or otherwise, to Mr. O’Callaghan in respect of
this Agreement and Mr. O’Callaghan’s employment under this Agreement.
	 
	5.5	 	Duty to Mitigate

	 	(a)	 	Duty to Mitigate — Mr. O’Callaghan acknowledges and agrees that if his employment is
terminated without cause as set out in paragraph 5.2 and he does not sign the Release
attached hereto as provided in paragraph 5.5(b), his entitlement to Severance Pay, Benefits
Compensation and other compensation as set out in paragraph 5.3 is subject to his duty to
mitigate such payments by looking for and accepting comparable alternative employment or
contract(s) for services provided that Mr O’Callaghan will not be obligated to accept any
such alternative employment or contract if the duration of the engagement is less than one
half of the remaining Severance Period notice. If Mr. O’Callaghan obtains new employment
or contract(s) for services of four weeks or longer, Mr. O’Callaghan agrees that he will
notify QLT of this fact in writing (the “New Employment Notice”) within five working days
of such an occurrence and in this event the following provisions apply:
	 
	 		 	I. Mr. O’Callaghan acknowledges and agrees that his entitlement to Severance Pay and
Benefits Compensation will cease as of the date on which his new employment or contract for
services commences.
	 
	 		 	II. Within 10 working days of receipt of the New Employment Notice, QLT agrees that it will
pay Mr. O’Callaghan a lump sum amount equivalent to 50% of the Severance Pay and Benefits
Compensation as set out in paragraph 5.3 otherwise owing to Mr. O’Callaghan for the balance
of the Severance Notice period.
	 
	 	(b)	 	Waiver of Duty to Mitigate on Delivery of Release — In the event that, either on or
before the date of termination of Mr. O’Callaghan’s employment with QLT or within 30 days
after termination of his employment, Mr. O’Callaghan executes and delivers to QLT a release
in the form set out in Appendix “A” to this Agreement, the provisions of paragraph 5.5(a)
shall be deemed to not apply and Mr. O’Callaghan shall have no duty to mitigate and there
will be no reduction in the Severance Pay or Benefits Compensation in the event that he
obtains alternative employment or contract(s) for service.

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	5.6	 	Termination Due to Inability to Act

	 	(a)	 	Termination — Subject to applicable law, QLT may immediately terminate this Agreement
by giving written notice to Mr. O’Callaghan if he becomes completely disabled (defined
below) to the extent that he cannot perform his duties under this Agreement either:

	 	I.	 	For a period exceeding six consecutive months, or
	 
	 	II.	 	For a period of 180 days (not necessarily consecutive) occurring during any
period of 365 consecutive days,

	 	 	 	and no other reasonable accommodation can be reached between QLT and Mr. O’Callaghan.
Notwithstanding the foregoing, QLT agrees that it will not terminate Mr. O’Callaghan
pursuant to this provision unless and until Mr. O’Callaghan has been accepted by the
insurer for ongoing long-term disability payments or, alternatively, has been ruled
definitively ineligible for such payments.
	 
	 	(b)	 	Payments — In the event of termination of Mr. O’Callaghan’s employment with QLT
pursuant to the provisions of this paragraph 5.6, QLT agrees to pay to Mr. O’Callaghan
Severance Pay and Benefits Compensation as set out in paragraph 5.3 and if Mr. O’Callaghan
ceases to be completely disabled, then the provisions of paragraph 5.3(c) (out placement
counseling) will apply. The payment will be due and owing within 30 days of the date that
Mr. O’Callaghan is either no longer entitled to receive disability or WCB payments or is
definitively ruled ineligible for such payments unless the payment will not effect the
receipt of such benefits by Mr. O’Callaghan in which case the payment will be made within
30 days of receipt of notice from Mr. O’Callaghan that the payment is due and owing.
	 
	 	(c)	 	Definition — The term “completely disabled” as used in this paragraph 5.6 will mean the
inability of Mr. O’Callaghan to perform the essential functions of his position under this
Agreement by reason of any incapacity, physical or mental, which a licensed physician
acceptable to Mr. O’Callaghan and the Board , acting reasonably, determines keeps Mr.
O’Callaghan from satisfactorily performing the essential functions of his position for QLT
during the foreseeable future.

	5.7	 	Death — Except as set out below, effective the date of death (the “Date of Death”) of
Mr. O’Callaghan, this Agreement and the employment of Mr. O’Callaghan under this Agreement
will terminate without further notice or action by either party. Within 30 days after the
Date of Death (and the automatic concurrent termination of employment under this Agreement),
QLT will pay the following amounts to Mr. O’Callaghan’s estate:

	 	(a)	 	Base Salary — Base salary owing to Mr. O’Callaghan up to his Date of Death.
	 
	 	(b)	 	Payment in Lieu of Benefits — In lieu of employee benefit coverage for his eligible
dependents after his Date of Death, a payment in the amount of 10% of his annual base
salary in effect at his Date of Death.
	 
	 	(c)	 	Expense Reimbursement — Reimbursement of Expenses incurred by Mr. O’Callaghan or due
and owing prior to his Date of Death, subject to subparagraph 2.1(c).
	 
	 	(d)	 	Vacation Pay — Payment in respect of accrued but unpaid vacation pay owing to Mr.
O’Callaghan as at his Date of Death.
	 
	 	(e)	 	RRSP Contribution — Payment of any unpaid RRSP contribution in respect of any calendar
year preceding the Date of Death and a prorated contribution to Mr. O’Callaghan’s RRSP,
the pro-ration to be with respect to the portion of the current calendar year worked by
Mr. O’Callaghan and the contribution to be subject to the conditions set out in subparagraph 2.1(e).

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	 	 	 	contribution to be subject to the conditions set out in subparagraph 2.1(e).
	 
	 	(f)	 	Bonus — A prorated payment to Mr. O’Callaghan in respect of his entitlement to
participate in QLT’s Cash Incentive Compensation Plan and any other incentive compensation
plan in place, the pro-ration to be with respect to the portion of the current calendar
year worked by Mr. O’Callaghan and the entitlement to be at the target level Mr.
O’Callaghan would have otherwise been eligible to receive in the current calendar year if
all corporate, and, if applicable, individual goals were met but not exceeded provided that
if the Date of Death precedes the date that the amount under the Cash Incentive
Compensation Plan or other incentive compensation is otherwise actually paid to QLT’s
executive officers for a preceding year then Mr. O’Callaghan will also receive a payment in
respect of his entitlement to participate in QLT’s Cash Incentive Compensation Plan
and any other incentive compensation plan in place for the preceding calendar year and the
entitlement to be at the target level Mr. O’Callaghan would have otherwise been eligible to
receive in the that calendar year if all corporate, and individual goals were met but not
exceeded.

	 	 	After his Date of Death, Mr. O’Callaghan’s participation and/or entitlement under any stock
option plan offered by QLT to its employees will be in accordance with the terms of the plan and
stock option agreement applicable to each stock option grant made to Mr. O’Callaghan.
	 
	5.8	 	No Duplication — In the event that the Severance Pay provisions of this Agreement and
the payment provisions of the Change of Control Agreement entered into between QLT and Mr.
O’Callaghan are both applicable, Mr. O’Callaghan agrees that he will give written notice to
QLT with respect to which agreement he wishes to be paid out under and that he is not entitled
to severance pay under both agreements.
	 
	5.9	 	Indemnity and D&O Insurance — Notwithstanding the foregoing, nothing in this Agreement will
act to remise, release or discharge QLT from obligations which QLT may have to indemnify Mr.
O’Callaghan pursuant to paragraph 2.1 or any other agreement entered into between QLT and Mr.
O’Callaghan and any rights he may have to claim coverage under QLT’s past, current or future
director and/or officer insurance policies, in either case with respect to existing or future
pending or threatened claims that may be brought by third parties
	 
	6.	 	CONFLICT OF INTEREST
	 
	6.1	 	Avoid Conflict of Interest — Except as set out below, during the term of his
employment with QLT, Mr. O’Callaghan agrees to conduct himself at all times so as to avoid
any real or apparent conflict of interest with the activities, policies, operations and
interests of QLT. To avoid improper appearances, Mr. O’Callaghan agrees that he will not
accept any financial compensation of any kind, nor any special discount or loan from persons,
corporations or organizations having dealings or potential dealings with QLT, either as a
customer or a supplier or a co-venturer. QLT and Mr. O’Callaghan acknowledge and agree that
from time to time the Chief Executive Officer of QLT may consent in writing to activities by
Mr. O’Callaghan which might otherwise appear to be a real or apparent conflict of interest.
	 
	6.2	 	No Financial Advantage — During the term of his employment with QLT, Mr. O’Callaghan
agrees that neither he nor any members of his immediate family will take financial advantage
of or benefit financially from information that is obtained in the course of his employment
related duties and responsibilities unless the information is generally available to the
public.
	 
	6.3	 	Comply with Policies — During the term of his employment with QLT, Mr. O’Callaghan
agrees to comply with all written policies issued by QLT dealing with conflicts of interest.
	 
	6.4	 	Breach Equals Cause — Mr. O’Callaghan acknowledges and agrees that material breach by
him of the provisions of this Section 6 will be cause for immediate termination by QLT of his
employment with QLT.

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	7.	 	CONFIDENTIALITY
	 
	7.1	 	Information Held in Trust — Mr. O’Callaghan acknowledges and agrees that all business
and trade secrets and confidential information which Mr. O’Callaghan acquires during his
employment with QLT relating to the business and affairs of QLT, its affiliates or
subsidiaries or to technology, systems, programs, ideas, products or services which have been
or are being developed or utilized by QLT, its affiliates or subsidiaries or in which QLT, its
affiliates or subsidiaries are or may become interested (collectively, “Confidential
Information”), will for all purposes and at all times, both during the term of Mr.
O’Callaghan’s employment with QLT and at all times thereafter, be kept confidential by Mr.
O’Callaghan and used by Mr. O’Callaghan only for the exclusive benefit of QLT.
	 
	7.2	 	Non Disclosure —Mr. O’Callaghan acknowledges and agrees that both during the term of
his employment with QLT and at all times thereafter, without the express or implied consent of
QLT, Mr. O’Callaghan will not:

	 	(a)	 	Disclose — Disclose to any company, firm or person, other than QLT and its directors
and officers, any of the private affairs of QLT or any Confidential Information; or
	 
	 	(b)	 	Use — Use any Confidential Information that he may acquire for his own purposes or for
any purposes, other than those of QLT.

	7.3	 	Intellectual Property Rights

	 	(a)	 	Disclose Inventions — Mr. O’Callaghan agrees to promptly disclose to QLT any and all
ideas, developments, designs, articles, inventions, improvements, discoveries, machines,
appliances, processes, methods, products or the like (collectively, “Inventions”) that Mr.
O’Callaghan may invent, conceive, create, design, develop, prepare, author, produce or
reduce to practice, either solely or jointly with others, in the course of his employment
with QLT.
	 
	 	(b)	 	Inventions are QLT Property — All Inventions and all other work of Mr. O’Callaghan in
the course of his employment with QLT will at all times and for all purposes be the
property of QLT for QLT to use, alter, vary, adapt and exploit as it will see fit, and will
be acquired or held by Mr. O’Callaghan in a fiduciary capacity solely for the benefit of
QLT.
	 
	 	(c)	 	Additional Requirements — Mr. O’Callaghan agrees to:

	 	I.	 	Treat all information with respect to Inventions as Confidential Information.
	 
	 	II.	 	Keep complete and accurate records of Inventions, which records will be the
property of QLT and copies of which records will be maintained at the premises of QLT.
	 
	 	III.	 	Execute all assignments and other documents required to assign and transfer to
QLT (or such other persons as QLT may direct) all right, title and interest in and to
the Inventions and all other work of Mr. O’Callaghan in the course of his employment
with QLT, and all writings, drawings, diagrams, photographs, pictures, plans, manuals,
software and other materials, goodwill and ideas relating thereto, including, but not
limited to, all rights to acquire in the name of QLT or its nominee(s) patents,
registration of copyrights, design patents and registrations, trade marks and other
forms of protection that may be available.
	 
	 	IV.	 	Execute all documents and do all acts reasonably requested by QLT to give
effect to this provision.

	7.4	 	Records — Mr. O’Callaghan agrees that all records or copies of records concerning
QLT’s activities, business interests or investigations made or received by him during his
employment with QLT are and

Page 9

 

	 	 	will remain the property of QLT. He further agrees to keep such records or copies in the
custody of QLT and subject to its control, and to surrender the same at the termination of his
employment or at any time during his employment at QLT’s request.

	7.5	 	No Use of Former Employer’s Materials — Mr. O’Callaghan certifies that he has not
brought to QLT and will not use while performing his employment duties for QLT any materials
or documents of any former employer which are not generally available to the public, except if
the right to use the materials or documents has been duly licensed to QLT by the former
employer.

	8.	 	POST-EMPLOYMENT RESTRICTIONS

	8.1	 	Non-Compete — Mr. O’Callaghan agrees that, by virtue of his senior position with QLT,
he will possess strategic sensitive information concerning the business of QLT, its affiliates
and subsidiaries. As a result, and in consideration of the payments to be made by QLT to Mr.
O’Callaghan under this Agreement, without the prior written consent of QLT, for a period of
one year following termination of his employment with QLT for any reason (by resignation or
otherwise), as measured from his Last Active Day, Mr. O’Callaghan will not:

	 	(a)	 	Participate in a Competitive Business — Except for any position he may hold as an
employee or partner in a law firm, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or be a
director or an employee of, or a consultant to, any business, firm or corporation that, as
a part of conducting its business, is in any way competitive with QLT or any of its
affiliates or subsidiaries (including, without limitation, QLT USA, Inc.) with respect to:

	 	I.	 	The development and/or commercialization and/or marketing of pharmaceutical
products that are directly competitive with QLT or its subsidiaries’ then current
commercial products, Visudyne or Eligard or any other products then being
commercialized by or on behalf of QLT or its affiliates or subsidiaries which
individually have worldwide annual net sales of U.S.$50 million or more in the calendar
year preceding Mr. O’Callaghan’s Last Active Day,
	 
	 	II.	 	The development and/or commercialization and/or marketing of light-activated
pharmaceutical products for photodynamic therapy in the treatment of cancer,
ophthalmic, dermatology, urology and auto-immune disease, or
	 
	 	III.	 	the development and/or commercialization and/or marketing of pharmaceutical
products that are based on a polymer based drug delivery technology platform and are
used in the treatment of substantially the same medical indications as products which
have become a significant component of QLT’s core business or the core business of any
affiliate or subsidiary of QLT, anywhere in Canada, the United States or Europe.

	 
	 	(b)	 	Solicit on Behalf of a Competitive Business — Directly or indirectly call upon or
solicit any QLT employee or QLT customer or known prospective customer of QLT on behalf of
any business, firm or corporation that, as part of conducting its business, is in any way
competitive with QLT with respect to:
	 
	 		 	I. The development and/or commercialization and/or marketing of pharmaceutical products that
are directly competitive with QLT’s or its subsidiaries’ then current commercial products,
Visudyne or Eligard or any other products then being commercialized by or on behalf of QLT
or its affiliates or subsidiaries which individually have worldwide annual net sales of
U.S.$50 million or more in the calendar year preceding Mr. O’Callaghan’s Last Active Day,

Page 10

 

	 	 	 	II. The development and/or commercialization and/or marketing of light-activated
pharmaceutical products for photodynamic therapy in the treatment of cancer, ophthalmic,
dermatology, urology and auto-immune disease, or
	 
	 		 	III. the development and/or commercialization and/or marketing of pharmaceutical products
that are based on a polymer based drug delivery technology platform and are used in the
treatment of substantially the same medical indications as products which have become a
significant component of QLT’s core business or the core business of any affiliate or
subsidiary of QLT, anywhere in Canada, the United States or Europe.
	 
	 	(c)	 	Solicit Employees — Directly or indirectly solicit any individual to leave the
employment of QLT or any of its affiliates or subsidiaries for any reason or interfere in
any other manner with the employment relationship existing between QLT, its affiliates or
subsidiaries and its current employees other than by way of advertisements of broad
distribution not targeted at employees of QLT or its affiliates or subsidiaries.
	 
	 	(d)	 	Solicit Customers — Directly or indirectly induce or attempt to induce any customer,
supplier, distributor, licensee or other business relation of QLT or its affiliates or
subsidiaries to cease doing business with them or in any way interfere with the existing
business relationship between any such customer, supplier, distributor, licensee or other
business relation and QLT or its affiliates or subsidiaries.

	8.2	 	Minority Share Interests Allowed — The parties agree that nothing contained in
paragraph 8.1 is intended to prohibit Mr. O’Callaghan from owning less than 5% of the issued
and outstanding stock of any company whose stock or shares are traded publicly on a recognized
exchange.
	 
	9.	 	REMEDIES
	 
	9.1	 	Irreparable Damage — Mr. O’Callaghan acknowledges and agrees that:

	 	(a)	 	Breach — Any breach of any provision of this Agreement could cause irreparable damage
to QLT; and
	 
	 	(b)	 	Consequences of Breach — In the event of a breach of any provision of this Agreement by
him, QLT will have, in addition to any and all other remedies at law or in equity, the
right to an injunction, specific performance or other equitable relief to prevent any
violation by him of any of the provisions of this Agreement including, without limitation,
the provisions of Sections 7 and 8.

	9.2	 	Injunction — In the event of any dispute under Sections 7 and/or 8, Mr. O’Callaghan
agrees that QLT will be entitled, without showing actual damages, to a temporary or permanent
injunction restraining his conduct, pending a determination of such dispute and that no bond
or other security will be required from QLT in connection therewith.

	9.3	 	Additional Remedies — Mr. O’Callaghan acknowledges and agrees that the remedies of
QLT specified in this Agreement are in addition to, and not in substitution for, any other
rights and remedies of QLT at law or in equity and that all such rights and remedies are
cumulative and not alternative or exclusive of any other rights or remedies and that QLT may
have recourse to any one or more of its available rights and remedies as it will see fit.

	10.	 	GENERAL MATTERS

	10.1	 	Tax Withheld — The parties acknowledge and agree that all payments to be made by QLT
to Mr.

Page 11

 

	 	 	O’Callaghan under this Agreement will be subject to QLT’s withholding of applicable withholding
taxes.
	 
	10.2	 	Independent Legal Advice — Mr. O’Callaghan acknowledges that he has obtained or had
the opportunity to obtain independent legal advice with respect to this Agreement and all of
its terms and conditions. QLT will reimburse Mr. O’Callaghan for the reasonable costs of
obtaining such advice.

	10.3	 	Binding Agreement — The parties agree that this Agreement will enure to the benefit
of and be binding upon each of them and their respective heirs, executors, successors and
assigns.

	10.4	 	Governing Law — The parties agree that this Agreement will be governed by and
interpreted in accordance with the laws of the Province of British Columbia and the laws of
Canada applicable to this Agreement. All disputes arising under this Agreement will be
referred to the Courts of the Province of British Columbia, which will have exclusive
jurisdiction, unless there is mutual agreement to the contrary.

	10.5	 	Notice — The parties agree that any notice or other communication required to be
given under this Agreement will be in writing and will be delivered personally or by facsimile
transmission to the addresses set forth on page 1 of this Agreement to the attention of the
following persons:

	 	(a)	 	If to QLT — Attention: Chief Executive Officer, Fax No. (604) 707-7001,
	 
	 	 	 	with a copy to:

QLT Inc.

887 Great Northern Way

Vancouver, British Columbia

Attention: Chairman of the Board of Directors

Fax No.: (604) 873-0816

	 	(b)	 	If to Mr. O’Callaghan — To the address for Mr. O’Callaghan specified on page 1 of this
Agreement;

		 	or to such other addresses and persons as may from time to time be notified in writing by the
parties. Any notice delivered personally will be deemed to have been given and received at the
time of delivery. Any notice delivered by facsimile transmission will be deemed to have been
given and received on the next business day following the date of transmission.
	 
	10.6	 	Survival of Terms

	 	(a)	 	Mr. O’Callaghan’s Obligations —Mr. O’Callaghan acknowledges and agrees that his
representations, warranties, covenants, agreements, obligations and liabilities under any
and all of Sections 7, 8 and 10 of this Agreement will survive any termination of this
Agreement.
	 
	 	(b)	 	Company’s Obligations — QLT acknowledges and agrees that its representations,
warranties, covenants, agreements, obligations and liabilities under any and all of
Sections 3, 4, 5 and 10 of this Agreement will survive any termination of this Agreement.
	 
	 	(c)	 	Without Prejudice — Any termination of this Agreement will be without prejudice to any
rights and obligations of the parties arising or existing up to the effective date of such
expiration or termination, or any remedies of the parties with respect thereto.

	10.7	 	Waiver — The parties agree that any waiver of any breach or default under this
Agreement will only be effective if in writing signed by the party against whom the waiver is
sought to be enforced, and no

Page 12

 

	 	 	waiver will be implied by indulgence, delay or other act, omission or conduct. Any waiver will
only apply to the specific matter waived and only in the specific instance in which it is
waived.
	 
	10.8	 	Entire Agreement — The parties agree that the provisions contained in this Agreement,
any Stock Option Agreements and the Change of Control Agreement entered into between QLT and
Mr. O’Callaghan constitute the entire agreement between QLT and Mr. O’Callaghan with respect
to the subject matters hereof and thereof, and supersede all previous communications,
understandings and agreements (whether verbal or written) between QLT and Mr. O’Callaghan
regarding the subject matters hereof and thereof. To the extent that there is any conflict
between the provisions of this Agreement, the Change of Control Agreement and any Stock Option
Agreements between QLT and Mr. O’Callaghan, the following provisions will apply:

	 	(a)	 	Change of Control — If the conflict is with respect to an event, entitlement or
obligation in the case of a Change of Control of QLT (as defined in the Change of Control
Agreement between QLT and Mr. O’Callaghan), the provisions of the Change of Control
Agreement will govern (unless Mr. O’Callaghan otherwise elects as contemplated in paragraph
5.8 of this Agreement).
	 
	 	(b)	 	Stock Options — If the conflict is with respect to an entitlement or obligation with
respect to stock options of QLT, the provisions of the Stock Option Agreements will govern
(unless the parties otherwise mutually agree).
	 
	 	(c)	 	Other — In the event of any other conflict, the provisions of this Agreement will
govern (unless the parties otherwise mutually agree).

	10.9	 	Severability of Provisions — If any provision of this Agreement as applied to either
party or to any circumstance is adjudged by a court of competent jurisdiction to be void or
unenforceable for any reason, the invalidity of that provision will in no way affect (to the
maximum extent permissible by law):

	 	(a)	 	The application of that provision under circumstances different from those adjudicated
by the court;
	 
	 	(b)	 	The application of any other provision of this Agreement; or
	 
	 	(c)	 	The enforceability or invalidity of this Agreement as a whole.

	 	 	If any provision of this Agreement becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction by reason of the scope, extent or duration of its coverage, then the provision will
be deemed amended to the extent necessary to conform to applicable law so as to be valid and
enforceable or, if the provision cannot be so amended without materially altering the intention
of the parties, then such provision will be stricken and the remainder of this Agreement will
continue in full force and effect.
	 
	10.10	 	Captions — The parties agree that the captions appearing in this Agreement have been
inserted for reference and as a matter of convenience and in no way define, limit or enlarge
the scope or meaning of this Agreement or any provision.
	 
	10.11	 	Amendments — Any amendment to this Agreement will only be effective if the amendment
is in writing and is signed by QLT and Mr. O’Callaghan.

     IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first
written above.

QLT INC.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	By:

	 	/s/ Robert L. Butchofsky
	 	 	 	/s/ Peter J. O’Callaghan	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	ROBERT L. BUTCHOFSKY
	 	 	 	PETER J. O’CALLAGHAN	 	 
	 

	 	President and Chief Executive Officer	 	 	 	 	 	 

Page 13exv10w45

 

EXHIBIT 10.45

May 31, 2006

STRICTLY PERSONAL AND CONFIDENTIAL

Mr. Peter J. O’Callaghan

[redacted]

Vancouver, BC

[redacted]

Dear Peter:

INTRODUCTION

     A dedicated executive management team is essential to protecting and enhancing the best
interests of QLT Inc. (the “Company” or “QLT”) and its shareholders. The Company wishes to provide
its executives with compensation and benefits arrangements which would come into effect in
circumstances related to a change in control which are competitive with those of other
corporations, in order to ensure the Company receives the benefit of the full attention and
dedication of the executives at all times, and notwithstanding any threatened or pending change in
control of the Company.

     The purpose of this Letter Agreement is to document the terms of the severance package to
which you as a Company executive shall be entitled if material changes in the terms of your
employment with the Company occur without your consent, or if your employment with the Company is
terminated, in connection with a change in control of the Company.

          NOW THEREFORE in consideration of $10.00, the promises made by each party to the other as set
out in this Letter Agreement and other good and valuable consideration, the receipt and sufficiency
of which each of the parties acknowledges, QLT and you agree as follows:

PART I

DEFINITIONS

	1.1	 	Definitions. In this Letter Agreement:

	 	(a)	 	“Affiliate” has the meaning given to it in the Business Corporations Act (British
Columbia);
	 
	 	(b)	 	“Benefit Plans” means the coverage under the Company’s group benefit plan for employees
which the Company provides to you and your eligible dependants, including all medical,
dental, life and other benefit plans but excluding short and long term disability coverage,
out-of-province medical coverage and the RRSP contribution benefit;

 

 

	 	(c)	 	"Board” means the Company’s Board of Directors;
	 
	 	(d)	 	“Change of Control” means any of the following events:

	 	(i)	 	Merger. A merger, consolidation, reorganization or arrangement involving the
Company other than a merger, consolidation, reorganization or arrangement in which
stockholders of the Company immediately prior to such merger, consolidation,
reorganization or arrangement own, directly or indirectly, securities possessing at
least 65% of the total combined voting power of the outstanding voting securities of
the corporation resulting from such merger, consolidation, reorganization or
arrangement in substantially the same proportion as their ownership of such voting
securities immediately prior to such merger, consolidation, reorganization or
arrangement;
	 
	 	(ii)	 	Tender Offer. The acquisition, directly or indirectly, by any person or group
of persons acting jointly or in concert (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership of securities possessing more than 35% of the total
combined voting power of the Company’s outstanding securities pursuant to a tender
offer (which for greater certainty, includes a takeover bid) made directly to the
Company’s stockholders;
	 
	 	(iii)	 	Sale. The sale, transfer or other disposition of all or substantially all of
the assets of the Company other than a sale, transfer or other disposition to an
Affiliate of the Company or to an entity in which stockholders of the Company
immediately prior to such sale, transfer or other disposition own, directly or
indirectly, securities possessing at least 65% of the total combined voting power of
the outstanding voting securities of the purchasing entity in substantially the same
proportion as their ownership of such voting securities immediately prior to sale,
transfer or other disposition; or
	 
	 	(iv)	 	Board Change. A change in the composition of the Board over a period of 24
consecutive months or less such that a majority of the Board members ceases to be
comprised of individuals who either have been:

	 	(A)	 	Board members continuously since the beginning of such period, or
	 
	 	(B)	 	appointed or nominated for election as Board members during
such period by at least a majority of the Board members described in subsection
(A) above who were still in office at the time the Board approved such
appointment or nomination.

	 	(e)	 	“Involuntary Termination” means any one of the following:

	 	(i)	 	the termination of your employment by the Company or the giving of written
notice to you by the Company of the intended termination of your employment, in either
case for reasons other than cause, permanent disability or death, within the 24 month
period following the occurrence of a Change of Control, or
	 
	 	(ii)	 	your giving written notice to the Company, within 24 months after a Triggering
Event, in which you advise that a Triggering Event has occurred and tender your
resignation from employment with the Company;

 

 

	 	(f)	 	“Successor” shall mean any corporation which is the legal successor to the Company, or which
acquires substantially all of the assets of the Company, pursuant to a Change of Control;
	 
	 	(g)	 	“Triggering Event” shall mean, without your express written consent, the occurrence of any
one or more of the following circumstances after a Change of Control:

	 	(i)	 	the assignment to you of any duties which are materially inconsistent, in an adverse
respect, with your position, authority, duties or responsibilities prior to the Change of
Control, or any other action by the Company or its Successor which results in a material
diminution in such position, authority, duties or responsibilities, except an isolated
and inadvertent action not taken in bad faith and which is remedied by the Company or its
Successor promptly after receipt of notice thereof from you;
	 
	 	(ii)	 	any reduction by the Company or a Successor in your base salary;
	 
	 	(iii)	 	a reduction by the Company or a Successor of 25% or more of your annual cash
incentive compensation opportunity;
	 
	 	(iv)	 	the Company or a Successor’s requiring you to, or notifying you that you will be
required to, relocate to or be based at, or situate one day or more per week in, a
location which is 100 kilometers or more from the location where you were based immediately
prior to the Change of Control;
	 
	 	(v)	 	the failure by the Company or a Successor to continue, substantially as in effect
immediately prior to the Change of Control, all of the Company’s Benefit Plans, in which
you and your eligible dependents participate (or substantially equivalent successor plans,
programs, policies, practices or arrangements) or the failure by the Company or a
Successor to continue your participation therein on substantially the same basis as
existed immediately prior to the Change of Control;
	 
	 	(vi)	 	the failure of the Company to obtain an agreement from any Successor to assume and
agree to perform this Letter Agreement, as contemplated in Section 3.5 of this Letter
Agreement, and your Employment Agreement with the Company (the “Employment Agreement”); or
	 
	 	(vii)	 	any purported termination by the Company or a Successor of your employment other
than for cause, permanent disability or death.

PART II

CHANGE OF CONTROL BENEFITS

2.1 Severance Payment. Upon the occurrence of an Involuntary Termination, you shall receive
a severance payment from the Company equal to the base salary, maximum bonus entitlement, and
maximum RRSP contribution to which you would have been entitled in an eighteen (18) month period
(the “Severance Period”), calculated as follows:

 

 

	 	(a)	 	the rate of base salary will be that in effect at the time of the
Involuntary Termination or as was in effect immediately prior to the occurrence of
a Triggering Event, whichever rate is greater; and
	 
	 	(b)	 	the maximum bonus entitlement will be calculated as the maximum amount
available to you under the Company’s cash incentive compensation plan at the time
of the Involuntary Termination as if 100% of your individual goals (if applicable)
and the corporate goals were met but not exceeded or the entitlement which was
available to you immediately prior to the occurrence of a Triggering Event,
whichever amount is greater; and
	 
	 	(c)	 	a contribution to your RRSP, equal to that to which you would have been
entitled had you been employed by the Company throughout the Severance Period and
subject to terms of the RRSP contribution provisions set out in your Employment
Agreement with the Company.

2.2 Other Compensation. In addition to the amounts paid under Section 2.1, upon the
occurrence of an Involuntary Termination, the Company shall:

	 	(a)	 	Expenses — reimburse you for all reasonable business related promotion,
entertainment and/or travel expenses incurred by you during the course of your
employment with the Company, subject to the expense reimbursement provisions set
out in your Employment Agreement with the Company and the Company’s Policy and
Procedures Manual, as amended from time to time;
	 
	 	(b)	 	Vacation — make a payment to you in respect of your accrued but unpaid
vacation pay up to and including your last day of employment with the Company;
	 
	 	(c)	 	RRSP — make a prorated contribution to your RRSP, the pro-ration to be
with respect to the portion of the then current calendar year worked by you up to
and including the last day of your employment with the Company and subject to the
RRSP contribution provisions set out in your Employment Agreement with the
Company;
	 
	 	(d)	 	Cash Incentive Compensation Earned Prior to Involuntary Termination —
in addition to the payments under Section 2.1(b) above, the Company shall make a
payment to you in respect of your entitlement to participate in the Company’s cash
incentive compensation plan in respect of the current calendar year, and the prior
year if such payment has not yet been made, to be pro-rated with respect to the
portion of the current calendar year worked by you up to and including your last
day of employment with the Company and, in respect of the current calendar year,
shall be calculated at the maximum annual bonus entitlement available to you under
the Company’s cash incentive compensation plan at the time of the Involuntary
Termination as if 100% of your individual goals (if applicable) and the corporate
goals were met but not exceeded or the entitlement which was available to you
immediately prior to the occurrence of any prior Triggering Event, whichever amount
is greater;
	 
	 	(e)	 	Benefits — continue to provide you and your eligible dependants with
coverage under the Company’s Benefit Plans for a period of 30 days after your last
day of employment with the 

 

 

	 	 	 	Company and, at your request, for such further period
(the aggregate of which shall not exceed the Severance Period) as the insurer shall
permit, and for any period of the Severance Period during which such coverage is
not maintained, the Company shall pay to you compensation in the amount of 10% of
your base salary, calculated in accordance with Section 2.1(a), provided that the
Company’s obligation to maintain coverage for you and
your eligible dependants under this subsection will be conditional upon you and your
eligible dependants remaining in Canada;

	 	(f)	 	Moving Expenses — pay such moving expenses as may be reasonably
incurred by you to relocate you and your family to a new location for future
employment purposes or the location from which you traveled to Vancouver, as the
case may be, including, in the event that you are unable to sell your home in
Vancouver before you are required to pay costs of accommodation at your new
location, the costs of such accommodation until you derive proceeds from the sale
of you home in Vancouver, or six months, whichever period is longer, together with
any additional relocation reimbursement to which you may then be entitled under the
terms of your Employment Agreement with the Company, such expenses to be calculated
and paid in accordance with terms of your Employment Agreement, provided that there
is no duplication of payments pursuant to the Employment Agreement and this clause;
	 
	 	(g)	 	Out-Placement Counselling — reimburse you for out-placement counselling
services from a qualified counsellor to be agreed to by you and the Company to a
maximum of CAD5,000 for services rendered to you in seeking alternative employment.

2.3 Timing of Payment. The amounts set out in Sections 2.1 and 2.2 shall be paid to you in
a lump sum payment within 30 days of your Involuntary Termination, except for the RRSP payments
described in Section 2.1(c) and 2.2(d), which will be payable in accordance with the terms of your
Employment Agreement in the same manner as if you were employed throughout the Severance Period.

2.4 No Duplication. The Company agrees that an Involuntary Termination by you, as defined
in subsection 1.1(e)(ii), shall constitute a termination of your employment by the Company without
cause pursuant to your Employment Agreement and any other agreement in effect between you and the
Company. In the event that the severance payment and other compensation provisions set out in
Sections 2.1 and 2.2 of this Letter Agreement and the severance payment provisions in your
Employment Agreement with the Company are both applicable, the Company will provide to you a
summary and calculation of your severance entitlements under each agreement and you agree that,
upon the Company’s request, you shall give written notice to the Company with respect to which
agreement you wish to be paid out under and that you shall not be entitled to severance pay under
both agreements.

2.5 Options. Upon the occurrence of an Involuntary Termination, the provisions of your
Stock Option Agreement(s) with the Company shall govern all stock option issues, including, without
limitation, acceleration of vesting and the time period remaining to exercise any vested options.

 

 

2.6 Acknowledgement. In the event of an Involuntary Termination, payment by the Company of
the amounts set out in Sections 2.1 and 2.2 or, if you elect to receive severance under your
Employment Agreement, payment of the amounts set out therein, in lieu of receiving a duplicative
payment hereunder, shall be in full and final satisfaction of all amounts that might otherwise be
payable by the Company to you by way of compensation for length of service, damages in lieu of
notice of termination or any other obligations arising under your employment with the Company and
the Company shall have no further obligations, statutory or otherwise, arising out of or in respect
of your employment and you shall execute a complete and general release in the form set out in
Schedule A as an express condition of your right to receive the payments and benefits referred to
in Sections 2.1 and 2.2 or under your Employment Agreement, as the case may be.

2.7 Termination for Cause, Permanent Disability or Death. For greater certainty, if your
employment is terminated for cause, permanent disability or death or you terminate your employment
other than as an Involuntary Termination, you shall not be entitled to payment of the amounts under
this Letter Agreement and the terms of your Employment Agreement with the Company shall govern.

2.8 Waiver of Non-Competition Covenant. Effective upon your Involuntary Termination, the
Company hereby waives any and all rights it has to insist upon compliance with or to enforce any
covenant, undertaking or agreement by you under your Employment Agreement or otherwise, pursuant to
which you have agreed not to compete with the Company in your future employment or otherwise limit
your future employment opportunities. Your obligations of confidentiality to the Company contained
in your Employment Agreement shall remain in full force and effect and are not altered by this
Letter Agreement.

2.9 Right to Waive any and all Consideration. In your discretion, upon your
written request to the Company made within 15 days of your Involuntary Termination, you may elect
to irrevocably waive your right to any of the consideration payable by the Company pursuant to this
Letter Agreement.

PART III

MISCELLANEOUS PROVISIONS

3.1 Term of Agreement. This Letter Agreement shall remain in effect for the term of your
employment with the Company and for a further six month period thereafter, unless the parties
mutually agree to an earlier termination, provided that the expiry or termination of this Letter
Agreement shall not affect the rights and obligations of the parties arising under this Letter
Agreement prior to its termination or expiry.

3.2 Legal Fees. The Company shall pay, to the full extent permitted by law, all legal fees
and expenses which you may reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company or its successors or Affiliates, you or others of the validity or
enforceability of, or liability under, any provision of this Letter Agreement or any guarantee of
performance thereof (including as a result of any contest by you about the amount of any payment
pursuant to this Letter Agreement).

 

 

3.3 Withholding Taxes. The Company may withhold from any amounts payable under this Letter
Agreement such federal, provincial, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.

3.4 General Creditor Status. Except as provided by law, the benefits to which you may
become entitled under this Letter Agreement shall be paid, when due, from the general assets of the
Company. Your right (or the right of the executors or administrators of your estate) to receive
any such payments shall at all times be that of a general creditor of the Company and shall have no
priority over the claims of other general creditors of the Company.

3.5 Successors; Binding Agreement. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its
business and/or assets to assume and agree to perform this Letter Agreement by express written
agreement in the same
manner and to the same extent that it would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement within 30 days of any
such succession shall be a breach of this Letter Agreement and shall entitle you to compensation
from the Company in the same amount and on the same terms as you would be entitled under this
Letter Agreement, except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date of the Involuntary Termination.

3.6 Death. Notwithstanding anything else in this Letter Agreement, should you die after
becoming entitled to benefits under this Letter Agreement but before receipt of all benefits to
which you became entitled under this Letter Agreement, then the payment of such benefits shall be
made, on the due date or dates hereunder had you survived, to the executors or administrators of
your estate.

3.7 Governing Law. The provisions of this Letter Agreement shall be governed by and
interpreted in accordance with the laws of the Province of British Columbia and the laws of Canada
applicable to this Letter Agreement. All disputes arising under this Letter Agreement shall be
referred to the Courts of the Province of British Columbia, which shall have exclusive
jurisdiction, unless there is mutual agreement to the contrary.

3.8 Notice. The parties agree that any notice or other communication required to be given
under this Letter Agreement will be in writing and will be delivered personally to the addresses
set forth on page 1 of this Letter Agreement (or, in your case, to the most recent address for you
which the Company has on record), or to such other addresses and persons as may from time to time
be notified in writing by the parties.

3.9 Entire Agreement. This Letter Agreement, the Employment Agreement and any Stock Option
Agreements you have with the Company constitute the entire agreement between the Company and you
with respect to the subject matter hereof, and supersede all previous communications,
understandings and agreements (whether verbal or written) between the Company and you regarding the
subject matter hereof. To the extent that there is any conflict between the provisions of this
Letter Agreement, the Employment Agreement and any Stock Option Agreements between you and the
Company, the following provisions shall apply:

 

 

	 	(i)	 	If the conflict is with respect to an event, entitlement or obligation in the
event of a Change of Control, the provisions of this Letter Agreement shall govern
(unless you elect to have those terms in the Employment Agreement apply).
	 
	 	(ii)	 	If the conflict is with respect to an entitlement or obligation with respect
to stock options of the Company, the provisions of the Stock Option Agreements shall
govern (unless you and the Company otherwise mutually agree).
	 
	 	(iii)	 	In the event of any other conflict, the provisions of the Employment
Agreement shall govern (unless you and the Company otherwise mutually agree).

3.10 Severability of Provisions. If any provision of this Letter Agreement as applied to
either party or to any circumstance should be adjudged by a court of competent jurisdiction to be
void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to
the maximum extent permissible by law):

	 	(i)	 	The application of that provision under circumstances different from those
adjudicated by the court;
	 
	 	(ii)	 	The application of any other provision of this Letter Agreement; or
	 
	 	(iii)	 	The enforceability or invalidity of this Letter Agreement as a whole.

If any provision of this Letter Agreement becomes or is deemed invalid, illegal or unenforceable in
any jurisdiction by reason of the scope, extent or duration of its coverage, then the provision
shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and
enforceable or, if the provision cannot be so amended without materially altering the intention of
the parties, then such provision shall be stricken and the remainder of this Letter Agreement shall
continue in full force and effect.

3.11 Captions. The captions appearing in this Letter Agreement have been inserted for
reference and as a matter of convenience and in no way define, limit or enlarge the scope or
meaning of this Letter Agreement or any provision.

3.12 Amendments. Any amendment to this Letter Agreement shall only be effective if the
amendment is in writing and is signed by the Company and by you.

3.13 Remedies. All rights and remedies provided pursuant to this Letter Agreement or by law
shall be cumulative, and no such right or remedy shall be exclusive of any other. A party may
pursue any one or more rights or remedies hereunder or may seek damages or specific performance in
the event of another party’s breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this Letter Agreement.

 

 

3.14 No Employment or Service Contract. Nothing in this Letter Agreement shall confer upon
you any right to continue in the employment of the Company for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Company or you, which rights are
hereby expressly reserved by each, to terminate your employment at any time in accordance with the
terms of your Employment Agreement.

     Please indicate your acceptance of the foregoing provisions of this Letter Agreement by
signing the enclosed copy of this Letter Agreement and returning it to the Company.

QLT INC.

	 	 	 	 	 
	 

	 	 	 	 
	By:

	 	/s/ Robert L. Butchofsky
	 	 
	 

	 	 	 	 
	 

	 	Robert L. Butchofsky	 	 
	 

	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 
	ACCEPTED AND AGREED TO this 31st day of May, 2006:	 	 
	 
	/s/ Peter J. O’Callaghan	 	 
	 	 	 
	Peter J. O’Callaghan

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